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September 15, 2008
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On that fateful day
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Why the cookie crumbled.
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Case study
United States of America[ A few excerps from the movie I.O.U.S.A. ]
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From the time it began at the close of2008, through the chilly winter of early 2009
and as the first rays of revival shone at the
end of the dark tunnel towards the end of2009, they have been in a denial mode
they have dreaded to use the word
recession.
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At the start they called it the financial
crisis; as the crisis deepened and financial
turned into real, they called it the slowdown;
and as their hopes touched the rock bottom,
they called it the downturn.
And then, they have begun to talk of the
revival.
But at no point they have had the
courage to grapple with the truth.
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The truth is
It is more than a recession.
It is a continental shift.
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It is the beginning of a rapid shift ofeconomic power out of US and Europe.
The shift began long ago; it was gradual
and not very obvious to the casual eye.Now the cleavage is sharp and the
movement drastic.
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It was bound to happen.
In the ultimate analysis, the global
economic power rests in the relationbetween what you owe to the world and what
the world owes you.
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Post industrial revolution Europeproduced what the rest of the world wanted;
as a result, the rest of the world perennially
depended on Europe.
And the rest of the world owed Europe
for its overwhelming imports. Pound sterling
therefore was the reigning currency.
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The rise of US was fueled by its vast
and diverse natural resources, its
entrepreneurial ingenuity and its scientific
endeavour.
But, with growth came affluence. And
affluence sapped the very frontierspiritthat
had powered its ascent to the top.
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Soon, it lost out in competition to more
hard working nations like Germany andJapan the very nations it had sought to
destroy.
And the super sized manufacturing
machine that US created could not be kept
running by just the home demand. So USventured out on
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well, all the worlds demand could
not keep that machine running ! How muchcould the poor world buy from US ?
So US ventured out on wars. Wars afterwars to keep the machine running.
But wars cost by way of materials,men and morale.
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And there begins the story of the
downturnof US.
That is the beginning of the recession.
With US, all those nations, in Europe and
elsewhere who tied themselves to the nappy
strings of US, began the countdown for the
fall.
That is the story that the movie IOUSA
relates.
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The downturn of US can be summed upin THREE deficits
budget deficit
trade deficit
savings deficit
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budget deficit
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Deficit is bad enough; but the fact that
this deficit has been financed largely throughdebt, is what makes it worse.
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The outstanding public debt as at
11:29:42 AM GMT, 21stFebruary 2010 is:
The estimated population of the US
is 307,879,465; so each citizen's share of
this debt is $40,312.52.
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Worse still is the fact that a good part of
this is external debt.
Owed to
Japan 21%
People's Republic of China 21%
United Kingdom 8%
Oil exporters 5%
Cari bbean banking entr es 5%
Brazil 4%
Hong Kong 4%
Russia 3%
Luxembourg 3%
Taiwan R.O.C. 2%
Al l other 22%
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That table is indicative of two things :
~the debtorstatus of US vis--visthe rest of the world;
~how far the seismic shocks of fallof US can reach.
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trade deficit
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As in December 2009.
Venezuela - 367%China - 215%
Italy - 109%
Japan - 94%
Germany - 73%Mexico - 44%
Taiwan - 30%
France - 26%
South Korea - 21%Canada - 16%
U K - 8%
Trade deficit as a percentage
of exports of US.
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The table we have just seen, shows to
what extent US is dependent on the rest of
the world.
The imports you cannot pay for with
your exports, leave behind a debt. And that
is how US has been piling up debt with its
major trade partners IOUs that have to
be redeemed some day or go bankrupt !
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savings deficit
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Savings are necessary for capital
formation; if you do not save, you have to
borrow. And that is what US has been doingfor so long; adding further to its burden of
external debt.
How long how much ?
The three deficits have together
brought US to the brink of bankruptcy.
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And with it all those who depended on
the crumbs that fell from the US table in itsdays of glory.
Sun has set on Dubai.
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When the global financial
crisis struck, Greece was badly
prepared after years of profligacy
and failing to rein in its spiralling
public debt. Government debt
was worth more than a full year's
output in 2009, and is expected tobe 120% of GDP this year.
The crisis could push up the
cost of borrowing for other states with
large deficits, including the UK, where
the annual budget shortfall this year of
12% of GDP is only a shade short of
Greece's 12.7%.
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New investment opportunities.
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A Tensing Rodrigues Production
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