Reader Comment of the Day

The way US has been spending more than producing over the years, and its believe that it leads to more prosperity as well as help fighting depression is something which may be illusive. While spending as a Keynesian tool may have the popular so called multiplier effect, but its impact may be felt significantly only for a short term, and it seems to compromise on the long-term interest of the American economy. Take the case when Fed made available cheap loans to boost consumption. This made Americans import more, making their currency less competitive vis-à-vis exporting countries. If the same loans could have been utilized in investment in long-term economic projects, it would have given Americans a solid base, and the so called recession in America as well its adverse global impact would not have had arose in the first place.

Money makes money. This has been the point of strength for USA for decades. If now relative underdogs like China and India are growing, USA should have grown more. But thanks to its culture of spending more than producing, it is gradually losing its economic superiority.

One reason why spending stimulus package worked so well post 1929 depression may be that significant products that were consumed then were produced within USA itself, leading to rise in production numbers. But today, American consumers will be consuming products made outside USA in larger proportion, making the gains of stimulus package spiraling over to exporting countries at the cost of making US currency weaker, and thereby compromising on its economic prowess.

After all, one needs a powerful self fulfilling source of energy to make that organ viable. Spending more energy than producing will make it shallow. If energy comes from borrowing from other organs, you lose your competitive strength against the lender. I am sure policy makers in USA have in their agenda to maintain that economic dominance, which over the years has made it a superpower in true form.

Rajeev Bagra 12:47AM January 14, 2009