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Choices

At the beginning of September of the year 2002, a nagging thought was uppermost on our mind; that the continually unfolding drama on the stock markets world - wide required that any articles relating thereto would surely have to be revised. This revision was started early in October, and while on - going, it seemed silly to revise both the article titled "Stock Markets " as well as the other titled " High Tech, " for they both in reality were about the same subject, but perhaps with slightly different subject matter. The original reasoning for having two subjects was the differences in the velocity in which share prices were rising into " the stratosphere. " However, when both started suffering the same fate; but to different degrees, it was decided to change the entire format of both, and to embody them into one new version called " Stock Markets,"

While this was being undertaken, the idea for the present article was born. The more that revision was being undertaken, the more the realization that all these articles were in fact facets of a GREATER PICTURE; or said another way, while individual --- they were in turn similar to parts of a jigsaw puzzle, which if studied in conjunction, created something vastly different. However, while this in turn was unfolding, it raised the question of both "issues" and " interpretation " which led us to calling it "choices."

Over the past few centuries, each segment in which new things " happened " were doubtless quantified by those living in that period, as "we are living in interesting times. " It was certainly said when electricity was discovered and the light bulb invented. So too when the "horseless carriage " came on the scene, as also was " telephony "---- radio --- television, computers, ---- "email " and the "Internet." Toss in air travel and a myriad of others in between, and we all doubtless used the same term. Yet today THERE IS A DIFFERENCE. An unfolding drama of our own making, yet somehow either ignored or not understood; for very few of us seem to bother questioning it's path and it's destination.

We not only live today in "interesting times, " --- but as well in " dangerous times. " The pace at which changes are taking place seems to have consequences, which we either tend to ignore or misunderstand. We do so at our peril --- and surely we will live to regret it.

Collier's Dictionary defines the word " DEMOCRACY " thus : " A theory of government which in its purest form, holds that the state should be controlled by all the people, each sharing equally in privileges, duties, and responsibilities and each participating in person in the government, as in the city -states of ancient Greece. In practice, control is vested in elective officers as representatives who may be upheld or removed by the people. " End quote. Throw in a Charter Of Rights into the mix and one starts to realize the latitude encompassed therein.

Into this mix we now enunciate all the subject matter encompassed by the articles reflected on this web site. They are as follows :

Stock Markets : Currencies : Trade : Globalization ; Debt : Interest Rates : Trade Unions : Social Services : Economic Theory : The 3 B's : Free Trade : Recession : Governance : Wealth. Now think on this. Each are a facet of Democracy ---- yet when looked at as a whole, starts to represent an entirely different picture. Of course, this picture is dependant on the choices we make and how and why we make them. However the picture could possibly be entirely different to our expectations ---- in practice.

How we control Stock markets. How we develop and apply trade. How we define Globalization and use or abuse it's functionality. How we use and abuse Debt, both domestically and internationally. How we use debt as an economic factor. How we manipulate interest rates for different purposes and a variety of reasons. How Trade Unions behave --- and their influence on society and the economy. How much we spend on Social Services and where it is spent ---and the resultant effect on society and the economy. Economic Theory and the way applied and interpreted. The 3 B's and the lack of control and effect on society. Free Trade --- how defined, applied and abused. Recession ---- it's causes and how we cope with it's effect. Governance ----whether good ---bad --- or indifferent. And finally Wealth --- how created and protected.

There is a saying which says that " a chain is as strong as it's weakest link." This applies as well to all those entities previously said to be parts of a jigsaw puzzle, for each and every one of them affects all the others. What is disconcerting, is the thought that what ails us domestically, prescribes that we are powerless to chart an International course fair to all. We are like a rudderless ship, bereft of sails, and at the mercy of tide wind and current. Not knowing our destination, nor able to make " landfall." Good intentions we may have, but how effective are they.

