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, the Japanese economy is considered weak, even collapsing. (Comment: The Japanese economy is in a recession for the last three quarters of 2004.)
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. (Comment: While the US has indeed received over $5 trillion in non-resident saving, this is not "taken by the US" but freely invested by foreign investors who want to invest in primarily US treasury bills. Since no one forced these investors to do what they did with they savings, it has to be assumed that they were made because the investors did not believe they had better alternatives! As long as the US is in the situation where "everyone" believes the US is
a safe place to invest then it is a safe place to invest. The big question is if at some point foreign
investors lose faith in the strength of the US economy. Once the world loses faith in the strength of the US economy then "everyone" will try to sell their US securities and the US$ could easily collapse and we will all be in deep trouble.) So, as the world saves for the US, the 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, the US in China, or China in The US? Answer: The US has invested in China less than half of what China has invested in US. The same is the true for India. We [India] have invested over $50 billion in the US. 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 is Japan which is regarded as weak. Modern economists complain that the Japanese do not spend, so they do not grow. To force the Japanese to spend, the Japanese government have exerted it self, reduced the interest rates on savings, 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 its pain.
Hence, what is the lesson?
That a nation cannot grow unless the people spend, not save. Not just spend, but borrow to finance their spending.
(Comment: It is clear the domestic investment in real assets in the US is significant and a key question then is if the non-resident saving is greater or smaller than this real investment. There is nothing wrong with borrowing to finance investments, provided, of course, that the investments that are being financed yield a higher return than the interest paid on the loans! While US households do not save significantly and, therefore, is not a significant source of funds for financing investments, it is then
not obvious that using foreign sources of funds is a bad thing. Strictly speaking the US households do earn enough income to pay for their consumption (the saving rate is about .01) It is clear, however, that the Federal Government has a significant deficit – i.e. spending in excess of tax revenues, and that deficit has to be financed out of Gross Domestic Saving (incl. non-resident saving.). The key point here is that we know for a fact that, as a mater of definitions, gross domestic saving (incl. non-resident
saving) is identical equal to domestic real investment. What we cannot do is trace where individual dollars saved are being used – e.g. either to finance private or public domestic investment or the deficit on the Federal budget.)
Unknown Source, Unknown Date
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. (Comment: While the US has indeed received over $5 trillion in non-resident saving, this is not "taken by the US" but freely invested by foreign investors who want to invest in primarily US treasury bills. Since no one forced these investors to do what they did with they savings, it has to be assumed that they were made because the investors did not believe they had better alternatives! As long as the US is in the situation where "everyone" believes the US is
a safe place to invest then it is a safe place to invest. The big question is if at some point foreign
investors lose faith in the strength of the US economy. Once the world loses faith in the strength of the US economy then "everyone" will try to sell their US securities and the US$ could easily collapse and we will all be in deep trouble.) So, as the world saves for the US, the 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, the US in China, or China in The US? Answer: The US has invested in China less than half of what China has invested in US. The same is the true for India. We [India] have invested over $50 billion in the US. 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 is Japan which is regarded as weak. Modern economists complain that the Japanese do not spend, so they do not grow. To force the Japanese to spend, the Japanese government have exerted it self, reduced the interest rates on savings, 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 its pain.
Hence, what is the lesson?
That a nation cannot grow unless the people spend, not save. Not just spend, but borrow to finance their spending.
(Comment: It is clear the domestic investment in real assets in the US is significant and a key question then is if the non-resident saving is greater or smaller than this real investment. There is nothing wrong with borrowing to finance investments, provided, of course, that the investments that are being financed yield a higher return than the interest paid on the loans! While US households do not save significantly and, therefore, is not a significant source of funds for financing investments, it is then
not obvious that using foreign sources of funds is a bad thing. Strictly speaking the US households do earn enough income to pay for their consumption (the saving rate is about .01) It is clear, however, that the Federal Government has a significant deficit – i.e. spending in excess of tax revenues, and that deficit has to be financed out of Gross Domestic Saving (incl. non-resident saving.). The key point here is that we know for a fact that, as a mater of definitions, gross domestic saving (incl. non-resident
saving) is identical equal to domestic real investment. What we cannot do is trace where individual dollars saved are being used – e.g. either to finance private or public domestic investment or the deficit on the Federal budget.)
Unknown Source, Unknown Date
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