Wednesday, 3 February, 2010

Root causes of Problems faced by USA

Root causes of Problems faced by USA

Root cause of problems faced by many so-called developed countries, especially USA
  1. Extreme welfare orientation - "All my citizens should have a great standard of living" - Result: Extremely high salary levels (both in absolute terms and in comparison to other countries)
  2. Free imports at low import duties - "All my citizens should be able to buy the least cost products from around the world. If a product from some corner of the world is better in terms of quality and price vis-a-vis local competitors' products, my citizens should be able to import the same freely" - Result: Low cost products from other countries with really low cost-structures ended up being dumped in huge quanitities.
  3. Culture of "All play & no work" - "My kids deserve the best - they should automatically get all the very best in life" - Kids are often pampered. Emphasis on education as a great tool to ensure sustainable success in life (that formed the very basis of the original success of the USA) is almost gone. By the time kids grow up into adulthood, they want to have and enjoy all the benefits that their grandparents and/or parents derived through high quality education, hard work and total dedication. Unfortunately, they do not like to go through the process of high quality education, hard work and total dedication.
  4. Strong currency - "My Dollar must be among the strongest of all currencies". The US Dollar is an extremely strong currency. One buck of the US Dollar can buy several bucks of Pesos, Rupees, Dirhams, Roubles, etc. Once upon a time, this status was richly deserved. Can't be too sure about the current position.
    • Presently this status is achieved by a combination of other countries using the dollar as
      • a reserve currency (almost by habit)
      • a tool to keep their own currency undervalued - to enable much easier exports, thus pump-priming their own economy.
    • The situation is further aggrevated by the US using the printing press to generate "wealth" by printing ever-increasing supplies of the dollar!
  5. High Litigation - "My citizens must suffer no injustice howsoever minor - to ensure this, I'll punish all those who are guilty by awarding huge punitive compensation". Result:
    • You have ambulance-chasing lawyers
    • You have hugely inflated medical costs due to a plethora of "precautionary tests"
    • You have "over-designed" products
    • You have almost obscene compensation packages to design products (especially investment products) which can generate extraordinary returns to enable the achievement of the "Great standard of living" that's not commensurate with what most citizens do not deserve based on their current levels of education, hard-working ability, etc.
    • Such compensation packages and such investment products create undue risks, eventually ensuring that the huge bubbles which obviously burst from time to time. Result - a huge recession of the kind that we saw last year!
Just think about it. Possibly, I've exaggerated a few of the points mentioned above. But the crux, probably, hits the nail on the head.



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