I no longer live in a world with a collapsing economy. I am creating a new one.

This Christmas our family decided to give non-material gifts to the adults in our family.

The week before the big day, I sat down at my computer and wrote letters to everyone in my family.

I have a big family and by the time I was done, I had worked fourteen hours crafting the words that would truly express why I love the people I love, who they are for me and why I find them special.

When I was done, I found a new and unexpected peace. This struck me as strange at first because I am a man who acknowledges those he loves. After some thought, I realized I had never spent that much time thinking about the people I care about in my entire life. I saw my newfound peace had always been available to me. My obsession with my “agenda” in life had merely obscured it.

I had enrolled my family in a “new kind of gift giving” in advance. When we gathered to celebrate it was like no Christmas in our past. My family is a large, intimate and loving group. We have had many wonderful times together in the past, but by removing ourselves from commercial culture and expressing our love directly instead of by purchasing (let’s be honest) unwanted gifts, we discovered a new and profound intimacy.

The experience changed me and helped me create a new conversation I had been crafting, a conversation designed to be shared.

The Myth of the Collapsing Global Economy:

Falling down is not always a bad thing. Waterfalls do it with abandon and are one of the most beautiful phenomena on earth.

Like almost everyone on the planet, I wasted a lot of energy in the Fall of 2008 locked in fear about the financial markets and how their collapse would impact me, my family, my businesses and my life. Every day the news reports seemed to add to my internal experience of failure and helplessness.

But I found a way out of that morass. I realized in early December that the “collapsing global economy” is just a story; a repetitive, debilitating conversation that lives in fear and insufficiency. It is a “created reality” like all other realities.

I am not saying it is a myth without power. That disturbing drama has its impact on the real world. Self-destructive conversations have consequences not only for individuals, but also for nations and economic systems. People are hurting and afraid.

But though it effects are real, the sad and pitiable tale we are telling about the global economy is also a self-fulfilling prophesy. At its core is a commonly held bad attitude, an anxiety-addicted belief in scarcity.

At our house, our finances are stretched. We have had to give up things we care about…but really, we are just fine. We are healthy. Our children and grandchildren are well and happy. We are not starving. The sun rises every morning. Most of us in this country have what I often refer to as “rich people’s problems.”

Billions of people in the world – and some here in the U. S. – really live on the edge of survival. They would laugh at our self-pity. They face much worse every day and have dealt with it their entire lives.

So I am no longer going to play that game. On Christmas day I made my stand. I will no longer meekly engage in that economic melodrama like a sheep being led to slaughter. I choose not to live like I am powerless. Living in fear, buying the spin so eagerly promoted by Fox and CNN is not putting money in my pocket, supporting my family, making me more effective or enhancing my life in any way.

To the contrary, it has exactly the opposite effect.

A New Conversation:

In 2009 I am creating a conversation that is more powerful, more fulfilling and more workable. I am creating hope and abundance. I am creating a world in which anything is possible, a world in which people all over this planet make the impossible possible every day. I am creating a life for me and my family in the new paradigm I see building all around me.

You may think I am a pie in the sky idealist, but I argue I am a pragmatist. Think about it. How is that negative story working for you? How do you feel when you wake up in the morning? How do you feel after you finish watching the news? Is something good happening in your life because you are sure things are bad? I doubt it. Why don’t you give a new story a try?

The tale I am telling is that the changes going on in our world are the collapse of a tired old way of being and the genesis of a new one that will transform our lives for the better. I am creating a conversation about a new “bottom up” economy in which all are included, one already being built all over the planet by the young and the visionary.

I am creating a system of exchange and value that recognizes our interdependence and endlessly innovative. I am building an economy of infinite possibility, of sufficiency and abundance…an economy that works for everyone.

The conversation I am having is that the old is falling away and the new is born. Winter must come before the flowers of Spring can bloom. I am telling the story of a butterfly emerging from it chrysalis, its wings unfolding…a story of the glory of flight.

The tale I am creating is not one of soft-hearted idealism. It lives in the material, in the brains and words of human beings. It is a story of hard science, corporate and political realities, a pragmatic evolution forged in technology and human cultural evolution that has been growing for many years. It is a new interpretation of reality that is available to everyone all the time. Real people can act on it in their lives at any moment. It is a conversation that makes things work where they do not, like all new technologies that have value.

We are going home, home to our better selves, home to new relationships, new systems of behavior, new technologies and new societal and economic structures. Given the state of the world we have had in the past, that is a good thing.

But before we can move forward, we have to see the debilitating conversation that prevails around us for what it is. We must turn negativity into possibility. We must make our stands for a world that works and act upon them. We must quiet the cruel wind of fear that fills the tattered sails of the sinking ship of excess, failure, scarcity, corruption, partisanship, self-interest and greed that has plagued our country and our world.

Sounds too big and too hard? It’s not. All we have to do is change the subject. All we have to do is notice the “glass half full” rather than the “glass half empty” and share what we see with those we meet. After all, positive interpretations are no less real than negative ones. There is ample evidence for both and I would assert that positivism is more practical and effective.

You Create Your Own Reality

Perhaps you are convinced the world really is going to Hell in a handbasket and there is nothing you can do about it. Well think about this.

Throughout you life, neurons and other nerve tissues in your brain grow in response to your environment. The process is called neurogenesis. New synapses and whole new neurons are actually being added into the circuitry of your brain in response to the world around you. Metaphorically, they grow a lot like muscle tissue. If you use your muscles, they grow and get stronger. If you sit on the couch all day and watch TV, they atrophy.

Something (roughly) similar happens in your brain. Everything you think, feel and experience is a result how your brain responds to your experience and grows new neural tissues and connections to other neurons.

The more often a particular neural pathway is reinforced by environmental cues, the stronger it gets and the more embedded in your memory. So the behavior, attitudes and values with which you approach life – and the nature of your relationships with others – are built into your nervous system. They are not just ideas or attitudes. They are aspects of your physiology.

How you see the world and how the world sees you is built into your brain. But because your brain is constantly changing and growing, over time you can change that hard wiring simply by altering your thoughts, actions or your environment. Attitudes and values are not casual things. They are physical and the source of your everyday experience of life.

That means your words have power. Speaking is an act of creation. Over time, the way you describe the world creates your world. If you want a “better world,” all you have to do is “cast your vote” each day for the world that is already working.

Ever notice who is always around when your life doesn’t work? You are. You can blame it on your circumstances if you want to, but all that does is make it persist. You can blame others, but all that does is make you suffer. Maybe you should consider an alternative.

I invite you to join me in a new conversation. We can create it together in the days and months to come…and before you know it, a new and vibrant economy will emerge.

Transformation Begins at Home

To transform the global economy we must begin by transforming our personal economies. After all, most things that are important begin at home.

That includes the current economic crisis, which began in a cascade of foreclosures and falling real estate values.

In the body of our built environment, the home is like a single cell. If you think of all the buildings, power grids, public works and transportation systems on our planet, all the things we have built in order to maintain our complex societies, our homes are the most basic unit in the “body” of human society.

