It is possible to Economic Crisis?
The economic crisis isn’t very anymore than a crisis associated with unreliable economic metrics. Dimension concerning the economy is a job performed by prices, along with measurement concerning temperature may be the job of thermometric weighing scales, measurement of distance may be the role of the metric range, and the measure of time is completed by seconds, minutes, hrs.
The price system is the metric system of the economy. It is normal to think about prices as only a means to express the relative values of goods and to assist in exchanging them on the market. But prices have an, more importantly, function for the economic aspect, a role seldom realized by economists and lesser through economic authorities. Price levels would be the measurement system the financial agents, for example, the industrial sectors and banks,
rely on to determine whether invest in the making associated with more goods to sell or even disinvest and reduce their creation. The economic agents, actually individuals, need reliable info from the price system to understand when it is time to expand or even retract their production. Doing this is comparable to using the thermometer degree to know if it is time to supply medicine against fever or warm the patient. For now, bear in mind what would be with the patient if the thermometer degree, the metrics of heat range, were unreliable.
The basic idea behind the fact that the price technique is the metric system of our economy is the theory of the small business cycle. A certain amount of goods of the types, including services and everything purchased, is periodically made in the economy, and persons do a certain amount connected with consumption. If the production is lower than the consumption, actual prices grow. If the production is beyond consumption, actual selling prices fall. When consumption is higher than production, selling prices rise, and authentic inflation occurs.
When use is lower than production, accurate prices fall, and real deflation occurs. What exactly do the economic providers do in each of these situations? Often the economic agents need to adapt their production to use, so when they perceive monetary inflation, they move to increase development. When deflation is noticed, they decide to reduce development (if they don’t, they won’t have the capacity to pay their bills sometime soon. ). So the price process tells the market how to adapt the production level accordingly to the consumption level. This is a cyclic process, the business cycle because a sound economy will change periods of slight extension with periods of small retraction, an alternation necessary for the overall well-functioning of the overall economy.
But what happens when the price strategy is not reliable? It is very easy to understand: The economic agencies lose their parameter to choose whether it is time to invest or perhaps disinvest, and the overall economy goes into a mess. And as the particular economic agents must consider some decision, usually they will cut investments as the most mindful move, and the domino result of investment reduction goes on. This is just what happens in the 2008-2009 recession.
Nevertheless, a big question stays? Why has the price method become unreliable? And the response is: Our price method based on currencies manipulated simply by governments has always been unreliable, and time happens when the market understands that nominal prices are generally not real prices and that there is also a deep lack of reliable fiscal information. Such realization commonly starts when some significant players (think of Fannie Mae, Freddie Mac,
Lehman Brothers, etc . ) are broken if left alone, featuring that bad investment-disinvestment options have been taken. These undesirable decisions are ultimately due to beliefs in information from this unreliable price system. Ln, that situation, the first symptom of the investors’ disbelief regarding the price system is the fall of investment prices following a rush to trade stocks. The fiscal agents don’t have the price process in mind when they decide never to invest, sell stocks, and lower production, but the background root cause of their move is the illusory prices of the economy.
The main contradiction is that it is generally said nowadays that the financial shows the failure connected with free markets and that the economic system needs more governmental management. This is a big miscalculation, although it tastes very special in politicians’ mouths. The reality, however, is that our selling price system is unreliable because governments alter it.
For a selling price system to be reliable, it is crucial to have a price system based on a reliable measure. In the past, we applied the weight of gold and silver to achieve that reliability. Today established currencies are used. To use established money would not be a trouble if the amount of money circulating through the economy was kept secure by who manages the bucks. The business cycle would go in sound, and inflation or inflation of prices would be real monetary inflation and real deflation. Yet that is not the case on our planet. Governments usually don’t take care of the monetary base together with responsibility. They broadly manipulate the amount of circulating money simply by printing new money or perhaps by tweaking the government’s percentage of interest. Governments manipulate the economic base ultimately to fund their expenses by stamping money or borrowing funds using higher interest rates. They will alter the
monetary base continually and create variations in prices, certainly not due to variations in generation and consumption of the real overall economy. In that setting nominal inflation or inflation of prices will be fake deflation or phony inflation. Instead of offering reliable information about the state of the economy, the price system allows wrong information. For some time, often the economic agents believe in this wrong information and consequently have wrong decisions concerning expenditure or disinvestment. But morning arrives when some significant players go bankrupt, and the stores realize they are running shutter. Naturally, the most cautious go then is to reduce ventures, and the economy may go into a depression.
This process attributable to the unreliable price programs is what is going on today inside the global economy. The real lesson from this present economic crisis is not the need for more governmental remedies and regulations. The lesson is ‘don’t let health systems manipulate our prices’ and continue to mess with the economy. World leaders, Mr. Obama, and colleagues should not meet to go over the next regulatory canon for the markets. They should make an accurate, critical examination of the primary guilt of governments in resulting in the economic crisis. From that, they may commit themselves and tell many countries to have trust and not manipulate price programs. Legislators, too, could cross laws forbidding the mau of the monetary base. That seems to be a solution for the financial and a way to save many people from poverty, hunger, diseases, or any bad products of the world economic crisis. It is first required for leaders, specialists, and the media to understand this logical genesis of the economic crisis for their work of fighting it to have the desired effect.
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