Economic Thoughts

ASIAN SURVIVAL WITHOUT AMERICAN APPETITE
It is very common to describe the American economy as the growth engine for the world
economy. However, It is fair to assume that it is actually the brake wagon tied at the end of the
world economic train. The American dollar is actually a fiat currency with insufficient backing in
terms of gold or any other tradable commodity and rest purely on the faith and credit of the
American government. All they have is essentially a printing press which is working overtime this
season to print dollars. Americans constitute roughly 5% of the world’s population and consume
25% of products. I believe it is their printing press that has allowed such obscene consumption.
Combined with the trust of the Asian governments in their paper which leads to many countries
building up huge foreign exchange reserves nominated in American dollars. Why do we have to
depend on the American consumer with these worthless paper dollars? Why can’t we have
domestic consumption which improves our own living standard rather than that of gluttonous
Americans? We have a large population here in Asia which is perfectly capable of consuming.
What we are doing right now is working as hard as we can to feed the American Consumer? An
economic expert would say that American economy is driving world economy as it is providing
the all important consumption, but here I would like to ask if it is prudent for us to keep selling
them goods and services and keep building up huge foreign exchange reserves in their currency
which can get hugely devalued.
I can predict that sooner or later the dollar is going to get
devalued, based on the fact that the total American debt is about 10 trillion dollars and some day
this debt will become due. Americans have borrowed this money to consume Asian products
which they could not afford instead of using it for productive activity such as building up new
factories or production centers. When Asian countries are faced with a dollar shortage they are
forced to devalue. The recent devaluation of Korean won is essentially due to the dollar shortage
in the market. However, when America runs out of American dollar it prints more, and takes on
more debt. The Federal Reserve has no oversight of the US congress and is fairly independent. It
has the power to increase or decrease the dollar supply in the market. American economy is a
credit economy and credit is vastly used to pay for voracious consumption. Maxing out on a
credit card is a normal, and indulgence on credit is encouraged. When goods are consumed on
credit, it can only lead to reduced future consumption or credit should be repaid with grossly
enhanced future income. Once the world realizes that Americans are not capable of paying their
debts in form of tangible assets and printing paper money to pay off, there will most certainly be
a huge decline in the value of the dollar.
We need to have a firm belief in the principle of free
markets. However, due to recent governmental interventions the market is not free any more. The
American government is buying up toxic assets with tax payer money without a mandate to do so
from the tax payer. They are trying to re-inflate the bubbles which burst recently. This can cause
even bigger bubbles in not so distant future. I think it is legitimate to let the market decide the
fair value of an asset, company or Currency. But the governmental interventions do not allow the
discovery of a fair price. This encourages bad behavior and does not reward better managed
companies. This is indicated by the recent bailout of American Automakers. Had the government
not bailed out these private companies with inefficient management, then at the right price a
private buyer either American or foreign would have come in and taken over the management
and brought in the much needed productivity and efficiency. This kind of intervention shakes our
belief in the free market system.
Another area of concern is the rising unemployment in Asia due to
loss of the great American appetite. I suggest that a longer term solution for the present crisis
would be to reduce or eliminate our dependence on the American consumer and currency. We
need to promote regional trade and start to believe in each other’s economies and currency. We
need to find ways to stimulate domestic consumption of goods. We need to reduce our
dependence on American controlled Middle Eastern oil and American technology. Instead we
should promote innovation in renewable sources of energy and move towards self reliance. There
is no need to depend on the American printing press to provide us paper to trade with our
neighbors.