Like a cell membrane, a home allows nutrients into our vulnerable inner worlds and keeps toxins – like nosy neighbors – out. Like a cell, our homes contain thermostats and other features that maintain homeostasis, protecting us from the slings and arrows of outrageous weather.
Our homes store our financial energy like the fat on our bodies. For most of us, our homes are our largest investments. Recently we have been forced to “go on a diet” and some of us lost our assets.

Homes are where we most often reproduce and subsequently nurture our young. They are powerful expressions of our identities – as Claire Cooper Marcus pointed out in House as a Mirror of the Self. A well appointed home is an extension of our bodies. It is, as physiologist J. Scott Turner suggests in The Extended Organism, an “external organ of physiology.”

Imagine for a moment if the built infrastructure that supports our societies suddenly disappeared. The result would be the same for us as it would be for a colony of termites or a nest of bees…a sudden and devastating die off.

Theorists have long argued about the traits that have made Homo Sapiens so successful. The use of tools, opposable thumbs, the evolution of language and the highly complex social structures we create have all had their day as the seminal first cause…but the most visible evidence of mankind’s assent to dominance is our built environment.
From caves to mud huts to castles and skyscrapers, the homes we have built and the public works we have erected to sustain them, are the proof of the efficacy of this survival mechanism.

We and our homes are engaged in an ancient and profoundly interdependent relationship. Like any other animal we evolve in response to our environment, and increasingly our environment is of our own making.

Natural selection and epigenetic gene expression occur primarily in response to our most highly frequented environments and the home is the most intimate environment of man. We build them and they build us back. We are enmeshed in and altered by our relationships with them.

Your own personal definition of home – whether your current habitation meets your ideal or not – likely includes emotional ingredients like comfort, safety, rejuvenation, peace, relaxation and the privacy to escape from the perceived expectations of others.
Despite all the mischief perpetrated by stock traders, hedge funds managers, sub-prime lenders and incompetent government regulators – the stars of the story of manipulation and greed that currently batters us daily – the truth is that those bad actors are mere symptoms of the greed and self indulgence within all of us.

In truth, you and I are the building blocks of the global economy.

The Economy is an “Emergent” Phenomenon

Like our societies, the global economy is a complex system that adapts to its environment. All such systems of relationship are made up of what systems scientists call “agents.”

Just as water molecules are the main ingredient of oceans – and homes are the most basic form in our built environment – individuals and families are the most basic ingredients of our economic and political systems.

Corporations, countries and financial markets are all made of people. What we have just seen in the global economy is an emotional and psychological “tidal wave” of anxiety.

A tidal wave is an “emergent property” of a group of water molecules. It occurs when a “society” of such molecules responds to a disruption in its environment. The same is true for a hurricane or a tornado. There is nothing in a tidal wave except sea water. It has no distinct material ingredients of its own and could not exist unless every single salt water molecule within it contained the properties that allow a massive wave to form.

The same is true about the relationship between human beings and the global economy

In a world such as I describe, the successes and failures of an economy, a country or a culture emerge from the characteristics of the individuals within it. Particularly in a democratic society, leaders arise from the shared realities of the people.

Working Together Responsibly

So only you and I have the power to transform our economy. Barack Obama cannot fix the problem. All of us – consumers, bankers, stockholders, the wealthy, the middle class, the poor, our international partners, academics and economists, hedge fund managers, members of Congress, the teen working at the fast food franchise and the guy on the automobile assembly line approaching retirement – will all have to work together.

It is up to us. Every individual, each family, each small business, each multi-national corporation and each government is an economy unto itself. If we are going to learn anything from this troubling experience, it is that each of us must take responsibility for our own relationship with money. We must face this reality because it is the only truly workable long term solution to our troubles. It is also moral and upright.

The media parrot and stoke our anxiety because that is what makes financial sense in a world where information is tied to profit. So we have to change the conversation ourselves. These facts mean we must give up the “one size fits all” stereotypes we use to fix blame without ignoring the realities of human nature.

We are profoundly social and collaborate with one another instinctively. Human beings are also deeply emotional. We look to those around us to assess how we should react to the world. If our neighbors are afraid, fear spreads like a virus. The same is true of optimism and courage.

People must first see the possibility of a positive change before they can strive towards it. To accomplish that in government, we must learn to distinguish the good public servant from the bad. If we want responsible corporate behavior we must reward those corporations who are responsible and give back and distinguish them in our conversations from those who are exploitative and predatory. If we want our President to be successful, we must be balance our demands for change with some sense of our own responsibility in the matter.

We must face the realities of a global economic system and understand the interdependence inherent in our global economy. “Foreigners” are not stealing our wealth. The Chinese, Indians, Mexicans, Taiwanese and Brazilians aren’t stealing our jobs. The global economy is the result of our efforts in the developed world, often imposed against the wishes of the citizens or even the leaders of those nations.

We in the West are hoist on our own petard. The impersonal realities of the marketplace are redistributing our wealth to those who compete most effectively. This occurs in the capitalistic system of value we in the West created.

We – the rich and powerful – fuel that redistribution with our endless desire for more toys, more experiences, more consumption and more status. The desperate cry of the old order – “spend, spend and spend” – is the pusher trying to entice the addict. We need to go “cold turkey” and re-examine our personal and cultural values.

And there is no turning back. This trial we face is not temporary. It is the new reality. Turning our southern border into an Iron Curtain won’t save us. Isolation and protectionism are just ways to hide under our beds and ultimately impossible to achieve in an age of open borders, international trade and monetary systems and the Internet.

Tamping down rampant consumerism does not mean our economy cannot be vibrant and diverse. It only means that we must balance our needs for profit with a vision for an economy that works for all classes, all peoples and our planet as a whole.

Changing the Conversation

Again, all we have to do is change the conversation….and the rest will follow. The only real difference we can make is in our own lives and is expressed one person at a time, one family at a time. Cooperation enables us to collectively transform our systems of value. We must work together because such actions are the only solutions that will protect our descendants and the only true road to peace. We live on a planet with fixed resources but unlimited possibilities and the only workable path forward is to begin creating a world that works for everyone.

You may not care whether the “poor people” in the developing world eat or not, but you do care about the survival of your own children.

You may not like it that human society has reached the point that your survival is dependent on the survival of the impoverished masses of Africa, Asia and South America, but it is. You may pine for the good old days when we could prop up our lifestyles on the back of the “third world” but now the “third world” holds our bank notes.

That time is gone. You may not care about the state of the global environment; or that terrorism, extremist ideologies, pollution, global warming and the cascading extinction of species in stressed ecosystems around the planet are inextricably linked to economic inequalities.

But you will care when the first nuclear weapon goes off in a major western city, or the first deadly virus is released in your neighborhood by a disaffected extremist.

This is not just an economic downturn. It is a global economy in the process of transformation. We stand on the threshold of a new world order. This change will either be the beginning of a new and fairer global economic and political order; or we will see more violence, privation, destruction of the environment, all ultimately leading to the slow death of Western culture as we know it.

An analysis of user patterns on the Internet makes it clear what is to come. In developed countries, over 70% of the population is currently connected to the Internet, yet they account for only about 18% of all people online. In the rest of the world, less than 17% of the population is connected and that is changing at a rate in excess of 300% per year.

