In front of us evolves a new economy with new economic problems and the old economic tools seems to stop to work. The tools used are with called quantitative easing, that is eventually a process of replacing one government liability in form of treasury with cash money. While the treasury securities are with interest paid, the cash money is without. The cash money deposited in banks and lately stop to pay interest or pay very low interest on the deposits, mostly the cash money is deposited in the most liquid form. With very little real investment opportunities, the investment opportunities are rather in virtual form, like publicly traded company shares, company bonds etc. The bond price fluctuation is limited to heights representing zero interest rate, so the upper price level of bonds is limited while the share price is not.
The symptoms of this new economy are?
- No growth in GDP measured by the old monetary tools.
- Close to zero interest rate.
- No investment opportunities that can secure long term positive yield.
- 4. Close to zero inflation level.
What causes these new unprecedented phenomenon in the new modern economy?
- Aging and declining population in the developed world.
- Over investment in the most developed countries by the private sector.
- Long period of planning and preparation needed to enter a new grand scale project.
- Reluctance of the Government to take to its hand the leadership on economy by replacing private sector in major investment projects due to history of failures in the past, such as new airports, sport facilities, cultural facilities, even whole new cities, never really utilized. Since the 2008 economic crises, governments are closely watched by the public and there is less legitimacy for such grand scale projects, based on political initiatives, many times judged without economic calculations. Many times their initiators, sometime political leaders on the local level were accused of corruption.
- Economic growth is concentrated in economic activities of high tech products in fields of internet services, with very strong tendency for price reduction, in many cases reduced close to zero.
- GDP is measured as monetary expression of economic production and not as measurement of aggregated volume of production exchanged between the supplier and the demander. Even less it measures the products quality that exponentially increases with the evolvement of certain technology.
- The production productivity efficiency of services and goods is increasing with the new technologies, replacing the need for human employees in production and even parts of its engineering planning and management processes are replaced by machines.
- Marginal production costs, after the investment have been done, have tendency to be marginalized, with propensity to become zero. This brings new production competitors to the market and the products price drops. The very good example are new and new smart phone producers, but also services like taxi transportation hotel accommodations that need to cope with online tools as Uber and Airbnb.
Why economy without inflation and without economic growth as expressed in its monetary measurement is a problem?
- The Government collects taxes out of monetary transfers and not out of free exchange of products and services through the internet without any money exchange involved. Reduced prices mean less GDP measured in monetary form.
- The capitalistic system is based on capital investments into activities that generate positive yield, higher than the available interest rate paid on low risk government treasury securities. All these have to be expressed in monetary form. If there are no investments with predicted income in monetary form, the capital will stop to generate yield.
But the major challenge of all is the reduced capacity to control the economy within the monetary zones, like Euro or Dollar zones, by the banks and the governments. These two institutions created a joint venture symbiotic partnership to rule and manage these monetary zones and enjoy also personal benefits from this partnership. This explains also why it is so hard to advance legislation that would reduced the enormous rewards paid to the financial leaders and their political supporters. Add to it the appearance of a new form of monetary tool, the bitcoin, that endangers the monopoly of governments and banks to produce money, and you can understand why are all the central and commercial bankers alarmed.
As to the new plan to purchase corporate bonds, of course will include only the huge corporations with tight connection to the inner club of the Monetary Barons, who by this step will be officially introduced to closed club of chosen ones. These corporations will have free access to unlimited financial resources, while guarantied the government backing without to secure any reward to the general public from them. By the way what public benefit comes out of “Anheuser-Busch InBev corporation”, its main business activity is to take over smaller more innovative breweries and trying to force by aggressive marketing techniques the bars all over the world to sell to the public only their disgusting Stella Artois bier?