http://www.nytimes.com/2009/04/22/business/22markets.html?ref=business
My comments on the updated position of the global financial crisis :-
My comments on the update situation :
It has been some 5 years since the global financial crisis first started to engulf the world and caused unspeakable misery on the human race as a whole. Most unfortunately, my humble predictions as set out in the conclusion of my economic essay ( Section ( 14 ) ) below has become a sad reality. Specifically, I predicted that it may take up to 5 years for the world economy to start its upward trend from the dismal depression caused by the global financial crisis.
There are definitely evidence of a bottoming out but only feeble signs of a sustained recovery. I sincerely hope that my worst case scenario prediction of a 10 years recovery cycle will not come true.
In view of the continuing crisis, it may serve a good purpose to revisit my essay on the basic economic principles from the lay person's point of view. Needless to say, your comments will be most appreciated.
JKHC ( May 31, 2013 ).
My comments on the latest situation :
According to the US Treasury the employment situation in USA is steadily on the recovery track. Therefore, they had previously indicated that the quantitative easing measure of Government bonds buying might be slowly wound down. However, they also decided to delay its implementation at this point in time which is a welcoming move. So, the long awaited recovery is finally on the way and my humble prediction of the 5 years' global economic recovery from the 2008 global financial crisis seems to be realising to my great delight ( certainly everyone should be delighted ). Please refer to the following news link from The New York Times for further details :-
http://www.nytimes.com/2013/09/19/business/economy/fed-in-surprise-move-postpones-retreat-from-stimulus-campaign.html?nl=todaysheadlines&emc=edit_th_20130919&_r=1&
JKHC ( Sept., 22, 2013 )
Link to my economic essay - 2008 Economic & Financial Tsunami - An Overview for the Lay Person :-
https://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxqa2hjbGlmZXN0eWxlfGd4OjY4MWY3YTM5ZDFmY2NmZTU
After all the excitement generated by the G20 summit has died down we are still faced with the stark reality of a volatile stock market as well as a growing army of the unemployed ( see above link to The New York Times report ). This kind of roller coaster rides in the financial market can be expected before the optimistic sentiments supported by a complete restoration of consumer confidence in the financial system return for good. It will take a tremendous push in confidence to revive the Wall Street bull which seems to be dead to many investors at the moment.
I am not retracting my assertion that the recession has bottomed out nor am I saying that the results of the G20 summit are not generating the required uplifting effects on the global economy. Apart from the fact that positive economic measures take time to work ( this is the famous or infamous - depending on how you look at it - time lag concept in economics ) there is also the most important element of consumer confidence not having been fully restored. The time lag in the manifestation of the positive results of the good economic measures lead to consumers doubting that the recession has actually bottomed out. Therefore, most of them will hold back their spending plans out of conservatism and hold a wait and see attitude. This unfortunate but understandable consumer reaction has the undesirable effect of counteracting the positive efforts of all government spending aimed at revitalizing the economy. This is also the main reason why no interference with the normal working of the economy should be made unless it is absolutely necessary in a market or capitalistic economy. It also highlights the defect of a planned or socialist economy. Nobody is to blame for this less than perfect situation which must be rectified before the global economy can get back on an upward trend.
So, where does the key to breaking this vicious circle created by the time lag effect lie ? In my humble opinion, the key lies in the rethinking or realignment of our value judgment or our value system. The concept of maximization of utility ( satisfaction ) or profit as has been generally accepted for more than 240 years since Adam Smith is actually letting us down. This maximization concept while holding true with the individual ( microeconomics ) spells disaster for the economy as a whole ( macroeconomics ). The hard lesson economists have learned from the Great Depression of the 1930s is this. Savings are good for the individual but bad for the economy at large. This is a well known paradox in economics called the PARADOX OF THRIFT. Being thrifty at the micro level is a virtue but it is a public vice when practiced by society as a whole on the macro level because the latter situation inevitably leads to a multiple ( under the ECONOMIC MULTIPLIER EFFECT - in this particular case, NEGATIVE MULTIPLIER EFFECT ) or more than proportional reduction in total national consumption that creates a miserable army of the unemployed. All these basic economic concepts are explained in the lay person's terms in my article - 2008 Economic & Financial Tsunami - An Overview for the Lay Person - here ( http://sites.google.com/site/jkhclifestyle/Home/2008-economic---financial-tsunami ) or access my website by clicking on the title of this blog and going to the navigation bar on the left hand side of my home page.
