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By Jagdish Natwarlal Bhagwati

The Japanese save a lot. They do not spend much. Also, Japan exports far more than it imports. It has an annual trade surplus of over US$100 billion. Yet the Japanese economy is considered weak, even collapsing. Americans spend a lot and save very little. Also United States of America (USA) imports more than it exports. USA has an annual trade deficit of over $400 billion. Yet, the USA economy is considered strong and expected to get stronger.

But where do Americans get money to spend? They borrow from other countries like Japan, China and even India. Virtually others of the world have to save for the Americans to spend. Global savings are mostly invested in USA, in dollars. India itself keeps its foreign currency assets of over $50 billion in US securities. China has sunk over $1.1 trillion in US securities. Japan’s stakes in US securities is in trillions.


The USA has taken over $5 trillion from the world. So, as the world saves for the USA – It is the Americans who are spending freely. Today, to keep the USA consumption going, that is for the USA economy to work, other countries have to remit $180 billion every quarter to the USA, which is $2 billion a day, to the USA! A Chinese economist asked a neat question. Who has invested more, USA in China, or China in USA? The US has invested in China less than half of what China has invested in the USA. The same is the case with India. India has invested over $50 billion in the US. But the US has invested less than $20 billion in India.

Why is the world after USA?

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

The result:

The world is dependent on USA consumption for its growth. By its deepening culture of consumption, the USA has habituated the world to feed on USA consumption. But as the USA needs money to finance its consumption, the world provides the money. It is 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 and China of course. Yet Japan is regarded as weak economically.  Modern economists complain that Japanese do not spend, so they do not grow. To force the Japanese to spend, the Japanese government exerted itself, reduced the savings interest rates to almost zero, even charged savers for keeping their money in the bank. Still the Japanese did not spend (habits don’t change, even with taxes, do they?). Their traditional postal savings alone has over $1.2 trillion. Thus, savings, far from being the strength of Japan, has become its pain.

Hence, what is the lesson learnt?

That is, a nation cannot grow unless the people spend, not save. Not just spend, but borrow and spend.

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