Tuesday, January 8, 2013

Jumping off the cliff......

                          Many believers in the idea of "money always makes more money" seem to have made up their minds to make convincing arguments to the unenlightened that the fiscal crisis has been averted, or as they seem to be enjoying to put it in a fanciful way as they always do, that they have stayed clear of the "fiscal cliff", have they really ?, in all fairness it looks like they have jumped right off it, and whats the first thing you do when you jump off a cliff "you close your eyes". The recent deal which has paved the way for the american government to tax the income of the super rich seems nothing like even scratching the surface, the total debt is lurking at around $ 17 trillion , this measure only aims at putting in some $ 600 billion into the coffers over a decade and what good is that ?, and more so the spending has been left nearly to its own accord and nothing much has been done to keep it under leash at the present rate over a decade the American government would have incurred an additional $ 8 trillion in debt. One doesn't have to be a qualified economist to assimilate a picture of the state in which american economy is  and what it is to raise the taxes to support the already ballooned up spending if not bad news. The median age of US population is hovering at around 37 and there has been a steady decline in the birth rate, to state the fact the american society is aging at quite a noticeable rate, this will only put more pressure on the government in the future to keep the public spending intact or may even be forced to raise it, if that were to happen in the future this deal would seem like "fools did their part".   
               Some might argue that in a way that kind of notion about money might be right, the rich in america have to be allowed to have enough narrow as well as broad money so that the american way of wealth creation happens unhindered, for that i would say yes it might be right but not entirely, it just doesn't take money alone to create more money, money cannot in anyway help itself to make more money when in essence it cannot drive consumption anymore where it has been put to serve. If history of economics is any proof It could be stated that the power has always lied with economies which can consume more and it is very evident where its happening now, The Asian economy as a whole seems to be growing at a very steady pace while the European economy is trying its best to stay afloat, clearly the flow of finance seem's to be heading towards a tide that's bound eastwards. 

              But such an argument may not be convincing enough for a few who have already drawn a very different conclusion by  Equating the consumption pattern of the economies like India and china which were closed to the outside world in the 1970's and in the 1980's to how it consumes now after those countries opened their markets a few decades ago to substantiate their conclusion about money making more money, infact to surmise where the real power actually lies - in the west. Well to put it bluntly money doesn't make its way where it cannot multiply, The potential of an economy to consume is what makes the  capital, land and labor available in the first place. Having said that one has to remember the world today is more integrated than it was in the 1960's or 1970's, then each economy had its own unique consumption pattern and each had its own unique driving factor as far as their economies were concered, for some it was technology, for many economies it was agriculture. and where do we stand now, we are in a world which is being driven by one unique factor, the economic arrangement that makes Nairobi consume the way it does in a small scale is what makes many large economies consume the way they do in large scale, ultimately its all about the ability to consume and looks like America has  reached some kind of saturation point and it cannot keep promising the world that it has enough room to consume more, it's time to cut back.

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