In order to understand the choices we have, we quote from the body of that definition of DEMOCRACY with these words. Quote : "....... each sharing equally in privileges, duties, and responsibilities......." end of quote. Looked at Internationally, nothing that exists comes to mind where any of those three entities apply. Before we can attempt to apply ourselves to this problem, we have to examine the functions domestically and then apply them in as best a manner as one can in order that International bodies can function honestly and as equitably as possible. At the outset, let it be said that " the poor will be with us forever." Whether this be on any domestic scale, or on the International scale. We cannot distribute " Wealth " to make us all equal, but we can create the environment whereby the "poor " be LESS POOR. Or given the opportunity for them to increase their wealth without dramatically decreasing " ours. " It might even pay us to make do with increasing "our " wealth at a slower rate in order that " they " increase their wealth. Speaking for International Trade, this is the ONLY WAY that trade, be it "free trade " or " Globalization" can exist or flourish.

Let us examine three entities together, these being debt, interest rates and currencies. They are locked together, for they cannot function without each other. Not at least in today's modern society. They are also vital to each other in order to function efficiently. The accumulation of goods, the payment of services and the enhancement of wealth cannot take place without some sort of debt being created. In order for this to happen, the other two factors come into play. In whatever form debt is created in, it requires currency as a means of payment, unless of course a barter system is in use. Even if this were to happen, it still requires that the traded commodities be given specific values, in which case it would require a currency or monetary value be placed on the traded goods. Debt requires an interest rate charge in practically every case, and as payment is invariably made in monetary values, currencies come into play. Thus the stability of the currency concerned is of vital importance By the same token, stock markets become inter-dependant to all three of those entities, as purchases and sale of shares are made; and within the debt equation, bonds are bought and sold for the interest rate return of the investment.

What of wealth. This too possibly derives from debt, interest rates, currency value and the Stock market. .THE WEALTH OF THE POPULATION --- IS THE WEALTH OF THE NATION !! At this stage let us examine the use of interest rates.

INTEREST RATES : How important are they. They can influence the state of any and all economies, be they domestic or International. Above all, they influence currency values world - wide. They decide where, when and how one places ones savings. They can cripple or enhance the wealth of people and nations. The problem arises in how we use interest rates Thus ---- Choices ! Let us examine the effect it has when specifically applied. We start with its use by Central Banks. The theory is that if an economy becomes " over - heated " one raises interest rates. It is also used in order to slow down or stop " inflationary Factors ( the rise in price of goods and services ). It is deemed to slow down the effect of " too much money chasing too few goods, " However, when the economy shows signs of slowing down or going into recession, the exact opposite is done. Central Banks lower interest rates in order to stimulate the economy. THAT IS THE THEORY !! But for every CHOICE WE MAKE ---- THERE ARE CONSEQUENCES.

When interest rates rise, the cost of borrowing goes up, which theoretically slows down the creation of debt. When this is said to happen, the economy slows down, as there is ---AGAIN THEORETICALLY, ---- less money in circulation. We have underlined the one common factor that applies to both situations, these being, TOO MUCH MONEY --- and TOO LITTLE MONEY. Surely the logical solutions to both factors that influence the state of the economy, is to CONTROL THE MONEY SUPPLY --- and not interfere with interest rates. Manipulating interest rates often creates side effects often worse than the symptoms or malady. Surely if one holds an interest rate which is neither too high or too low, and allows the economy to settle down to a sustainable level ---none of these side effects would occur. When there is too much money in the system, suck the excess out, and with less money available, interest rates on borrowing will find it's own " comfort level. " Competition to lend money and to borrow money will define at which interest rate level debt will be created. Why should we entice people and companies to borrow more or less in the creation of debt by manipulating interest rates? What are these side effects? By raising interest rates the same level of money supply is still in existence, so the cost of money is in itself inflationary as it is added to the cost of the supply of services and the manufacturing of goods --- and passed on to the populace as an increase in the cost of purchase. Where interest rates are lowered to the lowest possible denominator, the side effects are far worse than the malady. The lower interest rates go, the higher the savings required to either provide for future retirement and pensions, and additionally the less available to those living on fixed income investments for their day to -day living costs. Thus the increased requirements to save, precludes this money from being spent. This was the prime factor for the ten-year recession suffered by Japan.