You do the numbers. We in the West cannot live in our “own little worlds” any longer. Oceans and massive weapons systems cannot protect us. Small bands of extremists have fought the most powerful military on earth to a draw. The long feared day has arrived and we only have two choices. The first and best is to take the lead in creating a world that works for all. The darker path is to withdraw into fortresses of isolationism and self interest, a choice that means our children and grandchildren will inherit a world much less hopeful than the one we knew as children.

I choose the former. My family too has been hurt by this economic downturn. We have had to give up many things we care about in the face of it. But those are just things. We are all still eating, laughing and loving one another. Many on this planet do not have that opportunity. I choose to take this experience as an profound opportunity, a necessary and beneficial adjustment to a changing world that offers new found hope and opportunity for everyone.

What will you do? Will you let fear guide you? Will you make a stand for what is right according to every moral and religious tradition on earth? Will you choose what is workable, pragmatic and honest – or will you choose to hide your head in the sand?

Will you stand with the dying husk of a world built on illusion, hollow consumption and self-interest or will you stand for our children?

One way or another, what happens in your life and our world is up to you.

It may seem impossible to make any real difference. It may seem too overwhelming to even contemplate, but truthfully you do not have to know what to do or how to do it to make a powerful commitment.

All you have to do is pick yourself up, realize you have the power to control your words…and change the conversation.

You would probably have to have been living on a remote desert island for the better part of two years to not see any signs of the slowdown in the economy of the United States. Since August of 2007, the real estate market has been reeling from plummeting house prices, due primarily to increasing defaults on sub-prime mortgages. While these mortgages were issued to millions of borrowers with patchy or relatively poor credit ratings over the past several years, interest rates remained unusually low before the Federal Reserve began to increase rates over 2005-2006.

Up until late 2006, this process was self-reinforcing, mainly due to the delayed impacts of interest rate changes, not to mention encouraging profits for lenders, who would often repackage the loans into securities which could be sold to investors globally. Many analysts called it a new era in risk management, justifying the arcane nature of many of these new investment entities with ever-larger profits.

But just as higher interest rates began to take their deflationary effects on the larger economy, millions of sub-prime mortgages began to reset, their rates immediately dependent on available credit. Moreover, many borrowers were not made aware of the insidious nature of their home loans.

Often, their interest rates are artificially low for some period of time, usually one to two years, and then change to reflect market rates afterward. These “teaser” rates were designed to lure more potential homeowners, and they worked: all estimates of the amount of sub-prime mortgages number in the millions, and many consumer advocacy groups have decried the skyrocketing incidence of “predatory loaning” leading up to the credit crunch. Defaults have continued to increase, which has forced the financial institutions which invested in mortgage-backed securities to write down billions, eventually leading to the spectacular collapse earlier this year of Bear Stearns, formerly Wall Street’s fifth-largest investment bank.

Since the securities made from these increasingly worthless mortgages have been so widespread, any effort towards recovery must first be focused on stabilizing borrowers, who are increasingly behind on payments. In this respect, the government has taken several different courses of action. In an effort to stop unnecessary foreclosures, the US Treasury has begun an initiative to freeze mortgage payments at current levels for qualified recipients. However, its restrictions make less than 5% of homeowners eligible for the program.

In addition, the Treasury has introduced a plan to reorganize and regulate the lending industry over the next several years, which should help streamline the financial system in the future. However, its greatest effect so far has been to distract from more immediate economic problems.

By far, the greatest player in the recovery effort has been the Federal Reserve, which reversed its previously hawkish view to drop mortgage interest rates multiple times, from 5.25% last summer to 2.25% now, with a further cut of 25 basis points highly likely at the next meeting. They have also taken the unprecedented move of making its “discount window” rate loans available to investment banks. This access has historically only been available for commercial banks up until this point as a matter of last resort, but by bailing out Bear Stearns, the Fed made a commitment to help troubled investment banks weather the credit crisis. A recovery will require a combination of liberal monetary policy, further government intervention on behalf of mortgage holders, and enforceable regulation in order to prevent another bubble.

China has registered a solid growth track since 2003, and its economy has expanded quickly and in a stable manner, the National Bureau of Statistics (NBS) said yesterday.

Living standards have also improved considerably, as income levels and economy have steadily increased since the 16th National Congress of the Communist Party of China convened in 2002, according to the NBS.

The economy expanded by more than 10 percent in each of the last four years, at an average of 10.4 percent. That is more than double the average growth rate of the world economy during the same period, and is higher than any period in China since reform and opening-up in the late 1970s.

The economy remained stable as it steamed ahead. In the last four years, the growth rate never fluctuated by more than 1.1 percentage points. Meanwhile, consumer prices have also remained stable at about 2.1 percent per year.

China’s overall volume of economy was the world’s fourth largest in 2005. It was the sixth largest economy in 2002. The gap between China and the US, Japan and Germany – the top three world economies – has also narrowed in terms of gross domestic product (GDP).

As its economy has grown, China now contributes more than 5.5 percent of the world’s GDP, up from 4.4 percent in 2002. That is an evidence for the great and rapid development of the Chinese economy.

China’s booming economy also saw its per capita income cross the threshold of US$2,000 for the first time in 2006. According to World Bank standards, China should no longer be considered a low-income nation, as its per capita income now resembles that of a middle-income country.

While enjoying such rapid and stable economic growth, China has restructured its economy to increase the weight of its service sector in poorer western regions, the NBS said.

By 2006, the service industry accounted for 40.1 percent of the economy, as retail sales increased by an average of 12.2 percent each year in the four years.

Rural development

China has found it easier to develop its rural regions due to the growth of fixed-assets investment. These investments often reflect the potential for economy development in a region, and have increased faster in the middle, western and northeast regions. In 2006, for example, fixed-assets investment in the middle provinces accounted for 19.3 percent of the national total, 1.6 percentage points higher than in 2002.

The US economy strength has taken a beating lately due to the financial strain posed by shaky financial markets and the existence of troubled assets across many companies. In fact, the weight of these troubles continues to plague established financial institutions to such a degree that it might be quite a while before the tide turns.

The Treasury might have the authority to purchase troubled assets in an attempt to stem the downward spiral of the US economy, but that doesn’t mean that this strategy is going to be successful. The intentions of the “Emergency Economic Stabilization Act of 2008″ might be clear, but they do not come with a guarantee. What does this fact do for the American people? After all, in order to trust that the financial world will straighten itself out and the US economy strength will rebound, one has to have a certain element of faith. Faith in the system seems to be in short supply at the moment.

How many individuals are wondering if the US economy can rebound and gain back its once robust strength? How many companies and corporations is the US government going to have to bail out before the economy takes a turn for the better? These are all good questions that only time will tell.

Certain signs do exist that the US economy retains strength in some areas. In particular, according to the US Treasury, US exports grew over the last four quarters. In fact, the growth, which was boosted by a strong growth in global markets, reached 11 percent. Plus, core inflation remained constant or contained. According to the latest figures from the US Treasury, the consumer price index had risen 2.5 percent over the last twelve months if one excludes things such as the cost of energy and food.

