Americans spend a lot - and save little. Also, the US imports more than it exports. It has an annual trade deficit of over US$400 billion. Yet, the American economy is considered strong and trusted to get stronger.

But from where do Americans get money to spend? They borrow from Japan, China and even India. Virtually all others save - for the US to spend. Global savings are mostly invested in the US, in dollars.

India itself keeps its foreign currency assets of over US$50 billion in US securities. China has sunk over US$160 billion in US securities. Japan's stake in US securities is in the trillions!

The result: The US has taken over US$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 US$180 billion every quarter, which is US$2 billion a day, to the US!

A Chinese economist asked a neat question. Who has invested more, US in China, or China in the US? The US has invested in China less than half of what China has invested in the US.

The same is the case with India. India has invested over US$50 billion in the US. But the US has invested less than US$20 billion in India.

Noted and richest Indian industrialist, the late Mr Dhirubhai Ambani, once said that the government of India is naive (read fools) to park all the foreign currency reserves in the US at very meagre interest, really pittance, and then borrow from them paying higher interest!

Why is the world after the US?

The secret lies in the American spending - that they hardly save. In fact, they use credit cards to spend future income. That the US spends is what makes it attractive to export to the US. So the 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 again and again. The US is like that 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 itself, 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 US$1.2 trillion, 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 Prime Minister 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. This is one of the reasons for MNCs coming down to India, seeing the consumer spending.

But before you follow this neo economics, get some fools to save so that you can borrow from them and spend!

A. Dharma Perumal