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What is happening and what to do about it?

A. Purpose:

- Purpose of this memo is to macro-economically grasp the current global economic situation and proposing for taking corrective actions ASAP.

B. Background:

- Imbalanced Global Economy:

Due to globalization, the following things have happened.

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.

3. Dysfunctioning of invisible hands:

In China, they have healthy rate of inflation, 2.9% in June of 2010 as far as I checked it on internet.

While in Japan, we have prolonged deflation for the past few years.

“The cost of living in Japan is probably falling at a rate closer to 1.9%.” (According to How bad is deflation in Japan? Christian Broda David E. Weinstein 22 October 2007)

In free economy, this does not economically make sense.

Why inflation and deflation does not cancel out each other?

Both inflation and deflation will not co-exist for a long time if it is free economy or laissez fair.

What bothers me is that currency fixation of GEN by Chinese government.

Due mainly to this currency fixation conduct by Chinese government, invisible hands do not work well in this case based on my opinion.

4. Vicious cycle will start:

I heard the news that in China, workers’ demonstration demanding for wage increases is happening.

I do not blame for Chinese workers since their wages are artificially set too low in global sense.

Most likely workers will get wage increase as they command and it will create more inflation.

This classical type inflation is called wage-push inflation, which could lead to hyper inflation in China since China has already good rate (2.9%) of inflation now.

Oh my God, in the mean time Greece, Spain, or Japan might go broke since situation of lost factory jobs have not got better.

Instead, it will get worse unless we do something about it such as de-valuation of all industrialized countries currencies against Chinese GEN currency.

Making long stories short, in the short run, we should de-value our currencies against Chinese GEN before some of industrialized countries go broke.

In Global Economy, countries are ever tightly connected, and thus if one country go broke, it will trigger World Depression.

5. Discussion of Appreciation of Chinese GEN Currency:

We have nothing to worry about appreciation of Chinese GEN Currency since Japan has already experienced YEN’s appreciation by 4X for the past about 30 years or so.

One thing I regret is that this Chinese GEN’s appreciation issue should have been discussed and implemented a lot earlier before Japan started having deflation, which is a couple years ago.

We have to do this now since we are already late for taking actions judging from the data showing global economic imbalance such as China’s inflation and Japan’s deflation at the same time.

These two economically tightly connected countries will not have inflation (in China) and deflation (in Japan) at the same time under a healthy state of free economy.

6. All countries are better off doing this:

In China, wage-push inflation will be cancelled out by GEN’s appreciation effect and thus they do not have to worry about future hyper-inflation.

By price cut strategy of industrialized countries, our products and labor costs will become a bid more price competitive in the short-run, although we still have to increase our competency in the long-run, though.

Living in a contradictory world    Living a little more quietly
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Globally Adjusted Economic Theory and a Concept of Country Life Cycles    Analysis of the Current Global Economic Situation
Three Culprits and a Shadow in global economy Chinese trap - Dangerous Protectionism
Keynesian's Supply Side Economy updated Simple version of Keynesian's Supply Side Economy updated

Where are we going? What are we looking for? Globalization Factor.

Globalization Factor Simplified and Submitted to the White House.

No more deregulations, please! From blind-individualism to conditional individualism!

From Free Economy to Conditional Free Economy! Solve both climate change issue and economic issue at the same time!

We need an Earth Government!

Link English Site    Buzzle.com

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