Unfortunately, the US economy shows no strength when it comes to the area of employment. The number of paid workers decreased again in September, more than doubling the decrease that paid employment met with in August in the United States.

The primary goal of the “Emergency Economic Stabilization Act of 2008″ is that the package will infuse sufficient capital into troubled financial institutions to allow them to rebound effectively enough to circumvent the downward spiral that is currently going on. It is intended to provide a temporary boost that will help the economy to navigate around the negative drag of the housing market and its woes. This strategy is designed to encourage US economy strength that will far outmaneuver any negative consequences of the troubling financial situation currently facing businesses and corporations in the RS today.

The US government does not intend for the negative aftershocks of a slowing economy to linger. The goal is to have the stimulus package create new growth that increases the US economy’s strength, bringing it back to the robust financial level of better days. Indeed, the long-term growth of the US economy strength is as much a part of the picture as the short-term growth of the US economy strength.

Question about economy

*Explain how the economy works as a cycle.

*Describe how both a flourishing and a failing economy follows a cycle.

*What types of events could cause a break in a successful economy, causing an economy to fail?

Response would be greatlly apriciated, thanks!

In the financial world both money and credit are interchangeable. One can stand in for the other creating a very necessary substitute when needed. This happens many times in consumer and business financial transactions everyday.

For the sake of this article money is credit and credit is money. Much effort is put forth in legally obtaining and pursuing money thru some worthwhile endeavor. The same is true for credit and credit

history. It requires time and consistent effort to create and maintain a healthy thriving credit history that will be used at some point as a form of intangible currency in the marketplace.

Some still maintain that cash is king, however in the U.S. Economy in many transactions credit is the only medium used. Getting a hotel, renting a rental car and all online e-commerce use credit as a preferred source of payment. Most if not all businesses extend credit whether buyers or suppliers via procurement channels and some accounts receivables.

It is quite evident now and the case is solid and validated that credit is another form of money or currency. Credit has immense monetary value and a preferred status the world over. The is well understood and accepted practice in the banking and lending arenas.

What is the best means by which consumers can gain from the intangible monitization of credit? A first goal would be to discover the monetary value of their credit.

What would be the source of discover? Use a open free market auction and bidding process, thus allowing the free market to establish the value of ones credit monetary value in real time.

Who would qualify as bidders? Banks, lenders, mortgage brokers and credit card issuers, etc.

Are there immediate benefits for the consumer? Yes!

• A free no hassle user friendly auction and bidding process

• Empowering consumers to leverage their credit in the marketplace

• Possibly lowering interest rates through online auction bidding

• Defining the true monetary value of consumers credit

• Helps consumers save money

What are the benefits for the financial community? Create a paradigm shift in the way lending is carried out within the consumer space. Offer innovative solutions, meaning give the consumers what they really want and that is value. Make every transaction a value transaction therefore using processes that produce fair value transactions (FVT).

Once consumers experience a whole new world of fair value transactions(FVT) this would become a catalyst to motivate and inspire all consumers to maintain more viable credit histories. This would have a generational effect as well particularly with young future users of credit. End result a win-win for all consumers and lenders.

Question about monetary

According to the economics teams at three leading investment banks, the Australian economy is slumping right now and will continue to worsen well into 2009 at a rate lower than the forecasts from Treasury and The Reserve Bank.

The economics teams at Goldman Sachs JBWere and Merrill Lynch have slashed their estimates of 2008 and 2009 economic growth for Australia and are now predicting recession.

And ABN Amro reckons the economy is stalling right now and growth is close to zero.

They all agree that as a result the Federal budget will go into deficit, unemployment will rise to 7.5%, and the Reserve Bank will cut interest rates to a low of 3.5%, a point suggested late last week as well by Macquarie Bank interest rate strategist, Rory Robertson.

He and the two teams now say we will get a 1% cut in interest rates from the Reserve Bank at its meeting next Tuesday, which will take the cuts since September to 3%, a measure of how seriously the RBA views what is happening in the economy.

But debt futures market are tipping the RBA to cut the cash rate by a massive 1.25% next Tuesday, which if it happens, would be the largest official rate cut since the 1990 recession.

ABN Amro’s chief economist Kieran Davies said a shrinking Australian economy, falling asset prices and recession-like levels of business confidence will make the RBA more inclined to cut rates aggressively.

“The wealth effect of falling asset prices is snowballing and the Chinese economy is slowing very sharply. Also, we think the economy is contracting now. We are close to zero.”

A 1.25% rate cut in December would take the cash rate to 4%.

The cash rate was at 4.25% in late 2001 and has not been below that level since the RBA began publishing its cash rate target in 1990.

Economists point out that the debt futures market is signalling a cash rate low of around 3%, which would be the lowest level for rates since 1960, when the credit squeeze hit that year and

Federal Treasurer Wayne Swan still claims the budget won’t go into deficit: the forecasts reckon it will, and they were supported by the latest update from the well-connected Access Economics team in Canberra.(Source).

Goldman Sachs JBWere’s downgrade follows one in the US from their economics group there for the US on Friday:

Goldman Sachs said US GDP was shrinking at a 5 % annual rate in the current quarter and will drop 3% and 1% in the next two quarters.

It said in a note US unemployment will reach 9% by this time next year. In contrast the US Fed reckons unemployment will get to 7.6% next year (it’s 6.5% at the moment).

This morning in a note to clients sent out over the weekend, Goldman Sachs JBWere said:

“We have revised down our economic growth forecasts from 2.0% in 2008 and 1.7% in 2009, to 1.8% in 2008 and 1.0% in 2009.

The new forecasts incorporate a deeper recession through 2H08 than we first forecast in early October and a shallower recovery path through 2H09.

“We have also revised our interest rate forecasts, with the RBA now expected to cut the cash rate to 3.5% by March 2009 (75bp lower than our previous forecast).

“The combination of dramatic financial wealth destruction, debilitating tightness in money markets, rapidly slowing credit growth, sharp falls in commodity prices and evidence that Australian house prices are declining led us to formally adopt a recession in Australia as our base line view on 12th October.

“Since that time our conviction that Australia is poised for its first recession in 17 years has strengthened.

“The reduction in commodity prices by our resource strategy team suggests that Australia’s terms of trade will decline ~20% year on year by end- 2009, sufficient to strip around 3.0% from domestic demand growth.

“We now expect business investment to decline 7.0% in 2009 (was -1.7%) and domestic demand growth of just 0.6% in 2009 (was 1.8%). As such, we have also raised our estimate of the unemployment rate from 6.5% by end-2009 to 7.5%.

“We believe economic growth will contract -0.5% in the September quarter, -0.3% in the December quarter and -0.1% in the March quarter.

“This would be sufficient to see GDP decline -0.6%yoy in the March quarter 2009 and -0.3%yoy in the June quarter 2009 before an acceleration to +3.25%yoy by December 2009 as the combined effects of the interest rate cuts, A$ weakness and fiscal stimulus coagulate in 2H09 and drive a rebound in demand.

“We remain convinced that the Australian economy faces a debt-deflation cycle. The risk of deflation was brought home to all policymakers by the sharp fall in US inflation in October.

