The Consumer Economy

US has been long chrished dream and destination to live dream for most of the part of world. Let it be jobs or top dollars earning, or even earning in dollars
means a lot for for professional / people from low currency value country.
The bigger question is, “ What drives such a big value of their currency?” .

  • Great and intelligent people
  • Favorable government
  • Infrastructure
  • Opportunity
  • High consumption
  • Export

GDP Driver

This is a matter of great brainstorming, and also a subject of finding roots of greatness, and what all can be benchmarked to prosper the global economy.

In the above graph, the real disposable income has decreased from 57.8 % in 1960 to 38.2 % in 2013. So there is a net decline of 19.6%.
On the other side expenditure has equally grown many fold almost eaten over the disposable income of the nation.
It can be easily estimated as a basic analysis that, income of the people in comparison of the consumption has not increased at all.
There is hardly marginal saving of 2 % in last 53 years.

GDP Driver Chart

SO, it looks like based on the inferences on data, that the disposal income and expenditure is driving the GDP. But the great question remain partially answered, HOW USA is driving high dollar value.
But looking at data above, there is only 3.8% of increase in Export, whereas Import increased by 4.6%, so there is net import of (4.6% – 3.8%) i.e. .8%. The increase in saving (or, more accurately, of saving relative to investment) is a necessary condition for reducing the trade deficit but it is not sufficient. Households and businesses in the United States and abroad must be
given an incentive to spend more on American made goods and services and less on the goods and services made elsewhere in the world. That incentive, of course,
is a change in the relative prices of American and foreign goods and services. Whenever, income is negative and expenditure remain same or increasing, the personal debt takes a rise.
Investment from abroad is the major source, which keeps the interest rate in control, even if demand for the debt as a loan or credit card is high.
If the dollar falls while the saving rate remains very low, the increase in net exports will cause a rise in interest rates and a decline of fixed investment and
Other interest sensitive forms of spending. This narrowly focused decline of demand would be more destabilizing to the economy than a rise in net export balanced by a broad-based decline in consumption.

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