First of all, interest rates at the level applied by Central Banks ends up being below the level of inflation, thus diminishing the purchasing value of the currency. Secondly, how are we to determine how or where this cheaply borrowed money will be spent. In the present situation ( the year 2002 ), the money stimulated economies in three respects. The purchase of homes because mortgage rates were down, thus generating the incomes of those involved in the building trade and the supply of building materials, and secondly the purchase of motor vehicles. The third effect was the creation of additional debt, which despite the lower cost of borrowing ---still has to be repaid, which effectively sucks that same spending power OUT OF THE ECONOMY. What this does as well, is that the currency looks for higher returns elsewhere, often in foreign lands and currencies, thus depriving many countries of badly needed foreign exchange and investment funds. So the people bought homes and new cars, but where was the stimulation to other levels of the economy. There is only a given amount to be spent, so when that money was spent, what then! One cannot purchase another home or car in the year 2003. So both these areas of the economy are possibly due to feel a sharp retraction in the coming year.

Stock markets which had suffered devastating losses in capital values of the shares of investors, had high expectations of rising share values as people borrowed money for additional spending, in the hope of counter - balancing their losses. For this to happen, companies had to show rising profits, which is not possible, as investors were seeking higher returns in fixed investments such as bonds, besides having less capital to invest. Previous debt at fixed high interest rates had to be repaid and companies mired in excessive debt had no chance to increase profitability, but were often ending up with seeking bankruptcy protection.

When does a slowing economy become " a recession. " When Central Banks ALLOW THIS TO HAPPEN !! BY PLAYING WITH INTEREST RATES !! Besides this, " Govt. " interference in the economy " by trying to artificially stimulate the economy " by lowering taxes, as well as other varied incentives. This not only leaves the government with less to spend in order to have the desired effect, but it invariably ends up by their having to cut services in order not to go into deficit. Economies, like the waxing and waning of the moon. The rise and fall of the tides, and the changes of the seasons from Spring through to Summer, Autumn and Winter, is never static, for that becomes " Stagflation " or stagnation, depending at which stage or level it applies. A slowing economy can actually have a very small impact if left well alone. Sales slow down, profits diminish and while there is this ongoing contraction, manufacturing and services first start to cope with this by working staff for less hours. The result is lower take - home salaries and wages which dampens the effect of the slow down in sales. Thus " time " is bought before resorting to dispensing with staff's services for a so -called indefinite period of time.

However this particular one is not a natural contraction. This was never " a slowing economy." The primary problem can be placed squarely at the door of excessive DEBT !! And for this one can blame GOVERNMENTS world - wide. No laws exist that controls the limits of debt creation. This is left to so - called " market forces. " BULLSHIT !! That's right --- BULLSHIT !! Individuals were ---and still are, being enticed into borrowing more. Banks and other Financial Institutions vied with each other in giving companies excessive debt. Reserve Banks had the power to bring this to a halt, but preferred not to " rock the boat " while the economy was seen to be expanding. The problem --- ironically, is that Reserve Banks were looking at rising share prices ---- rather than expanding debt !! Central Banks attempt to control debt by manipulating interest rates --- in the belief that high interest rates are a deterrent to borrowing, and low rates are an incentive to borrowing. Quite forgotten, or perhaps ignored, is the fact that necessity for capital is not taken into consideration; that those who need or desire money will borrow at whatever the interest rate. So one has to examine what the EFFECT on the economy is when playing with interest rates. Surely the flow of money, or even the velocity at which it circulates, is maybe more important than the cost of borrowing may be. If this is an important factor, then money supply becomes equally important.