“In essence, we believe the threat of deflation (no matter how small) will accelerate plans of interest rate cuts and we now expect the RBA to cut interest rates 100bp in December, 50bp at its next meeting in February and a further 25bp in March.
“This will take the RBA cash rate to 3.5% by March 2009, a 375bp cutting cycle since September 2008.

“We believe the government should worry less about protecting an underlying surplus and more about providing the conditions to promote aggregate demand growth.

“We have downgraded our Market Forecasts reflecting a reality check due to the current market turmoil as well as incorporating the recent revisions to our commodity forecasts and domestic economic growth forecasts.

“Reduced our Industrial top-down FY09 EPS forecast from -5.0% to -15.0% (bottom-up forecast is +3.3%). – Reduced our resources FY09 EPS growth forecast from 0.0% to -15.0% (bottom-up +4.4%) and our FY10 from +15% to -5.0% (bottom-up +20%).

“Our revised forecasts for the ASX200 are: Dec’08: 3400 (previously 4525; -25%) – Jun’09: 3780 (4975; -24%) – Dec’09: 4100 (5350; -23%). The ASX closed at 3374 yesterday , so it’s already under the 2008 forecast of GSJBW.”

Merrill Lynch wrote yesterday:
The Australian economy is being overwhelmed by the global financial crisis and external growth shock, impaired credit markets, collapsing asset prices, and imbalances on the household sector balance sheet.

We are downgrading our 2009 GDP forecast to 0.2% (down from 1.7% previously).

We expect the economy to contract on a through the year basis over FY09.

In our view, the very substantial monetary and fiscal policy response and adjustment in the exchange rate will not be sufficient to avoid a recession over 1H2009.

Our business cycle analysis and leading indicator frameworks are pointing to a rapid deceleration in domestic demand growth over the next 3-4 quarters.

Lead indicators of employment (and income growth) have deteriorated significantly over the past quarter.

Our downgrade to GDP growth covers all components of private demand (household spending, housing and business investment) and export volumes.

Business investment in particular will be negatively impacted by the global recession, the fall in the terms of trade and the tightening in the supply of credit.

Global lead indictors have fallen deep into hard landing territory. ML is forecasting global growth of just 1.5% in 2009, down from 3.4% in 2008.

The commodity price and terms of trade decline in 2009 will sharply reduce gross domestic incomes (both directly and indirectly).

The steep decline in asset prices over the past 12 months and need for households to lift savings and de-lever reinforces a very weak outlook for household spending through 2009, despite the cash-flow relief coming from lower interest rates and petrol prices.

We expect the labour market to weaken significantly over the next 12-18 months with employment growth falling to -2.0% by late 2009 and the unemployment rate rising to 7.5%.

The household savings rate is assumed to rise to 3.75% (from 0.9% currently) as de-leveraging intensifies.

We are more optimistic about 2010, with substantial global and domestic policy stimulus expected to support a recovery in growth. We expect GDP growth of 2.2% in 2010, led initially by a cyclical recovery in housing activity and strengthening global growth.

We expect the RBA to lower the cash rate to 3.5% by Q1 2009 in response to the global downturn, the deep slump in domestic demand growth and reduced inflation pressures.

The main focus of policy over the next 6-9 months will be addressing falling corporate and household income growth, which run the risk of exacerbating the de-leveraging underway in the economy.

And on Friday:

Citigroup’s global economic team issued its weekly update with these gloomy forecasts:
Financial conditions in the United States continue to deteriorate, increasing downside risks.

Collapsing US bond yields reveal considerable scope and need for fiscal action. Fed officials seem poised for further aggressive steps.

With a deepening recession in the euro area, and inflation likely to undershoot the ECB’s target, we expect the ECB to lower rates to 1% by mid-2009.

The Japan economy is likely to contract further, and we expect the BoJ to lower rates again.

The UK economy faces a long, deep contraction. But substantial policy action should eventually generate a recovery.

Question about economy

When Obama was pushing the spending program he said the economy was in bad shape and would fail if we didn't pass the bill. Now he says the economy isn't as bad as some people say and the fundamentals of the economy are strong.

Is he saying that the fundamentals of the economy have improved because he passed the bill or is there something else I'm missing?

The US economy experienced negative growth rates in 2008 (especially in the third quarter). This was primarily due to a slowdown in the market for housing and a significant fall in the consumer spending levels. With the help of financial planners and advisors, it is probable that the US economy might recover in 2009, at least in the second half of the year. A recovery of the US economy is of paramount importance, given the degree of dependence of the world market on the former.

In an attempt to identify the causes for the slowdown in the American economy this year, William Testa (the vice president and regional director of the Federal Reserve Bank in Chicago) said that, about 70% of the total economic activity in the US comprised of household consumer spending. In the face of acute financial crisis, recession and credit crunch, the household spending figures have significantly gone down, causing economic growth in the US to be stalled.

The fear or anxiety of losing one’s job has primarily caused the common individual to cut down on his levels of spending. This retrenchment in expenditure has also resulted from a re-adjustment of personal portfolios and re-valuation of 401K and personal properties.

However, economic experts remain optimistic about the recovery of the US economy in 2009. Echoing this view, Ilian Mihov, professor of economics at INSEAD, added that, the victory of Barrack Obama (the first Afro-American US President) came as a fresh lease of life in this wave of expectations of an economic recovery.

Obama’s campaign strategy was largely based on the policies of an increase in government spending, and a reduction in the tax rates. These steps, if carried out in a focused and aggressive manner, are bound to help the US economy recover. Indeed, by the middle of 2009, it is expected that the economy will start moving in the right direction again. The Federal Reserve has already cut down its key rate from 1.5 to 1.0 per cent, in an attempt to bolster the economy via aggressive rate-reductions. This measure (which can be extended via further reduction in the key rate) and injection of more liquidity in the financial markets (also by the Fed) are likely to stimulate aggregate demand. This, in turn, should help the US economy get out of the current recessionary phase.

Other effective, yet unorthodox, steps are also being adopted by the Federal Reserve to counter deflation in the economy. The purchase of commercial papers (a money-market instrument) represents one such recession-fighting measure. Another step that might be considered is a significant reduction in oil prices. If people can get the requisite oil and gas amounts at a lesser price, (s) he will automatically have more cash that could be spent in other channels.

However, there is one factor critical to the recovery of the US economy by 2009. The transition of power from the office of George W. Bush to Barrack Obama should not take too long. A smooth transition of political power, aggressive anti-recessionary policies initiated by the Federal Reserve and fiscal stimulus (provided by the US Congress), along with help from personal financial advisors and financial planners, should be instrumental in the recovery of the US economy in 2009.

