Tag: Economics

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David Harvey: The Crises of Capitalism (RSA Animate)

Video from 2010 about the problem of capitalism in its current form.

Notice that as of 2013 August the problem explained in the video is not resolved.

Any moment now, should one large financial institution go under, we will re-live the horror of the financial crisis all over again. Passing the bomb around like the game of music chairs has limitations. As all major economies are now well aware of the tricks necessary to survive in this game, there is no one else to pass the financial problem to. The end is indeed very close.

What the Fed has done so far since 2009 is just delaying the inevitable. Fed effectively acted like a rookie trader by violating all possible trading rules and sound money management principles. Fed has bet everything it has and is running out of pledgeable asset by end of this year. So contrary to popular beliefs, quantitative easing will come to an end one way or the other.

Best that Fed can do is to reduce the current size of QE so that they can stretch the program further out into year 2014. As we all know, QE with lesser amount of money is completely useless as that will not be enough to counter the net outflow of all classes of high quality assets by the top 1%. Even on days when POMO is done, as long as the amount is not significant enough, stock market would sell off. Fed has to really dig deep this time to invent something new to replace QE or significant stock market melt down will become unavoidable.

Being a trader, we have to be extra cautious on what instruments to trade going forward. We also have to be extra careful with our money parked with the brokerages. When the next financial crisis hits us, I suspect many firms will go under. Many small cap stocks and financial markets will simply disappear. ETFs you buy may turn worthless as the organizations managing the funds may go bankrupt and lock up your money.

"Only the paranoid survive" – Andy Groves

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Nick Hanauer: Rich People Don’t Create Jobs

A controversial TedTalk from Nick Hanauer. It is so sensitive that it is pulled from TedTalk website.

Time magazine have a piece on this talk, Was Nick Hanauer’s TED Talk on Income Inequality Too Rich for Rich People?

I do not totally agree with the point of view of Mr. Hanauer.

He raised a valid challenge on the inequality issue with lower tax rate on the rich people and that it has not resulted in improvement in job creation. His understanding that the middle class people is the actual fuel in driving the economy is also plausible.

Two things he mentioned on corporations are definitely true. First, corporations always try their best to minimize the need of expensive labour resources. Second, when labour resources cannot be avoided, corporations tend to seek for the place with the lowest total labour cost to hire workers.

Mr. Hanauer’s point of view is biased because of his experience in profitable companies does not represent the nature of all businesses. It is also not possible to have middle class families to spend more money as a group when middle class the concept itself is disappearing in every part of the world.

Taxing more on the rich people will not necessarily transfer those money into creating more middle class people. It may as well be transferred into the hands of another group of rich people who work closely with the governments. No offense intended, but just increasing tax on the rich is not a solution.

I see the real issue is not just a matter of rich being taxed unfairly, it is the treatment of capital in such naive way by the governments that highlights how out-dated the politicians are. Throughout history, it is those economies with middle class families coming from owners of small to medium size companies that have the better overall growth and stability. Yet, these small to medium size business owners are the ones hated most by both right-wing and left-wing political parties. The right-wing politicians are in bed with big corporations to crush the small businesses while the left-wing politicians mistaken the small business owners as capitalist pigs in the same class as the large corporation evil-doers.

By allowing big corporations to exist in part of the economy that is best serviced by small to medium size businesses, the governments around the world routinely destroy the small to medium size businesses that are the essential engines of their economies. The original middle class population has now mostly disappeared.

The replacement middle class coming from the big corporations do not have the same characteristics like the original. The new middle class mainly coming from big corporations do not have independent survivability as their existence is a function of the big corporations.

There is no real solution to resolve this problem.

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