Layman’s view on American financial crisis and lessons learned.

America was a large land mass full of natural resources with a very hard working population at the beginning of twentieth century. A majority of the population was farmers and in most families all members contributed their labor in family farms. The culture of this population had many positive attributes such as hard work, thrift and saving the surplus whenever possible. The honest hard work of large farming communities slowly developed simple techniques that increased their productivity leaving production surpluses that retained as savings. Many family farms that produced little more than the family requirements started to produce more using the developing techniques while reducing labor utility. The children that were spared from contributing labor in family farms received education in a wide spectrum of fields including pure sciences, engineering, economics, social sciences and medicine. This young and educated joined the emerging American industries and made America almost number one in all fronts by the middle of twentieth century. A country with a majority of population lived by farming became an industrialized nation reducing its farming community below 5 % of the population. The agricultural production out put of the 5% could feed the balance 95% and also could export a substantial volume of food produce. The large population that did not contributed their labor in farms started to contribute as builders, factory workers, managers, scientists, engineers, entertainers, writers, poets and the list is endless. The Americans produced large aircraft carriers, fighter planes, submarines, nuclear bombs etc in very large quantities to fight the armies of Hitler. This upward move of the American society leading the world economically, socially and technologically was sustained, controlled and maintained by the old American culture which valued honesty, hard work and thrift.

America became a promised land after successful defeat of Nazi and Japanese invasions by the allied forces. It became a land of opportunities for those who worked hard. The freedom, equal opportunity, educated human resource, natural resources, technology etc made a very stable country despite the cold war. The economical and social stability of post world war II America automatically strengthened its currency slowly outsmarting the British sterling pound. Finally, the US dollar was accepted as the world trading currency outmaneuvering the British sterling pound in international trading.

The Japanese also continued its industrial phase behind the Americans and slowly secured its global economic position as the second largest in the world. Japanese people worked much harder than Americans without gifted natural resources and dominated many industries such as consumer electronics, vehicles, industrial machinery, ship building, locomotives, construction etc. But it’s extremely conservative culture remained strong despite the earned riches. The Japanese culture influenced mainly by the Buddhism dates back to couple of millenniums. The strength of its culture against the change is extremely high due to the continued existence as an independent nation governed by a monarchy. Many powerful traits embedded in the Japanese culture includes family centered communities, loyalty, hard work, modesty, politeness, respect for women, children and elders, thrift and practice of many forms of arts. Even though all these traits contribute to the social stability, modesty and thrift of Japanese culture is outstandingly visible and contributes directly to economic development. Japanese housing is very special and may be the modest among the rich. In many houses, sitting room during the day time converts to a bed room in the night. Inmates sit on the floor and food is served on to a short table. Never serve more than the requirement that go waste. The ratio of per capita earnings against the consumption is the highest in the world. The conventional lifestyles governed by Japanese culture produce like bees, but consume like ants and save trillions in USD as surpluses in international trading. Most of these surpluses were invested in America considering its emerging opportunities, social and economic stability.

Another economic phenomenon is taking place in the Middle East. America is carrying out strategic maneuvers in the Middle Eastern sector to get the maximum utility of the massive petroleum reserves in the area and also to amass the riches generated in the area by petroleum sales to rest of the world.” In nearly three decades since the oil embargo of 1973, the United States had bought hundreds of billions of dollars of oil at reasonable prices. During the same period, they had purchased hundreds of billions of dollars of weapons from the United States. Middle Eastern monarchs, who became billionaires many times over, invested trillions of USD in US equity markets becoming major players. They banked with Citigroup and invested with Goldman Sachs and Merrill Lynch – HOUSE of BUSH, HOUSE of SAUD by Craig Unger”. The passion of the oil rich in the Middle East is to lavishly spend their petro dollars in purchasing sprawling properties, buying designer clothes, pursuing education, buying American limos and investing in large American banking conglomerates. The American glamour tied with icons Disney, Hard Rock café, Snapple, Porsche etc and lavish and glamorous lifestyles attracts trillions of Middle Eastern petro dollars to the American soil.

