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Tuesday, November 3, 1998 Published at 22:24 GMT


Business: The Economy

US sky-high spending lifts world economy

High spending - and low savings - have driven the US economy sky-high

The US economy has been keeping Europe and Japan afloat with its profligate spending ways. The BBC's Rodney Smith explains.

American incomes, measured as wages and salaries, rose almost 4% in the year just passed - but the same Americans have been spending at a rate of almost 7%.

Where has the difference come from? Work it out for yourself: American banks and the US stock markets.

This is a classic example of the way this part of the modern American market economy works.

Individuals earn, invest in shares (more people invest in shares in the US than anywhere else in the world) share prices rise, the investors feel good, so they (i) either borrow to buy more shares, or (ii) borrow to spend because their higher shares make them feel wealthy.

From Europe, it is easy to see Americans as profligate - big boastful spenders with all the latest new toys, computers, cars, what have you, while the rest of the world is more responsible and frugal, and saves.

But American spending is what keeps a large part of the world economy afloat.

Japanese dependence

This is never truer than in the case of Japan. If Americans stopped spending on the goods the Japanese produce, the Japanese economy would be in far worse shape than it is already.

Which makes written remarks last week by the deputy Japanese Minister of Finance, Eisuke Sakakibara, all the more alarming.

Mr Sakakibara criticised the Americans for their lack of savings, saying this would be their downfall.

He could be partly right, of course, because when the crunch comes and Wall Street turns down - as all markets do sooner or later - and the credit dries up, American spenders will lose money, and in some cases, jobs.

Big spenders wanrted

But for now, they are almost single-handedly keeping the world economy going.

Until the Japanese, or Japanese policy-makers, grasp that they are part of a bigger picture, and a wider world, and that they have a responsibility to do their bit, they risk continuing to show, as they have throughout the trials of the last year and more, that they are still shirking their global responsibility.

But if Wall Street does turn down, if recession does come to the US - and there are some alarming signals, as Dresdner Kleinwort Benson economist Julian Callow has been highlighting recently - the Japanese, and the rest of us, could have cause to rue the loss of the big American spenders.



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The Economy Contents

In this section

Inquiry into energy provider loyalty

Brown considers IMF job

Chinese imports boost US trade gap

No longer Liffe as we know it

The growing threat of internet fraud

House passes US budget

Online share dealing triples

Rate fears as sales soar

Brown's bulging war-chest

Oil reaches nine-year high

UK unemployment falls again

Trade talks deadlocked

US inflation still subdued

Insolvent firms to get breathing space

Bank considered bigger rate rise

UK pay rising 'too fast'

Utilities face tough regulation

CBI's new chief named

US stocks hit highs after rate rise

US Fed raises rates

UK inflation creeps up

Row over the national shopping basket

Military airspace to be cut

TUC warns against following US

World growth accelerates

Union merger put in doubt

Japan's tentative economic recovery

EU fraud costs millions

CBI choice 'could wreck industrial relations'

WTO hails China deal

US business eyes Chinese market

Red tape task force

Websites and widgets

Guru predicts web surge

Malaysia's economy: The Sinatra Principle

Shell secures Iranian oil deal

Irish boom draws the Welsh

China deal to boost economy

US dream scenario continues

Japan's billion dollar spending spree