Foreclosure Crisis Leads To Introspection on American Economy

The raging foreclosure crisis that has had a snowballing effect not only on Wall Street but on the global markets also has led to a lot of introspection on American economy. Experts and analysts are hammer and tong with their various theories.

The question that arises first is whether the foreclosure crisis is the symptom or the indirect cause and not the root cause. Is there something behind more grave than the outburst of the foreclosure crisis?

One view that has been put forward is that from the trend of the American economy saving has been made out to be a sin and spending a virtue. It is this that led to the splurging in the sub-prime market that was followed by the catastrophic foreclosure crisis.

The Japanese save more than they spend. Japan’s exports are more than the country’s imports. It has a yearly surplus in trade of more than $100 billions. Yet pundits say that the economy is weak and on the point of collapsing.

On the other side of the Pacific the Americans hardly save and mainly spend. The imports of USA are greater than its exports and it has a yearly trade shortfall of $400 billion. Yet one is made to believe that the economy of American is strong and can be relied upon to get even stronger.

Here the question is – from where does the money for spending get in American pockets? It’s simple. They live on a credit culture and so they borrow. America borrows from Japan, China and even India. This means the other countries are saving so that America can splurge. The international savings are primarily invested in America in the form of dollars. India and China have foreign currency deposits in US securities worth $50 billion and $160 billions respectively. The stake of Japan in US securities runs into trillions.

The word ‘securities’ will immediately link with the dreaded word ‘foreclosure’ that is the most used word in America and the globe today.

The net outcome is that USA has taken more than $5 trillion from the global market. The world saves frantically to enable Americans to indulge in a spending frenzy. To keep USA from continuing with this gobbling the other nations have to send $180 billion per quarter. It calculates to $2 billion per day! The argument is that the American economy has to keep going on and on. If not it will collapse and pull down the others with it.

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