Thursday, March 28, 2024

Top 5 This Week

spot_img

Related Posts

Gotta give the Americans credit

In the hurly-burly of the recently concluded elections on both sides of the 49th parallel there was little attempt by politicians and the media to explain our responsibility, as free people in democracies, in the making of the economic crisis that has hit us smack in our collective forehead.

We have known, or should have known, that neither an individual nor a nation can sustain an excessively rich lifestyle indefinitely without taking timely corrective measures to avoid the predictable breakdown of such a lifestyle.

North America over the past two decades has been characterized by excessive consumption pushed by relatively easy credit. In the same period the personal savings rate – which can equate to disposable income – declined from 13% in Canada and 7% in the U.S. to around 1% and zero respectively in 2005.

Consumption on credit or borrowed money meant, in part, living on the savings of others. It is an irony that the lifestyle of the rich in North America, particularly the U.S., has been financed by poor people in the developing world.

During the past decade the U.S. has borrowed abroad annually almost $1 trillion, and much of this borrowing has gone to import consumer goods and purchase homes at low interest rates.

The ultimate irrationality of consumption through increased borrowing was exposed in the debacle of subprime mortgage lending. It created the U.S. real estate bubble which burst, throwing the American banking/financial industry into jeopardy and with it much of the interdependent global economy.

The flip side of the U.S. consumption-based lifestyle on easy credit availability led to the remarkable and unprecedented growth of manufacturing based on cheap labour in developing countries, particularly China. Recession in the North American economy with decline in the demand of consumer goods will have a devastating effect on export-driven economies of developing countries.

The U.S. economy cannot recover unless there is substantial growth in the personal savings rate. The contraction of the U.S. economy, however, is a disincentive for savings.

The remedy lies in the orderly adjustment in the basic imbalance of the U.S. economy and the world together easing existing restrictions in international trade.

The U.S. recovery – it will also push Canada’s recovery – will require increase of exports over imports, of selling U.S. goods and services to buyers elsewhere.

Who are these potential buyers? A quick global survey indicates more than half the world’s population is located in China, India and along the eastern half of the Pacific Ocean.

The U.S. remains the global leader in science and technology. China has emerged as a leading creditor nation by building huge trade surpluses.

These developing Asian societies need new technology that America readily can provide, and their capital liquidity can assist America restructure its economy while providing incentive for domestic savings.

A creative U.S.-China partnership – and broadening it to include India with neighbouring Asian countries – is essential for the recovery from current crisis and devising the new ground rules for the 21st century global economy.

This partnership can make for a stronger and richer global economy while generating more sustainable demand.

A crisis can be an opportunity for renewal. The world watches anxiously to see if Washington and Beijing will together meet the challenge, or by faltering let the crisis deepen.

Salim Mansur
Latest posts by Salim Mansur (see all)

Popular Articles