Wednesday, April 01, 2009

Proposal to solve the global economic crisis

We are facing a global economic and financial crisis. People are scared to spend. They want to save money, in case they lose their job and need the money to spend at that time. 

The reduction in consumption is causing the economy to slow down badly. Businesses are hurt. They are not able to get encough sales to pay their expenses. They have to close down and retrench their employees. This will lead to a downward spiral.

The collapse of the value of property and other assets cause people to feel poor. They also cut down their spendings. 

Actually, the people still own the same houses and assets. They now believe that these assets are worth little, when one year ago, they thought that the assets are worth two or three times more. 

All this is just a matter of the mind. It is also called confidence. If we can get people to believe that they are rich, that their assets are worth more than they can fetch today, we can revive the global economy. 

Read this proposal.

3 comments:

ym said...

Mr Tan,
My views on the economy is quite the opposite... This crisis is not just of confidence and illusive nature..

The structure of production and capital (eg labor, land, machinery, plant, resources) has been distorted to support bubble activities.. this is a real problem for us..

also, making ppl feel rich (artificially) is precisely the wrong action...

David Hume (probably the 1st austrian economist) asked us to imagine a magical fairy who will increase all our bank accounts by another 0 tonite.. So the next morning, are we really richer?..

With all this new money from the fairy, we will start to exchange the new fake money for real resources.. and over time, the economy will be distorted and our real wealth squandered..

It is all the printing money out of thin air (by the central banks and via the fractional reserve banking system) that caused the distorted structure of production (wasted real resources)..

reference :
www.mises.org


ym

Everlearning said...

There is nothing much any nation can do to this global economic and financial crisis. It is corrupted and needed time for correction.

This is just my opinion. I come out with 5 C's:
Conspiracy - plotting game
Cheat - conning game
Casino - betting game
Credit - owing game
Caveat emptor - blaming game

From the leaders to the common people, all aspire the type of high-lifestyle. This is so undesirable.

Making people believe they are rich, therefore they are willing to spend. Isn't this kind of mentality caused the nation to lose billions of tax-payers' dollars in their investments? Many ended up in debts or worse still ended their lives when their illusion burst!

Start afresh! Act honestly and responsibly in all businesses.

ym said...

hi Mr Tan,.. glad you reposted this topic on economic crisis because i recently found a very good book on this topic which i want to share with you..

you can download it for free at :
http://mises.org/Books/mespm.PDF


to understand the crisis in a more formal framework you can read pages 989 onwards - chapter on inflation and business cycles..

my simple explanation :
the printing of money out of thin air is the root cause of the crisis (ie exchanging something for nothing aka counterfeiting)..

the mechanism for this is the fractional-reserve system... and its the central banks existence that allows this to go on...

counterfeiting will eventually collapse the real economy.. why?..
because, it is simply a diversion of wealth from wealth-creators to non-wealth creators (ie bubble activities)

so to solve it, we need to save, and we need the incentive to save ie higher interest rates and we need to stop printing money...


ym

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