Question about economy

Capitalism is a system by which a large number of people give their life meaning. It is based on a monetary system. We hardly think about the consequences this monetary system has on our social life. In his ‘Allegory of the Cave’ Plato described the problems people experience within a group when they think about things in a way that is different from the normal theory. The group’s ‘reality’ was based on observations from the rock face of the cave; impressions of shadows and echoes. In the last century, the famous scientific philosopher Thomas Kuhn described such a situation in a similar way; what people experience within an area of science as ‘truth’ and ‘reality’ is dependent on the relevant world view. A world view originates because people collectively accept  a conceptual framework of theories (paradigm/framework of thought). For that reason science does not evolve gradually, but by leaps through changes in paradigm. So science does not describe reality, but creates its own reality. This ‘reality’ is, after all, dependant on the relevant paradigm. A world view can change as a result of a change in paradigm. Paradigm changes can come about when an existing paradigm, accepted by people, appears unsatisfactory for solving continuing problems within an area of science.  Either the problems are solved within the current paradigm, restoring the confidence in the paradigm and it remains accepted, or there will be a new paradigm. 

The current crisis cannot be explained through current economic theories, but from within another conceptual framework that describes processes through a technical analysis of the monetary system implemented by us.  Supporters of various conceptual frameworks may find it hard to make themselves understood to each other  as it is only possible to talk of ‘truths’, ‘facts’ or ‘problems’ if there is a common paradigm. Supporters of the current economic models are trying, with the best of intentions, to explain and to avert the rampant crisis of the system going on around them. Few people seem to be questioning the chaotic behaviour of the economic reality, which can be logically explained by looking at the problem from the point of view of another paradigm; the technical working of the monetary system we have ourselves applied.

Other conceptual framework offers clarity

Current opinion is largely formed by the usual economic theories, understood to generally apply. These economic theories, which as a valid paradigm create their own realities, act as foundations on which society’s world view is built. These theories are practised in our world and maintained and traded in the media by politicians, economists and other leading policy makers.  The question of blame relating to the cause of the crisis is interesting and can be answered when we understand how and why capitalism as we know it functions and develops over time, as it has done for centuries with all of the associated social development. We could define another paradigm as a conceptual framework and focus ourselves in terms of areas of research on the structure of the agreements on which this system is based, by subsequently using it as a clear starting point for further analysis. Agreements within the capitalist system are expressed through our current monetary system. The supporters of the current economic theories do not approach the economic situation from the point of view of the workings of the monetary system. They  consider the use of this monetary system, in which the amount of money increases as outstanding debt increases, as an unquestionable assumption or fact. The shock, denial and resistance that may come about from reading this article is a logical reaction as a different paradigm exists within the current world view, that is to say that, through this other paradigm one lives in another world. However, changes in paradigm have always taken place. How did people, who had already gone through time-space, experience  their world and truths?

Newton’s physical theories were ‘truth’ until the point at which Einstein’s theories were accepted as a new paradigm. And there is something similar going on with the current economic approach. Every 50, 60 or now even 80 years, the capitalist model experiences an enormous crisis through which the majority of all outstanding debts are reorganised. The causal link between issues cannot be clearly and easily explained from the point of view of applicable economic theories, but can be explained by examining the workings of our monetary system. So why is this not obvious? Just as the acceptance of another paradigm such as, for example, the ‘fact’ that the Earth rotates around the sun rather than the other way around is a paradigm shift (a so-called Gestalt-Switch) not necessarily based on logical, rational grounds, but in the last resort  a sociological process.  

A centuries-old structure of the monetary system is the cause of the crisis   

(Western) people express themselves through activities primarily from within a monetary system. Almost everyone sticks to this agreement. This monetary system contributes a binding condition to our model of capitalism for the delivery or non-delivery of products or the carrying out of services. People have used this monetary system for a number of centuries, a monetary system in which amounts increase when there is an increase in outstanding debts. This structure of our monetary system is responsible for the current problems. The condition from which participants in the system derive their right of existence is the fact that one must not find oneself in liquidity problems; one must be able to sustain payments. The system can continue to operate without significant problems when this is the case for the majority of participants. This condition can only be met if the amount of money grows at a sufficient annual rate.

Evidence of the inevitable nature of such a crisis as the one in which we now find ourselves, in which the amount of money will shrink, will be indisputably be shown in the following paragraph. It will show why this crisis must undergo an almost complete reorganisation of debt before a structural recovery can be made if we continue to use the monetary system.  This reorganisation of debt will be on a larger-scale than in the 1930s, an economic depression that – handled within the confines of the monetary system – was also unavoidable, could only be postponed and which had enormous social consequences. Because of the unconditional use of this monetary system by people, the current situation the world now faces is simply impossible to avoid. This approach clearly explains Japan’s problems in the 1990s, the world crisis in the 1930s as well as other world-wide crisis (1837-1850 and 1873-1895).  It would be wise to wonder if there are other ways to pursue activities instead of, as participants in a capitalist system, stubbornly continuing to apply the monetary system with a pyramid structure, which results in huge social problems, but we will return to this.

After a growing amount of money comes a shrinking amount of money

In this treatise we limit ourselves to the core of the problem. After a growing amount of money comes a shrinking amount of money. Money is created by increasing debt; there now exists a loan and an available balance, while paying off the loan results in a loss of money; a ,loan and an available balance disappear. From this point it is, with a little understanding, possible to deduce the further developments using sheer logic. During the approximately four hundred years that we have had this monetary system, we have known periods  during which the amount of money has grown; participants take on more debt than they pay off and periods in which the amount of money has been reduced; participants pay off more debt than they take out. To understand this, the last period of an increase in the amount of money is described. This period followed the 1930’s, a time characterised by a shrinking amount of money;  participants paid off more loans than they took on. As previously stated, the world crisis could not be prevented, only postponed as will be shown based on the structure of our monetary system.

Over the last 60 years, existing loans have been on the increase and the amount of money has risen. Banks have become increasingly larger and more powerful during this period, which is a logical and inevitable development given the necessary increase in debt. During every recession over the last 60 years, the system has been able to ‘lend its way out of the recession.’ A sufficient increase of outstanding loans has meant a sufficient increase in the amount of money, the majority of all participants were able to ‘keep on paying’, prolonging the right to exist of the entire system.

At the turning point where we find ourselves since the summer of 2007, new loans are growing at insufficient rate while payments of old debts continue, or at least should continue (the last time this happened globally was at the end of the 1920’s; from mid-1928 new loans began to stagnate).The total amount of existing debt in the system is increasing at a reduced rate and the amount of money is growing insufficiently. As a result of this a large group of participants is running out of money. So participants have to sell assets (on which loans are often based) on a larger scale. As the result of which these will decline in value and the number of transactions will decrease. More important and essential for this story is the insight that the sum of new loans on these transactions also decreases, causing the increase in the amount of money in the following period to further stagnate or even becomes negative (shrinking amount of money); after all, less money is being created than in the previous period while money is disappearing due to the necessary paying off of debts. The consequence of this is an even greater increase in liquidity problems within the system. The pressure to sell assets further increases and prices will continue to fall, new loans based on these collaterals will, in turn, also fall, etc. As a result of the characteristic pyramid structure of the monetary system, the unpreventable negative spiral is inevitable. Given the current valuation of assets, the amount of outstanding loans and the relatively low interest rates, we now almost reached the technical limit of a growing amount of money. Postponement is only possible by increasing the sum of existing debt. Increases in worldwide national debt may be the last convulsive movement. The option to provide more loans of sufficient level in order to allow the amount of money to grow, as was done in earlier-post-war recession, is no longer an option; the longer we remain in a period of an increasing amount of money, the more unstable the system will become as a result of necessarily increasing loans. Consequently, the economy will not improve structurally after a substantial amount of debts have been purged.  The supply of money will cease; more loans will be paid off than taken out. House prices and share prices will continue to fall structurally as a result of the increased pressure to sell, because the quantity and size of new debts continue to fall, leaving in many places a literal insufficiency of money within the economy. This gives a strengthened backward pressure as described above. The economy will continue to slow down, at a more serious rate than in the 1930’s.

