ECONOMICS FOR DUMMIES

"VALUE HAS A VALUE ONLY IF ITS VALUE IS VALUED BY YOU"

SAVING IS SIN, SPENDING IS VIRTUE" - Written by an Indian Economist

Japanese save a lot. They do not spend much. Also Japan exports far more
than it imports. Has an annual trade surplus of over $100 billions. Yet
Japanese economy is considered weak, even collapsing.

Americans spend, save little. Also US imports more than it exports. Has an
annual trade deficit of over $400 billion. Yet, the American economy is
considered strong and trusted to get stronger.

But where from do Americans get money to spend?
They borrow from Japan, China and even India. Virtually others save for the
US to spend. Global savings are mostly invested in US, in dollars. India
itself keeps its foreign currency assets of over $50 billions in US
securities. China has sunk over $160 billion in US securities. Japan's
stakes in US securities is in trillions.

Result:
The US has taken over $5 trillion from the world. So, as the world saves for
the US, Americans spend freely. Today, to keep the US consumption going,
that is for the US economy to work, other countries have to remit $180
billion every quarter, which is $2 billion a day, to the US! Otherwise the
US economy would go for a six. So will the global economy. The result will
be no different if US consumers begin consuming less.

A Chinese economist asked a neat question. Who has invested more, US in
China, or China in US? The US has invested in China less than half of what
China has invested in US. The same is the case with India. We have invested
in US over $50 billion. But the US has invested less than $20
billion in India.

Why the world is after US?
The secret lies in the American spending, that they hardly save. In fact
they use their credit cards to spend their future income. That the US spends
is what makes it attractive to export to the US. So US imports more than
what it exports year after year.

The result:
The world is dependent on US consumption for its growth. By its deepening
culture of consumption, the US has habituated the world to feed on US
consumption. But as the US needs money to finance its consumption, the world
provides the money. It's like a shopkeeper providing the money to a customer
so that the customer keeps buying from the shop. If the customer will not
buy, the shop won't have business, unless the shopkeeper funds him. The US
is like the lucky customer. And the world is like the helpless shopkeeper
financier.

Who is America's biggest shopkeeper financier?
Japan of course. Yet it's Japan which is regarded as weak. Modern economists
complain that Japanese do not spend, so they do not grow. To force the
Japanese to spend, the Japanese government exerted it self, reduced the
savings rates, even charged the savers. Even then the Japanese did not spend
(habits don't change, even with taxes, do they?). Their traditional postal
savings alone is over$1.2 trillions, about three times the Indian GDP. Thus,
savings, far from being the strength of Japan, has become itspain.

Hence, what is the lesson?
That is, a nation cannot grow unless the people spend, not save. Not just
spend, but borrow and spend. Dr. Jagdish Bhagwati, the famous Indian-born
economist in the US, told Manmohan Singh that Indians wastefully save. Ask
them to spend, on imported cars and, seriously, even on cosmetics! This will
put India on a growth curve. "Saving is sin, and spending is virtue." Before
you follow this neo economics, get some fools to save so that you can borrow
from them and spend, ofcourse this will apply to the individual also.

This is what US has successfully done in last few decades.