Will US Economy Recover in 2012?
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Will US Economy Recover in 2012?
Will US Economy Recover in 2012?
Reuter confident of American economy
I read a newspaper report written by Reuters News Agency that the US economy is gaining momentum and that it should push through 2012 with only a few bruises despite an almost sure European recession and slower global growth. Fine, it if happens, Americans and Indians will be happy because Indians consider USA as their second home.
Lungs, kidneys and heart not functioning, otherwise the patient is quite well
But I also remember a person enquiring about a patient to a doctor who was attending on him. The doctor replied,”Well, the patient is suffering from a kidney failure, his heart is not functioning properly and fluid has formed in both his lungs. But he is doing fine”. The Reuter report is akin to the above doctor’s statement. The first and foremost question that comes to everybody’s mind is whether American economy is doing well to justify such optimism.
Political animosity hits the economic measures
With fourteen million Americans unemployed and the debt crisis temporarily solved only in the last minute by some temporary arrangement between the Republican diehards and the democrats, little is there to cheer for the American economy. Then, the democrats and the Republicans have been clashing in each and everything that matters. President Obama introduced a $444 billion package to create jobs but the Republicans opposed it tooth and nail. Obama wants to tax the rich but the Republicans are dead against it. Obama wants to raise the tax level for the companies but the Republicans want to reduce it. Obama wants to reduce the fiscal deficit but the Republicans oppose it tooth and nail.
American public are really to blame
But the above political differences and clashes are not the true reason for the ailment and weakening of the American economy. More than the Republican Party or Democratic Party or President Obama or Ben Bernanke or the erstwhile Alan Greenspan, the American people are responsible for the state of mess they have landed in. American people are responsible? Really? How?
You don’t need a Harvard degree to know this basic economic theory
For economic prosperity, one has to live within one’s income or increase one’s income to more than one’s expenditure. Those who cannot do the second suggestion should do the first. But if one does neither, one lands in deep trouble. For this, a PhD in economics from Harvard University is not needed. A bakery owner or a rickshaw puller will teach you this elementary economics. But somehow nobody taught this basic economic principle to the American public. As a result, American people have been living luxurious life beyond their means through borrowed money. Every American has at least five or six credit cards. These cards are liberally used for buying luxury items. Even for essential items, American people borrow. Daily the American people borrow more than Indian Rupees ten thousand crore or Indian Rupees one lakh million or Indian Rupees hundred thousand million or $2000 million or $2 billion. My figures have been taken several years back from an article written by Gurumurthy in the Tamil magazine Thughlak. Today it would have increased much more.
Americans have no savings
Another most important thing for prosperity is savings. It is the savings that help you to tide over a crisis and to manage unexpected expenses in life. But when have the Americans saved last? One doesn’t remember but if my memory is correct American savings stopped with Ronald Reagan assuming office. Asians have savings habit. Particularly Indians, Chinese and Japanese save a lot for their future and for the future of their children. Americans were also saving till the seventies. But in eighties they stopped savings and spent their entire income on goods and services to enjoy life. In the nineties, the vice of borrowing to spend originated. Alan Greenspan should be given credit for this as he firmly advocated spending to boost the economy.
Theory was right, its implementation was wrong
In theory, Alan Greenspan was correct. Any spending will create demand and demand creates jobs. This is the basic Keynesian economics. Thus it was a valid theory. Where did Alan Greenspan and the American people go wrong? The theory is valid in economics only if spending is done out of one’s income. If spending is done out of borrowed money, the theory will not only not work, but will prove counterproductive. This is what had happened to the American economy and the public. In India the former Finance Minister P Chidambaram tried to advocate Alan Greenspan’s policy for the Indian society also but fortunately there were no takers as borrowing beyond one’s means was against Indian culture.