Let us examine the Stock Market " bubble " that burst. In the years 1992 to the year 2000, the United States had its greatest economic expansion ever, over such a short period of time. This not only generated mass employment n the U.S.A.; it created as well economic expansion to a large number of other countries, eager to supply the American consumer market. At the same time two other factors came into play, the one being massive flows of capital investment into the U.S.A. ---mainly into the stock markets and banks, and the other effect was the strengthening of the perceived value of the U. S. dollar. While this was happening, it resulted in foreign companies being busier, resulting in profit growth, share price increasing as a result. This factor applied equally to American stock markets and share prices. However at the same time there were negative factors coming into play. The flow of foreign funds denuded these self -same countries of much needed investment capital, and at the same time decreased the perceived value of their currencies to that of the U.S. dollar. This created a chain reaction, in their having to re - purchase their currencies, ( at a higher cost factor ), and thus depleting their foreign exchange reserves.

While it can be said that it was the creation of debt that fueled the economic expansion in the United States, and thus generated a likewise expansion in most countries around the world, it never - the - less would have happened in any case with less debt formation, be it even at a slower pace. In retrospect this was perhaps the more desirable, as it may have thus been more sustainable. Technology was the driving force that fueled this economic expansion, and eventually it also was the first to suffer the economic contraction. The constant effort to expand the present technology and create new uses will forever alter the present economic equilibrium between nations. We will get back to this factor later.

Do we really understand the value and use of constant debt formation. We doubt it !! While it may be a desirable instrument in economic activity, it would be even better if bound by economic parameters. A percentage of assets to liabilities; a percentage of debt to gross domestic and to gross national product. Banks and Financial Institutions should be bound by the amount of debt they carry and the cover they enforce on the debt they create. Governments in turn should have a limit to their debt in relation to their tax base. And likewise Countries should be limited in debt load as a factor of their G.D.P. It is nonsensical for the International Monitory Fund and The World Bank to keep on supplying funds to countries already mired in debt. They should never have been allowed to get into that state in the first place. One questions the underlying philosophy behind this. Above all, when the situation has arrived where countries are unable to finance the interest and redemption payments on their debt, one questions the methodology used by these two Institutions in trying to stabilize the situation.

Devaluation of the currency only adds to the problem. So it is vital that this not happen. This factor will be explored later as well. However it surely is stupid policy to further add to the debt load, when the debt load is already too high! What should be done is to utilize NEW MONEY to alleviate the problems created by OLD MONEY. Let us examine what was done to Argentina and Brazil.

Argentina had amassed a massive amount of debt, both on the domestic market as well as internationally. No law existed either domestically or internationally, which sets any type of ceiling to debt formation. In the end, the country was unable to repay neither the interest payments on their debt, nor any capital repayments. Appeals to the International Monetary fund and the World Bank went unheeded for a time--- a crucial period of time. Certain criteria were required to be put into play before they were prepared to undertake any type of " rescue plan." During this period of delay --- Argentina reneged on their debt repayments, both on interest as well as capital repayments. Forgotten was the fact that it was those self -same World Bodies that had plied Argentina with ever increasing loans over the years. Surely there should be a limit to the amount of debt a country can cope with comfortably !! Surely International law should be enacted whereby international debt is restricted to a given percentage of a country's GDP. Surely as well there should be some law, which, to a certain extent controls the volume formation of domestic debt by governments, so that it in total with international debt obligations does not exceed a given formula related to the GDP of any country. One cannot control the domestic formation of debt, as that would be interference in the domestic affairs of a country; but surely it can be added to International debt in order to provide a ceiling or limit to total debt obligations.

Adding to the problem was the request that the Peso be unhinged from the US dollar, where it had for a number of years been pegged ---. And allowed to free float on the market --- with disastrous results.

For a number of years Argentina’s Peso was pegged to the U.S. dollar at par. One to one. However, as the debt load increased, it placed an ever-increasing strain on the exchange rate value of their currency. In retrospect they should have devalued the peso to the dollar to a comfortable range --- and re -pegged it to the dollar at a lower factor. The " Manure hit the Fan " when their biggest trading partner (Brazil ) devalued their currency ( the Real ) without any warning; resulting in the Peso being over - valued in relation to Brazil --- and as well in the international markets where they competed against each other.

WHAT SHOULD HAVE BEEN DONE. !!

