Economical Equilibrium by Ilya Kuntsevich

Author:Ilya Kuntsevich [Kuntsevich, Ilya]
Language: eng
Format: epub
ISBN: 9781492387510
Publisher: Ilya Vladimirovich Kuntsevich
Published: 2013-09-19T04:00:00+00:00

PART II: GLOBAL ECONOMY

Economic Growth

The global value of economics and wealth increase as the standard of living increases, i.e. both contribution and demand increase at the expense of once abundant natural resources. Human labor and technology helps convert natural resources into devices, homes, cars, etc., which are valued by the society and associated with so called civilization, progress and overall standard of living. Recent technological advances allow more people to enjoy lifestyles they could only dream about 20–30 years ago. The monetary base and its velocity increase in order to support increased consumption, because more goods and services are exchanged.

In order for you to sell something, someone else has to have money to buy it. The economy grows organically as people invent new things and make technological progress, although it causes wealth inequality, as discussed in Part I. Nevertheless people tend to try new items and thus exchange these items if they find them of value.

In the past people used to trade and accumulate gold and silver as the only means of exchange. Today people trade to accumulate paper and electronic money, because everything can be exchanged for it, including gold and silver. Lending money in the form of debt became an option after profits started to accumulate on the banks’ balance sheets, because money would have been continuously circulated otherwise and banks would have no discretion over its use.

Spent debt (e.g. credit cards, HELOCs, student loans, etc.) has no immediate cash value, because a person who received debt money and spent it didn’t contribute anything that can be immediately monetized. On the other hand, this debt money, spent on goods and services, increases GDP. Therefore, real GDP growth (not debt financed) occurs only when there is an equivalent contribution by labor or technological conversion of natural resources.

How much money does an economic system need? As much as it takes to exchange goods and services multiple times during a given period. Excess money, accumulated from profits, stays within the financial system, waiting for allocation in order to grow the economy further. When economic growth stops or slows down, excess money sits idle, unless it is introduced to other economies in a form of debt, which then stimulates the local economy.

As a consequence of the 2008 crisis, money was printed post-2008 by the Federal Reserve in order to deleverage banks and bring liquidity into the financial system. Such policy will eventually cause CPI inflation that will be absorbed by all participants involved in the economic process, because there is still no real contribution justifying printing more money. The only measure that “saves” the U.S. from high CPI inflation today is the “export” of inflation in the form of international debt increase.

Profit recognition effectively reflects more work required in order to justify monetary inflation and economic growth. Part II covers this and other matters pertaining to the current state of the modern global economy.

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