Why Are India and Brazil Rebounding Faster Than the U.S.?

by Dave

“If America had a central bank chief like Y. V. Reddy, the U.S. economy would not have been such a mess,” Joseph E. Stiglitz, the economist and Nobel laureate, has said. In India, there were no subprime loans.

Part of the reason is cultural. Indians are simply not as comfortable
with credit as Americans.
“A lot of Indians, when you push them, will
say that if you spend more than you earn you will get in trouble,” an
Indian consultant told me. “Americans spent more than they earned.”

 “Savings are important. Joint families exist. When one son
moves out, the family helps them. So you don’t borrow so much from the
bank.”

Real Time Economics – WSJ

Why did China, India and Brazil all emerge so much more rapidly from the global financial crisis than advanced economies did? In a presentation in Denver to the National Association for Business Economics, Nobel Prize-winning economist Michael Spence, now of New York University, offered several reasons:

* These economies learned bitter lessons in the 1997-98 crisis that afflicted them more than advanced economies.
* They were in “a good initial position” with relatively low leverage, and thus didn’t get hit with the severe “balance sheet recession” that hit the U.S.
* They hadn’t any complex securitized financial instruments.
* They had built up large foreign-exchange reserves.
* Their central banks responded, much as advanced countries’ central banks did, with speed and agility to the credit tightening.
* Their economic managers displayed “a high degree of competence.”

“Is this sustainable? Will they keep growing? I think the answer is a qualified yes,” he said. “I wouldn’t have said that 10 years ago.”

Adding to the sustainability of growth in emerging markets are two other
factors, he said: One, they are increasingly trading with each other
and thus are less dependent on now slow-growing advanced economies
; two,
they have become rich enough for their consumers to buy the goods they
produce.

TwitterFriendFeedDeliciousLinkedInFacebookDiggShare