What should have been done --- is the following. Of course putting aside the fact that the situation never should have been allowed to happen in the first place. New money should have immediately been forthcoming from the International Monetary Fund BEFORE there was any reneging of interest and capital repayment date obligations. Say that $15 Billion in capital repayments had to be repaid in the year 2002, and $5 Billion of interest payments made, making a total obligation of $20 Billion. Twenty Billion should have been given in new money --- for the EXPRESS PURPOSE of repaying those obligations, but the new debt would be at a nominal interest payment of say 2% or 2.5% Any further debt requiring subsequent repayments in the sort term would allow for the time to negotiate for either " rolling over the whole or a proportion of specific debt obligations, or requesting those from whom these funds were borrowed, to accept either vastly lowered interest payments or a combination of new money at a lower rate and the balance at the old rate, in the same manner as negotiated with the International Monetary Fund.

At the same time Argentina should have lowered the value of its currency SLIGHTLY to that of the U.S. dollar, say 10 %. ---- But at the same time stating that all existing International debt obligations would be repaid at the original rate value. As time went by Argentina should have controlled a diminution of the worth of their currency to possibly no less than say 75 % of its original pegged rate. In order to protect a run on it's foreign currency reserves, it should have enacted laws prohibiting the conversion of the peso for all reasons other than the repayment of International debt, the repayment of bona fide imports (supported by the necessary documents ) and as well the conversion stemming from foreign owned shares of locally owned companies. Argentine citizens would be prohibited from holding foreign currency, other than a given quota allowance for foreign travel purposes. All payments for Argentineans exports would be surrended to the Central Bank of Argentina, who in turn would pay the exporter the peso value of the export at the ruling exchange rate. Domestic banks dealing in Peso currency would be free to continue as usual, but any foreign currencies exchanged by foreign tourists would have to have been surrended to the Central Bank. Thus the present and recently past problems in Argentina might have been overcome with far less pain on all sides.

Brazil should have been handled in similar fashion as regards new money debt for old money debt for the present obligation period; in order to obviate the type of problems created by the way it was treated with Argentina. If the Real currency is felt to be over - valued, then it should not be allowed to free float. Especially at a time where there are troublesome INTERNATIONAL DEBT REPAYMENTS WHICH HAVE TO BE MET.

Perhaps it would be best that the Real be pegged at a little lower rate commensurate with an accurate evaluation of its present purchasing power to the US dollar. This factor of Purchasing Power Parity ( PPP ) will also be brought up at a later stage.

For every choice we make --- there are consequences. For every action --- a reaction!! This should never be forgotten.

Before moving on to other factors, let us make the following remarks in relation to interest rates. During the best years of the economic boom experienced in the United States, their Central Bank Rate was in the area of 6% to 6.5% --- and the Prime Bank Rate was in the region of 8% to 8.5%. Surely this indicates that reasonable interest rates work!! It is surely obvious that a Central Bank Rate in the region of 6% to 6.5% and prime rates under 9% are no hindrance what - so - ever to vigorous, sustainable economic growth: WITH OF COURSE ONE PROVISO --- THAT THERE BE A CONTROL ON DEBT FORMATION

Let us examine Trade --- Free Trade and Globalization. To do this we also have to examine Currencies and Exchange Rates.

Trade has been around not only for centuries, but also for many Millennium. Nations traded with each other as far back as 5000 or 6000 years ago. But so - called " Free Trade " and " Globalization " are modern concepts of trade, no more than 15 to 20 years in concept; with perhaps one proviso. This perhaps being the European Union, which originated as far back as its inception in 1950 in - so - far as controlling the coal and steel industries. Slowly over the succeeding years, it changed and grew in concept and in participants, until recent times when customs and tariff barriers were done away with between members