The consequence of our means of expression

The use and acceptance by man of the monetary system has enormous consequences. Apart from the, by the monetary system dictated, necessary specializations, upscaling and fusions of human activities to remain viable as a participant of this capitalist model, I hardly dare to form an opinion on the social problems that have already been set in motion. With a shrinking amount of money people are, in terms of the monetary system,  ‘no longer able to earn anything’; they have to ‘economise’ or activities will be discontinued due to the financier or other lenders because  ‘obligations can no longer be met.’  Conflicts and frustration between people will only increase as a result of the monetary system. ‘Securities’ such as the value of property, shares and obligations, as expressed in the monetary system, come under increasing pressure. This will be experienced as a disappointment to people as participants of the capitalist system. Market parties in the food chains, education and health care also express themselves (in a necessary way) in terms of our monetary system. People should continue to eat, but for as long as the monetary system sets the binding terms for this, it will become a problem. Moreover, the integrity of the monetary system will be under increasing pressure, the national debt will increase (inc. state support to financial institutions and stimulating measures), whereas in the real economy the number of loans continue to decrease as a result of falling collaterals and the amount of  money will continue to decrease. We as  human beings, while reasoning, acting and searching within the monetary system, cannot find a socially acceptable solution. It is important to consider this alternative approach to the problems and to remain aware of the causes of the current situation, because as long as the agreements formed in the monetary system continue to apply, the economic problems, food crisis, political instability, social unrest and further worldwide conflicts will only continue to increase. We do not want it, but as long as we as people continue to express ourselves through our applied monetary system, it will happen.

Summary

The fundamental cause of the current gigantic crisis is found in the fact that we as people accept the monetary system that we apply. The current problems can be traced back directly to the workings of this monetary system. Finger-pointing at sub-prime lending, derivative, banks, mortgage advisers or other market parties is fundamentally unfounded. Some of this participants have in some cases accelerated the supply of money culminating in the change by enriching themselves, through their position and power. However, it would have been impossible for them to avoid it. If the lending behaviour of the participants in the capitalist system had been reigned in at an earlier stage thus stagnating the supply of money, then such a crisis may have patently manifested itself sooner. Governments are also unable, within the rules of the monetary system, to take measures that offer structural, socially acceptable solutions, regardless of their wish to do so. Because we have been using this monetary system with a pyramid structure for some centuries and, as human beings, accepted it we will experience –  after a period of a growing amount of money – a period of a shrinking amount money or the monetary system having been found unreliable. By searching within the limits of the system, mankind is prevented from finding an alternative solution. A change, however, is inevitable and the future can no longer be measured by the standards of the current world. Hopefully mankind will be successful to banish this monetary system from his mind and with it all of the associated conditions, rules and expectations , and will be able to interpret the change as a new beginning, rather than a down fall or apocalypse.  An old knowledge teaches us that times of “the acquisitor” (“If I engage in an activity or take some action then I should gain from it ”), in which people cannot, in their minds, abandon such a system, will end up in confusion, disappointment  and conflict. People should be able to get rid of these self-imposed way of thinking and, once liberated from that yoke as a binding condition, be able to fully develop activities, out of enjoyment, pleasure and love for their environment and fellow human beings. 

Changes to conceptual frameworks (paradigms) create resistance within society. Over the coming years, it may appear that the crisis will deepen if people as participants in a capitalist model, continue to adhere the monetary system, despite the often temporary optimism and the increasingly crazy measures people seek within the limits of the system. The monetary system sets binding terms for the development of activities, is a kind of common language used by people to communicate.  Mankind will experience increasing problems, resulting from the economic crisis when he will continue to apply this monetary system and by not changing his attitude as a human being. We could still mean a lot for each other, just expressing these activities within the monetary system is becoming increasingly tougher due to the shrinking amount of money ; people are willing but it’s becoming more difficult to make themselves understood to each other as a result of this monetary system. However logically the current (for the time being financial and economic) events in the world can be explained, acceptance of this other approach is in the last resort a sociological process. Given the consequences that will arise from the acceptance and application of the monetary system in the very near future, I felt obligated to put this statement in writing as an argument, in order to take my responsibility this way as a human being standing in opposition to the world.  

Question about monetary

Fiscal policy is a government policy that looks to influence the economy through changes in government spending and/or taxes, and is contrasted with the other tool used by the government, called monetary policy, which attempts to stabilize economy by regulating interest rates and the supply of money.  Fiscal policy deals with government expenditures, debt, and taxes, while monetary policy pertains to the availability, regulation, and cost of credit.

Fiscal Policy impacts aggregate demand, resource allocation, and distribution of income.  It deals with the budget of economic activity.  There are three possible stances of fiscal policy, which are expansionary, contractionary, and neutral.  The neutral stance of the fiscal policy is when the government spending is equal to the tax revenue or (G=T), so the government spending is fully funded by taxes.  When the stance of the fiscal policy is neutral, there is no affect on economic activity.  The expansionary stance of the fiscal policy is when government spending is more than the tax revenue (or G>T).  Expansionary stance is when there is an increase in government spending; this can be due to either a rise in government spending, or a decrease in tax revenue.  The last stance of the fiscal policy is the contractionary stance, which is when government spending is less than the tax revenue brought in.  This contractionary stance is possible when there is higher taxation revenue, lower government spending, or a combination of the two simultaneously.

The United States government spends money on a variety of different things, and the fiscal policy’s job is to fund these services.  The fiscal policy has three ways of funding the government’s spending, which are taxation, seignorage, and borrowing money from the citizens.  The government can receive extra money from higher taxes, benefit from printing money, and also from the population which does result in a fiscal deficit.  The government can fund its fiscal deficit by issuing bonds such as treasury bills (T-bills) and consolidated stock (consols).  These pay interest, whether it be a fixed time period or indefinitely.

Fiscal policy is used to influence the aggregate demand of the economy, which is the demand for gross domestic product, or the total demand for the final goods and services of the economy.  The government tries to influence aggregate demand so that there is price stability, full employment, and economic growth.  The idea behind stimulating aggregate demand by lowering government spending or raising taxes is that once it is done, the economy will grow from it.

Monetary policy is the process by which the central bank manages the supply of money.  Monetary policy is typically referred to as being in an expansionary or contractionary, just as fiscal policy is.  The expansionary policy increases the size of the money supply or lowers the interest rates.  The contractionary policy decreases the size of the money supply, or makes the interest rates higher.  The expansionary part of the monetary policy is usually used to fight unemployment during a recession by lowering interest rates.  The contractionary part of the monetary policy targets to raise interest rates to combat inflation.  The expansionary and contractionary policies must be meticulously used so that they do not go too far in either direction (expansionary or contractionary) or cause a big problem in the economy.