So, what is this rethinking or realignment of value that I am advocating ? It is simply this. While maximization of utility and profit is good and is a basic human economic right there is no need to maximize 100% which will bring about sorrow and misery for everyone. In fact, I would go so far as to argue that 100% maximization of utility or profit is another form of greed that the black sheep of the financial world have been guilty of and that has brought us to our present predicament.
Let us take a simple example. As the global economy free falls as in the past 8 months or so the property prices also fall drastically. All the prospective buyers will maintain a wait and see attitude. As some desperate sellers are eager to sell due the need for cash brought about by the financial tsunami prices of properties will crash. This is because buyers want to own a house for a song. In other words, buyers want to benefit ( as they are fully entitled to ) at the misfortune of sellers. Of course, there is a bottom line to any fall which is the cost of building those houses. When the bottom line is reached no one will build any new houses because no profit can be made. This will ultimately cause a shortage of supply and a gradual rise of the house prices due to deferred or built up demand. Sadly though millions of building workers and those in related industries will join the growing army of the unemployed before the bottom line is reached at which time the value of the properties currently owned by the well off sector of the population will also hit the bottom doing nobody any good. The message here is to buy when there is a reasonable rate of return on your investment. You can't win them all ( 100% ). Let us say you may not be able to buy the house you like when the price falls further because others may grab the bargain before you do. Also, if you earn every single cent from everyone on earth you will lose all your business ( in the case of running a business ) because you are such a perfect ( 100% ) business entrepreneur that you make the entire global population go bankrupt. Again, the clear message is leave something for others or you will ultimately suffer from your 100% maximization of profit at others' expense. The same reasoning applies to the ideal situation of an exact balance of payment in international trade between countries ( see my article mentioned above ).
Similarly, to hold back your original travelling plans, buying a new car every 5 years or reducing the frequency of your restaurant patronage will create the same multiple shrinkage in consumer spending and hence greater unemployment. Am I advocating spending beyond our means then ? Certainly not. I am just appealing to the still well off sector of the population to stick to your original spending patterns. This is the best and most moral thing to do to save the world from a deep recession and to help alleviate unemployment. I appreciate the financial hurt you rich guys have suffered through the endless greed of the black sheep of Wall Street. Yours truly has also met the same fate. My wife has bought a lot of HSBC Bank shares at around $100 ( Hong Kong currency ) per share. Now, the share is just half of that value. I contributed the entire sum for the current rights issue just to heal her wounded pride. Really, it is nothing more than their pride that the well off sector of the global village was hit badly by the financial tsunami. Most rich people cannot spend all their wealth in their own life time anyway. Besides, if we don't stick to our original spending plans we can never be certain whether or not we will be healthy enough or still alive to enjoy using our hard earned dollars when the present crisis is over. Of course, I sincerely hope and pray that we all will be. The only certain thing at this point in time is that the global financial crisis will never be over without our earnest efforts to save it from further free fall. In my humble opinion, any successful rescue plan must entail some revolutionary reasoning or a revaluation of our value system as outlined above.
To recapitulate, the realignment of our value judgment needed to overcome the financial tsunami is this. Don't aim at 100% maximization of our utility or profit. If we wait for others to spend first and they wait for us to do the same the economy will never improve regardless of how much government spending is injected into the economy. Furthermore, private consumption is always superior to government spending because the individual knows exactly what he or she needs so that there will not be any wastage. Then, the main bulk of private consumption is related to consumer products that can create immediate employment and a direct boost to business and consumer confidence. Besides, what the government spends will be ultimately borne by all of us - the taxpayers. Rather do our part in the normal way by keeping to our original spending plans. This is my earnest appeal to the rich and privileged sector of the global village. Of course, faith in the market system and the goodwill of our fellow citizens is required. A lack of faith in the future of our economy reflects on a lack of confidence in the collective power and potential of the whole human kind especially in ourselves. Please spend and prop up the economy and the global economy will be back to her healthy and normal self in no time !
JKHC.
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