Free Trade is the precursor of Globalization. The idea is that two or more countries " free - up " their trade relationship with each other. Allow for the freer flow of goods and services between each other. Certain conditions may apply in specific areas for specified goods or time or quota restraints. However the general idea is that eventually there are no tariffs applied and no hindrance to the flow of goods and services eventually between them. THAT IS THE THEORY !! However it is not working out that way. In the beginning it does work; to the extent that each participant increases trade with the other partner or partners. However, as trade reaches a certain level, especially where specific goods, commodities or services are concerned, they impinge upon local production or use of those entities, with resultant consequences. Lobbying by local entities seeking protection from this rising flow of imported goods or services, results in the imposition of lower quotas, and / or tariff imposition --- which in turn creates dissatisfaction between the trading partners. This is happening already, where there are just several participants being involved with so - called " Free Trade." It has its limitations, especially because local suppliers or manufacturers require protection against either cheaper goods, or even an increased flow of the same goods at similar prices to a defined volume market. Where local jobs are at stake, or where the local economy in specific areas of the country are at risk, this is bound to happen, so Free Trade has it's limitations, and we had best be cognizant of this factor.

The more that further participants are sort after to join any particular "Free Trade " association, the more that further problems can be expected to arise. There are finite limits to everything. So how do we share these equitably!! The more who become involved --- the greater the problems that can be expected. That is why the concept cannot work if it is expected to evolve into a global phenomena. One thing one can be sure of : If it is seen to work on a small scale somewhere --- it will never be" fair " to all the parties. Another point, which should be considered, is that these trade agreements are between " governments " and not between competing foreign companies. Trade is conducted between an EXPORTER and an IMPORTER, and governments are not participators, other than to the drawing up of the original trade agreement. Thus this eventually becomes a very difficult trade agreement to uphold. Added to this, is that the importers and exporters, are not bound by law to purchase from member countries to any trade agreement, so invariably over time the original volume of trade in specific goods or services could possibly erode, as cheaper suppliers are found elsewhere.

GLOBALIZATION presents even more of a challenge, and will suffer even more problems. If free trade has its limitations, the present concept of globalizing trade can never work. If it ever eventuates, it had better be in an entirely different format to what is presently envisioned. Let us study the imponderables and the pitfalls. The so - called "open and free trade barriers " without tariffs and hindrance to the movement of goods, finance and services is just quite impossible!! PIE IN THE SKY. Neither the biggest and strongest economies, nor especially the smaller and weakest economies could withstand the onslaught of goods and services pouring into respective countries. We had an excellent example of this just recently, when the United States imposed drastic punitive tariffs to protect various sectors of their economy. To this must be added vastly increased subsidies to the agricultural sector, and punitive duties imposed on it's own trading partners to their free trade agreement.

Especially crippling to economies is the unrestricted flow of capital funds : CURRENCIES !! Not only would 90 % of the world's poorest nations and peoples be derived of export markets, but as well the capital required to both purchase imports, and run a viable economy as their currency flees the country to find a haven in stronger economies. We will get back to Globalization when we study the unfolding drama of our jigsaw puzzle picture as we " see " it towards the end of this article. Before doing this, we would like to propose a slightly different aspect on globalization whereby it could become an asset to all the world's countries, in a format entirely different to that espoused by the World Trade Organization and various key and influential members of that august organization.

World trade can be enhanced to everybody's advantage with little if any detrimental effects if the following is undertaken..

1) Currencies be re - aligned to better reflect the Purchasing Power Parity between all others.

2) Currency rates are " fixed " and not floating and subject to market forces. These rates to be re - adjusted at stated periods and for specific reasons.

3) The free flow of currencies is not universally enforced.

4) International debt strictly quantified.

5) The major commodities used in world trade be listed together with volume output averages and consumption averages per country.

6) These to have fixed prices, adjusted periodically.

7) Quota allocations to and by all countries of all those commodities listed in item ( 5 )

All of these points have of course been brought up before, in the article titled " Globalization " as are various other remarks repeated here which are also within other articles on this web site. However, one has to repeat a number of these if one is attempting to complete an overall picture of the " whole " unfolding drama as we now see it today. Before proceeding further, we think it is time to ask ourselves the question --- " Why theses 7 points --- and what is their significance."