One of the primary tools of the monetary policy is open market operations.  The open market operation used to manage money in circulation by buying and selling different credit instruments.  The short term goals of open market operations are typically to achieve a certain target interest rate.  The monetary policy is associated with the interest rate and credit.  This did not used to be the case, as the only two parts of the policy were the decisions of coinage and decisions to print paper money to start credit.  The monetary policy has grown so much since its start that there are many different factors of its success, including short term interest rates, long term interest rates, speed of money through the economy, exchange rates, quality of credit, corporate ownership and debt, government and private sector spending and savings, international capital flow, and financial derivatives.  Since there are so many factors that must be accounted for, some people think that the economy should go back to how it used to be, which was called the gold standard.

The gold standard is basically the elimination of the Federal Reserve Bank and the dollar’s fiat currency status along with it.  In a gold standard, the standard economic unit of account is the weight of gold.  Under the gold standard, banks guarantee that the owner of the money can receive their money in gold at any time.  The reason this is a large issue is because at certain points in time, there were a periods of time when some banks could not give the owner their money.  If a person went to the bank with the intention of withdrawing money from their savings account, it was not possible for them to do so because the bank simply did not have the money.  With the gold standard this is not a problem, because the banks are required to have the money physically at all times.

Monetary policy refers to the actions that the Federal Reserve Bank (Fed) takes to influence the financial conditions to achieve its goals.  The Fed’s main job is to raise and lower interest rates, which is just one of many tasks that it must carry out.  For example, if rates on interest are lowered, the borrowing of money then becomes less expensive to the consumer, making them more motivated to spend their money since there is a better deal on a loan.  The reason that the Fed is so important is that it provides a stable currency that can be used throughout the whole country.  Before the Fed was introduced to the U.S., there were over 30,000 currencies throughout the United States.  Before the Fed, currency could be issued by anyone for a certain good.  There were many problems with this, because some currencies were worth more than others, and there was no basis on how to tell which was worth more.

The original purpose for the Fed was to organize and stabilize the monetary system in the United States.  It was made to set up a method that would create liquidity, which is the ability to take out money.  The reason liquidity was coveted is so that the banks could honor every customer’s withdraw.  The Fed also had to set up a method to create elastic currency, which means that they had to control inflation by making sure prices did not climb too fast.  Elastic currency plays a major part in the impedance of inflation and recession.

The fiscal and monetary policies both play an important role in the survival of the economy in the United States.  They both are required to regulate certain aspects of the economy in order to keep from going into a depression.  The Federal Reserve Bank also plays an important role in economy, because it is in control of the monetary policies.  As the economy grows and becomes more complex, there will only be more changes and additions to these policies, as it has come a long way from the gold standard in the early 1900s.

Question about monetary

we can sure draw some analogies.

Reflecting on the United States economy and the economic woes reported from the rest of the world’s financial systems these past few weeks, we have noticed a possible correlation to the childhood fairy tale “Chicken Little.”

You probably recall from this old English folk tale that a tiny little chicken called Chicken Little felt a rose leaf fall on her tail one day and immediately ran in great fright crying “the sky is falling!”

First one she told was Henny Penny who joined her in spreading the message. On their way to tell the king, they met Ducky Lucky who joined their chorus. Then Goosey Loosey and Turkey Lurkey also voted for the tale.

Did we say “voted”? Well, they joined the parade of characters till they all met Foxy Loxy who lured them into his den by promising to tell them where the king lives.

The story goes that Foxy Loxy led them into his den and they never came out again.

You can draw your own conclusions about what happened to Chicken Little, Henny Penny, Ducky Lucky, Goosey Loosey, and Turkey Lurkey, but you can be sure that the foxy one came out of that deal okay.

Now there are those who predict that our economy will never emerge from the den it’s in, but that’s not our area of expertise, so we won’t speculate here. Our business is running a business and we plan to keep doing just that.

We believe in persistence and hard work. Those whose wares we represent have their hopes tied into the products we represent. We don’t’ plan to let them down. We plan to be here; to keep on working and hopefully only paying our fair share to the common good in order to remain in business.

We hope to pass along many good deals to you in the coming months. We don’t expect to ever be a Wall Street presence; we are what has come to be called a Main Street business.

We are drowning out those who are trying to spread the message that the rose that fell on Wall Street was actually a thorny stem or the whole bush. We know based on history that some people will come out of this slumping economy smelling like a rose.

We know that some people are simply going to see and seize opportunity out of this turmoil and disruption. Some people are not going to fare so well and are going to need assistance. We support many organizations trying to provide that help.

In some respects poverty and unemployment are big business. Like a friend of mine said after being unemployed for four months a few years ago, “if it weren’t for unemployment, a lot of people would sure be out of work.”

Think about it. The unemployment system here in the United States is huge. We hope our customers don’t have to file to collect, but if you do, you will encounter counselors, clerks, and a cast of helpers that include those who actually keep the records and generate the checks to say nothing of the landlords collecting rent for the space these agencies use. If someone wasn’t unemployed, those people surely would be. Even our culture of helping those with less actually employs lots of people to distribute money, food, shelter, clothing, and other things of need.

We can’t predict where the large-scale economy is going, but we do believe that it will keep going and those who don’t give up on it will be a big part of its recovery.

We plan to be just as “foxy” as we can be to lure you into our den and connect you with some of the finest products from around the world. We can assure you that you’ll come out okay.

Please Reply and Share with us at: http://i-shoptheworld.com/2008/10/29/this-economy-is-no-fairy-tale-but/ all Your thoughts, Comments, etc. on any/all of the following related to the current Economic situation and How we may All work Together to Improve our World Economy for Everyone’s Mutual Benefits! , namely:

- Do You really think the economy is as bad as the news media has been portraying it?

or …

- Do you think this is all just a fairy story they/the media have concocted, just like Chicken Little, to convince everyone that the “sky is falling”?

and if so …

Why?

- Do You think the media telling everyone the economy is bad, just like Chicken Little, is creating a “self fulfilling prophecy” and making the economy worse than it is really otherwise?

- Is the economy in Your country “better” or “worse” than as reported by the news media in the United States?

- How has any of this affected your personal finances and/or family finances thus far?

- What are You doing Now to prevent the reported economic situation from (further) affecting Your personal finances and/or family finances?

- What do You think can and/or should be done to improve the Global Economy?

- And Who should be doing these things to improve the Global Economy?

- What may we All do to work Together to Improve our World Economy?
for Everyone’s Mutual Benefits!

We look forward to hearing All of Your thoughts, Comments, etc. on any/all of these topics related to the current Economic situation and How we may All work Together to Improve our World Economy for Everyone’s Mutual Benefits!

Question about economy

*Explain how the economy works as a cycle.

*Describe how both a flourishing and a failing economy follows a cycle.

*What types of events could cause a break in a successful economy, causing an economy to fail?

Response would be greatlly apriciated, thanks!