Link: http://www.economist.com/finance/displaystory.cfm?story_id=13240636&CFID=45434287&CFTOKEN=42455415
Summary
In Japan they are spending more then the average American household and so Japan's trade balance went into a shortage last year. From the six months to January, Japan had a annualized trade shortage of ¥4 trillion which is equal to $39 billion. This is a big shift compared to the surplus of ¥11 trillion the year earlier. Japans foreign investment is also shrinking thanks to the lower dividends and interest rates. Most economists think that Japan will have a reduced GDP of 1%, down from the 4.8% in 2007. The saving rate of a household in Japan went from 18% of income in 1980 to about 1% last year. In contrast, the American saving rate went up to 5% in January because of the tight credit and falling wealth. As the population continues to age, the household savings will go even lower and even perhaps into negative because the retired live off their large stash of financial assets.
Connection
The connection between this article and the textbook is the situation of saving and spending. The more a household saves, the less income is going into companies. When companies receive less income, they either cut back on the wages of employees or increase the prices of their product. Once companies have increased their product, then people will have to pay more for the item This creates a paradox of thrift. If a person chooses to save money in a place where they don't gain interest, their spending power is decreasing. A person who lends money will lose money if the prices of things are going up. The person who borrowed the money has the advantage because they only have to pay back the money that is worth less now. Japan is saving less money and spending more so they have a shrinking surplus.
Reflection
This reflects us because Japan is a very big economical supplier for everyday things that people use. Since Japan might have some economics issues later on, things that that are usually supplied by and made in Japan will be more costly. I think that as long as the Japanese people realize that they need to save more money, they can start to help rebuild their falling surplus problem. The exports that they have are important part of their income. Japan has usually had a good economical status where their money issues are okay. But since a few months til now they seem to be getting into some trouble. If Japan ends up having too big of a trouble to handle, things can get to be very costly.
1 comment:
With Japan spending so much, I think its economy will soon have issues if supplies will be too costly. This is the first time Japan has dropped saving rate from 18% to 1% from 1980 to 2008 and if Japanese people don’t spend less, it only means less capital for business to borrow. It also creates a negative difference between exports and imports thus leading to a deficit. I also believe that the exports are important because its part of Japan’s income. If Japanese people start saving now, I think they can start and rebuild their economy and falling surplus problem.
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