What is wrong and what to do about it?
- Purpose of this memo is to macro-economically identify culprits, which are disturbing invisible hands and causing financial crisis in global market.
- Violation of fundamental premises of Economic Theory:
As you know, Economic theory only works under the certain premises such as abundant resources, perfect information flow, no restrictions of flow (free movement), etc.
I learned it from macro-economic Prof., Dr. Auerbach at UCR.
The followings are major factors which violate fundamental economic premises:
- Oil Money
- Fund Money
- Chinese Money
1. Oil Money (violation of abundant resources):
Since oil is no longer abundant; in other words, oil resources are limited, demand-supply function does not work correctly.
Oil price will keep going up endlessly unless substitution energy or replacement of oil shows up.
This is not economically healthy situation but we do not have a solution for it so far.
I would say that establishment of a global government will help solve this issue somewhat.
2. Fund Money ( monopoly):
As economics major students know, where there exists monopolistic condition, healthy competitions are restricted and thus this is the violation of fundamental economic premise.
Right now Fund Money has too much bargaining power, price- influencing power, and economy of scale, there will be no-fair game in financial market any more.
Fund Money always wins.
Fund Money should be divided into smaller pieces, which is the same case as monopolistic companies in business world under the Anti-Monopoly laws.
By the way, Anti-Monopoly laws are not working well globally since global anti-monopoly laws do not exist.
We should create global Anti-Monopoly laws ASAP and apply them to both fund money and global companies.
3. Chinese Money (violation of free economy or laissez fair.):
Exchange rate fixation by Chinese government is hindering healthy cycles of free economy.
What is happening right now is as follows:
China has become a factory site for global companies.
Many global companies moved out factories from domestic site to China.
1. As a result, lots of factory jobs have been created in China.
In China, employment goes up, Chinese people get richer, Government’s Tax income goes up, and etc.
2. On the other hand, in industrialized countries, many factory jobs have gone.
Accordingly, unemployment goes up, total income earned by residence goes down, and Government’s tax income goes down and thus country itself gets poorer, and starts having financial difficulties.
Since labor forces do not move globally as opposed to domestic cases, invisible hands do not work and thus situation will not get better.
A. Job lost deflation.
This is opposite to wage-push inflation.
In Japan many factory type jobs have been lost to China, Japanese income and buying power went down, Japanese demand cheaper goods.
Since Japanese buying power got weakened and never recovered due to lost jobs, even prices of goods go down, sales still go down.
Job lost deflation begins and it gets worse every day.
First of all, exchange rate literally decides costs or prices of labor forces in global market.
Since China fixes exchange rate, invisible hands do not work.
In other words, in order to make Japan’s situations better globally, Japan should lower its prices, which can be done through devaluation of Japanese YEN against Chinese GEN.
According to recent newspapers in Japan, both U.S. and EU have a sign of deflation, which is similar to that of Japan.
China’s exchange rate fixation is not only violation of free economy but also very dangerous knock-out pricing strategy.
China should bear global responsibility as a member of global free economy.
Please imagine caterpillar of a tractor.
If one joint of caterpillar got fixated, it could stop movement of entire caterpillar.
The same thing is happening now in global economy, major countries such as U.S., EU, and even Japan try to ignite engine of global economy, and it always ends in China because of its currency fixation practice, in my opinion.
China should be ashamed of it because everybody suffers including China in the end.
4. Overpopulation – a shadow:
According to U.S. Census Bureau, we have more than 6.8 billion population in the world as of 2010.
More population means more competition.
Due mainly to increased competition and getting scarce resources, we have issues of oil money and fund money, I guess.
We should try to stop increasing trend of world population now.
How can we do that?
When China and India combined, they have 2.5 billion people (1,330,141,295+ 1,173,108,018 = 2,503,249,313), which is about 36% of world population, oh my GOD.
My proposal is to establish a global government and do something about it ASAP.
August 3rd, 2010
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Link English Site Buzzle.com