Emerging Economy should Consume More & Save Less

Developed Economy Should Save More & Consume Less.

Presented by Deepa Chandrasekar

TWO STAGES OF MARKET ECONOMY

• Growing Market Economy

• Declining Market Economy

TWO FACTORS OF MARKET

• Demand & Supply

 Producer wants
his demand always
to be high

 Consumer wants
his buying cost
always to be low
 Recession
When your neighbour Loses his job
• Depression
When you lose your job
• Recovery
When you go shopping at Big Bazaar
• Boom
When Kishor Biyani stops shopping at
Big Bazaar.
Recession
• Gross Domestic Product
(GDP)
• Employment
• Investment spending
• Capacity utilization
• Household incomes
• Business profits
• The Two Major Reasons For Recession

• Over Production

• Low Confidence Level

 Low confidence level Word of Mouth

WORD OF MOUTH

• Cost Reduction Activities

• Producer Do not stock materials
• Consumer Hear lot of job cuts
• Consumer will get the fear of lose of job
• Less confidence to spend money
• Demand is Reduced
• US Corporate Equities
• 1999: $19.4 Trillion (2.1 GDP)
• 2008: $15.2 Trillion (1.1 GDP)

• US HH Net Worth
• 1999: $42.1 Trillion (4.4 GDP)
• 2008: $51.7 Trillion (3.6 GDP)

• Peak Unemployment
• 1999: 4.4%
• 2008: 7.2%
• June 2009: 9.5%
• What caused the Global Recession?
 Financial Crisis
• What caused the Financial Crisis?
 Easy Credit & Lax Regulation
• What caused Easy Credit & Lax Regulation?
 Savings Glut, Too much money chasing too few opportunities
• What caused the Savings Glut?
 Too much saving in Asia, and too little in the US
• Why Too Much Saving in Asia?
 Asians like to save
• So what can we do to get out of the recession?
 Asians should save less; Americans should save more

Will it work?
• Geo-Political-Organization
– The opening of China
– The opening of India

• Technological Innovations
– Communication & Transportation in the
21st Century
• Chinese factories can compete directly with US
Factories

• Workers from India can directly compete with workers

in the US

• Workers in Developing World can participate in the

Developed World’s labor market without moving

• Huge increase in the Worlds’ labor supply in a very

short time period
* Corporate = non-agency non-government debt
 To Come out of Recession
• Emerging Economy • Developed Economy
Consume More & Save Save More & Consume
Less Less
• Eg . China , India • United States
 Government Plans

• Fiscal Policies – by Government

The Government Influence the Economy
by changing how it spends and collects
money

• Monetary Policies – By RBI

RBI Manipulates the available supply of
the country.
Emerging Economy – Fiscal Policies
• Tax Benefits for the businessess &
individuals – More Money available for
spending
• Government Spends more to create jobs -
Individuals get salary & spend more.
• Unemployment Insurance – Some income
for the unemployed people to spend.

Demand Increases – Market can Recover

Monetary Polices for the Emerging
Economy
• Reduced the Cash Reserve Ratio
• Increasing the Liquidity
• Banks can provide more loans to the
consumers
• Lower interest rates
• Individual take more loan

Demand Increases – Market can Recover

• A Stylized Model of Offshoring ……

• Money Flow through better Financial engineering.

• Tightening of Credit....

• Encourage savings in the U.S.A, and not subsidize housing.

• Development of institutions to channel savings within

China,India, … into productive activities.

• Corporated invest in the skills of their staff.