The answer is as follows: The first four items deal with currencies, and items 5 to 7 deal with commodities. Now to the reasons for this. International trade, as seen by the concept of " globalization " has to be" paid for, " and for this one requires first of all the where - with - all with which to make payment, and secondly that payment be made with a stable " currency of value. " This requires that all countries have both valued currencies to pay for their imports, and above all, in order to earn that foreign currency to make their payments, that they be given a valid share of the worlds total export / import markets.

One cannot expect international trade to expand, without EXPANDING THE MARKET !! To do this one has to both strengthen everyone's economy and at the same time protect the value of their currencies. This cannot be done if left to " market forces." Above all else --- this nonsensical approach to currency exchange rates and the free flow of goods has to be stopped. Currency values and commodity prices have to be protected if globalizing trade is to be effective. None of these can be effective unless we also control International debt obligations.

Finally we have to deal with items 5 ---6 and 7. In order for economies to flourish, their exports have to have defined values, and they have to have a defined share of the available market for those goods or commodities. To cover the problem of "quality " for " price, " these can be graded into say four quality grades, say grades " a" to " d " and prices set accordingly, so that there be no competition between classes of agricultural or manufactured products. Once we have fixed prices for all the major goods and agricultural products, there would be no need for subsidies. Domestic prices would be unaffected by the imported product. A further factor would come into play, were the IMF and the World Bank to issue their International loans at "subsidized rates " of say 2% or 2.5% interest charges. This would not only strengthen the economies of the smaller or weaker nations, but a " subsidy " of this nature allows for their economy being able to absorb the purchase of more foreign goods and services. In other words, what would have gone as subsidies to locals, will go to foreigners in order that they be able to purchase and pay for the self - same goods that previously required local subsidies.

CHOICES : ----------CHOICES !! These we have to make if we require the DESIRED EFFECT !!

Let us examine a few more pieces of the jigsaw puzzle ; Stock Markets, Trade unions : Governance : Wealth : Currencies : Interest Rates.

The wealth of the citizens --- is the wealth of the nation. That at least is the situation within democracies. If this is in fact so, then surely this wealth requires nurturing and protection. The bulk of this wealth resides either in cash currency held in banks and financial institutions, earning interest, or resides in bonds, shares or fixed assets. Wherever this may be, it is paramount that some sort of protection be given. This has to be embodied within THE LAWS OF THE COUNTRY. While people may be averse to "government regulation " or over - regulation, in - so - far as it protects one's wealth, this may have to be an acceptable burden. At least one would hope so!!

Therefore stock markets have to be regulated. So too accounting practice and Company Law. Within these parameters, debt creation and its relationship to asset values, cash flow and many other factors have to be taken care of. Add to these bank loans and credit limits. As a major proportion of individual wealth is invested within the functions of stock exchanges, surely one should accept that stock markets be regulated in order to protect that wealth. We are not going to go into the specifics of what protection is required within the conduct of stock markets, as these have already been enunciated in the article on stock markets on this web site, and the reasons for these. Pension funds hold a major proportion of the wealth of those citizens who either one-day will retire --- or have already retired. Above all, these people represent a major proportion of society, who are either saving towards retirement or are already retired and are now non - productive, and require that their accumulated wealth be both protected and subject to meaningful interest rate returns. For this to eventuate Pension fund investments have to be regulated and this is also dealt with within the function of stock market investment parameters.

How do Trade Unions and Governance feature here. First of all, let us be honest. NEVER EVER DO TRADE UNIONS CREATE JOBS!! However virulent and strident trade union activity has often resulted in job loss. While it had relevance many years ago, these have become less relevant today. To this extent, that in the United States it's membership is no more than 16% of the labor force, and as membership dropped, so too did the economy flourish. Not only that, but also those unions that still exist have at times been " accommodating " in their negotiations with new contracts, to the benefit of their members and the overall economy as a result. We will not pursue this element anymore until we enunciate the final picture as seen when all the pieces of the jigsaw are in place and the final picture unfolds: For it is in that final picture, that we may see the relevance of Trade Unions.