USA has sunk in debt to the point of no return
Now I think one can understand the root cause of the malady of the US economy. When the US citizens borrowed heavily and did not save any amount (with the exception of the Indians and Chinese in USA), the nation also sank in debt. America sank in debt to the point of no return. Today America is reaping the sins it committed for the last twenty years by abandoning all prudence in economic management. Therefore the American people are responsible for the malady of the US economy.
Stock market investment is not savings
There is a big difference between Indians and Americans in their attitude towards stock market. Americans invested heavily in their stock markets and burned not only their fingers but their hands also. Indians invested their money in bank fixed deposits and post office savings. Only a small percentage of Indians opted for the stock market. Even this small percentage of people invested only a portion of their savings in the stock market. When the American stock market indices rose, Americans did not realise any profits out of it. On the other hand the banks and financial institutions in America advanced more money to the Americans on the increased price of the shares they had pledged. This extra money borrowed was also spent on luxury goods and services.
Americans are weak in their family foundation
Unlike the Indians, Chinese and the Japanese, Americans are also weak in their family foundation. It is the family that makes one responsible to save and spend prudently. The future of the children is a concern for the parents. Americans were also leading a healthy family life till the sixties. In the sixties the pop and hippie culture spread, eroding strongly ingrained family values. But many Americans ignored this trend and continued to live in a conservative fashion. But the eighties and nineties took a heavy toll of the American family life. Today hardly 50% of the Americans lead a happy family life. The rest of them have no family roots and are simply wanderers.
Huge savings of people help the government also
A strong family base makes Indians to save substantially. Indians, Chinese and Japanese save as much as 30% of their income. This substantial savings comes to the assistance of their governments to manage the affairs of the country. American government does not have this fallback because of absence of savings from its citizens. Worse still, the government has to spend a lot towards social security schemes and medical aid to its citizens. In India, medical expenses are managed by the family themselves. Only small portions of the people have taken medical insurance for their families.
If USA falls, the rest of the world also falls
To sum up, American economic foundation is very weak and cannot last long. Any time the entire economy may collapse. Only two things sustain American economy and American way of life. First thing is that other nations of the world are intractably intertwined with the American economy. All their trade transactions with America and with each other are done in American currency dollar. This has created a situation such that if USA falls, the rest of the countries also fall. In fact the fall by other countries may be much harsher than that of USA. This has created a situation in which other nations are forced to help USA. In other words, the rest of the world is prepared to lend to Americans whatever money they need.
China would have crushed India, Taiwan and Myanmar but for USA
Secondly, America is a militarily strong nation and it has the technology also. America can destroy any country through its military might and it is the only superpower in the world. All the other countries either want America’s friendship or at least want to avoid enmity with USA. Even Iran is afraid of USA. North Korea is also afraid of USA. China hesitates to attack India because of its fear of America. Twenty years back, USSR existed to match America’s might. Europe was also divided into Western and Eastern Blocks. After the collapse of USSR and the Berlin Wall, the ideological divide has faded into oblivion. The situation has left the world in a position such that America dictates its terms and achieves it at its will. America bombed Afghanistan and killed one million people. It captured Iraq and hanged Saddam Hussein. It liberated Kuwait which was captured by Saddam Hussein. Today America participated in the East Asian forum and voiced its opinion (read dictate) that China cannot claim sovereignty over the South China Sea. India is antagonizing China by exploring oil in the South China Sea only because of the American support. Otherwise China would have crushed India with is Red Army. But for America, China would have swallowed and digested Taiwan and Myanmar. This military might of America helps it to survive any economic crisis that it encounters.
Leaning tower of Pisa will never fall
To sum up, American economy resembles like the leaning tower of Pisa. Everybody speculates when the tower will fall, but it never falls. American economy seems to reach one crisis after another, but it recovers and passes on to the next crisis. As long as the American might is not challenged, Americans can continue to live a luxurious life with borrowed money. Only China seems to be capable of challenging American supremacy in the world today. At the present growth rate, China will overtake USA both economically and militarily and will be the number one superpower in about a decade’s time. Before that USA should strive to break China by hook or crook. For this it needs India’s help.
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