Over the years, the Americans received many trillions of dollars from Japan mainly as investments deposited in American banks. Other trillions of Middle Eastern petro dollars were also flowed as investments and as spending to purchase American glamour which made Americans very rich. This continued inflow of riches from outside unconsciously attacked the social value system that sustained the pre world war American society. The hard working American population slowly started to assume the well dressed corporate executive role and started to operate through lavish office compounds. Most of the hands on production work were slowly palmed over to other countries. Americans pursued more glamour in their lifestyles. They receive enormous salaries as remuneration for their corporate executive role. This promoted less work and more glamour. The American population who unconsciously took the reigns of managing a huge portfolio of hard earned Japanese investments and Middle Eastern petrodollars did not realize that they started to spend much more than they earned through their speculative businesses. Enormous gas – guzzling luxurious vehicles became ubiquitous on US highways. Spacious, luxurious and energy consuming American households became the icons of American neighborhoods. Lavish and uncontrolled spending became the order of American life. A large portion of foods and beverages served on American dining tables started to go waste after every meal. Funding large international bodies, International policing, glamour, overseas travelling, paying of largest salaries, staying away from consumer goods production and ultra luxury living on earth full of unnecessary waste became the passion of Americans instead of hard work, modesty, thrift and honesty. This wasteful behavior of a nation reached the peak by consuming 40% of the worlds total crude oil production by less than 5 % of the world population living in America.

Large corporations which borrowed from investment banks had only their wasteful executives and marketers on American soil. All their productions were located else where. It took almost couple of decades to realize that most of these corporations produced more losses than profits due to very high overheads incurred by the American employees. It is doubtful whether Americans are conscious about this phenomenon that is taking place with in America even today. Whole America is similar to an individual who lavishly spend somebody else’s money irresponsibly. Today America has already consumed and wasted many trillions of USD which is much more than the actual value of their goods and services taken in total for many consecutive years. The George Bush administration accelerated the process during his tenure by pumping additional trillions to fight completely unnecessary wars.

This American gamble culminated by the declaration of bankruptcy by bank after bank in 2008 at the latest. Large corporations which obtained loans from  investment banks cannot repay them with interest as they have incurred losses over the years instead of profits. The American government decided to immediately intervene and bail out the troubled banks which are a necessity to secure the confidence of those who invest in American soil. It is the only way to continue the ‘new American way of life’ which is living beyond the means at the expense of others. Definitely, the Americans will manage to convince the world that all is well and they will keep attracting more hard earned money until the culmination in next financial crisis. In each occasion, the results of the game came to light as different forms of financial crisis in the past; it was simply called recession and covered up. But the, total losses keep accumulating and each financial crisis is many times bigger than the previous in terms of total value. The outwardly appearance of American glamour backed by the Hollywood is a black hole that attracts hard earned money concentrations channeled to America mainly through Middle East and Japan.

When the CNN announces job cuts in troubled financial institutions, our attention is deviated and feels pity for those who lost jobs. We try to forecast the impact on our economies in terms of reduced consumption of those who lost their jobs in US. This impact is negligible and it is not likely to have a sizable impact on small economies like Sri Lanka. In general this financial crisis will not affect even the global economy at large making severe hardships at any particular corner of the world. Middle East will continue to sell petroleum and Japan, Korea, Taiwan and Hong Kong will keep producing. What Americans have wasted was the savings of both worlds. They will soon cover it up with their glamour and printing of more green bucks. The trend will continue until the petroleum producers and industrialized nations realize it otherwise.

American culture which doesn’t have deep roots to a specific religion or culture is virtually out of control in terms of spending. It will not consider ethics in trying to grab the riches that they need to maintain their way of life. It can become more dangerous and ruthless when the going gets tough. The greatest lesson that we can learn from this analysis is that we should genuinely contribute for production and must consume only the minimum requirement. Preservation and practice of our culture with religious teachings that promote modest living is the only long term solution to face the woes that can paralyze a nation if gone uncontrolled. Switching off an additional light, cutting down an additional kilometer of travelling, planting a vegetable plot, avoidance of borrowing etc all contributes to our long term survival as individuals or as a nation. If the Americans do not slow down, they will keep wasting the accumulated savings of the world until their glamour lasts.

By  Nihal Jayasinghe