BSEIndia: All Stock Market News: $$ DreamGains !! $$ Saving Is Sin, Spending Is Virtue

Thursday, December 27, 2007

$$ DreamGains !! $$ Saving Is Sin, Spending Is Virtue

      "SAVING IS SIN, SPENDING IS VIRTUE" - Jagdish N Bhagwati

      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 billion.
      Yet Japanese economy is considered weak, even collapsing. Americans
      spend, save little. Also US import 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 billion 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 its pain.

      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.

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

      Professor Jagdish N Bhagwati