GOVERNANCE : The linchpin --- the fulcrum --- the corner stone --- the keystone to everything that either strengthens or weakens both domestic and international economies. Politics and politicians. One shivers and shakes at the thought of the powers they yield domestically and internationally --- and above all --- THE CHOICES THEY MAKE !! Nothing happens in economies, either domestically or internationally, that does not have its origins in either domestic law or international agreements made by politicians. So the CHOICES THEY MAKE is vital to the well being of peoples and nations. Nothing functions without " governance. " Every law enacted; every international agreement has a purpose. And it is upon this --- that the fate of the world is decided. We think of Armageddon as being " a battle. " An international war that will devastate the world for whatever reason. Hollywood and scientists often view it as a cataclysmic meteor collision with Earth, while yet again it is often featured by Hollywood as " an invasion from outer space by " Aliens." Never ever is it depicted as stemming from economic forces in play!!

Domestically governance decides (or should decide) how well the currency and wealth of the nation is protected. For this purpose laws that govern the performance of stock markets, companies and interest rates are enacted. How well the economy performs, relates to how labor law and trade unions perform their functions. How wisely tax receipts are spent --- and where spent: And above all --- wasted. What spent on social services within all domestic governance. Whether corruption exists and is ignored or hidden.

Internationally: The agreements made that deal with trade and currencies and currency values and interest rates. The formation of International Debt and the parameters that are or are not applied. All these have an influence on the final picture we see unfolding. SO WHAT IS THAT FINAL PICTURE!!

We do not regard ourselves as a " Nostradamus. " We are not able to envisage the future centuries to come, but we do interpret the unfolding drama as a picture we see emerging from the jigsaw of subjects enunciated within most of the articles on this web site.

We repeat these entities : How important are these : Stock Markets -- Trade Unions -- Governance -- Wealth -- Currencies -- Interest Rates. The fate of your well-being :--- our's --- : And all others are and will be decided by these. For these are the parameters of the final picture that emerges when all the jigsaw pieces are in place.

Let us start with the present recession. Recessions come and go like the waxing and waning of the moon or the changing of the seasons, but thankfully less often. Many of these have had similar reasons for their " happening, " yet this one is entirely different, for the primary factor that created this is different to all the others. The primary reason for this one was the massive creation of debt. To people; to companies; to conglomerates; to multi - nationals; and to countries this massive and pervasive debt creation fueled stock market activity, driving up prices to astronomical and eventually catastrophical levels. Came the eventual "day of reckoning " when the bubbles started to burst. The acts of deceit, the accounting practice malfeasances, and that undertaken by company heads and boards of directors, were fed by the desire to hide debt and resultant losses. All else were ancillary reasons. So there is an object lesson to be learnt here. This applies equally well to the debt creation that now mires the economies of many countries. Yes!! We will eventually recover from this one, as the World has recovered from all the others. Yet, having said this --- the World will never ever be the same again. At least not so --- IF WE DO NOT MAKE THE NECESSARY WISE CHOICES REQUIRED TO BE MADE.

Of all the subject matter on this website, there is one that has not as yet been mentioned within the compass of this article. This is the one titled " The Theory of Economics." It has been intentionally left to last. For it is the way we view economies and employ various economic theories, which will determine the course of the economic structures of countries for the next 25 to 30 years.

CHOICES ---- CHOICES !! YES !! It is the choices we make in the next 5 years that will determine the fate of all countries for the following 25 years or more.

Time now to study the unfolding drama: To see the picture as we see it. For this we have to study recent things that have been happening under the banner of Free Trade, APEC (Asia Pacific Economic Co - operation), ASEAN (Association of South East Asian Nations), Globalization and finally NAFTA and The European Union.

We start with NAFTA, the North American Free Trade Agreement between the United States, Canada and Mexico. As previously said before --- highly successful; yet today ominous signs of discontent and changing scenarios. Quota restrictions, and punitive tariffs imposed on certain goods. However an even more ominous factor has recently started to emerge which essentially tells one what the destiny of the whole concept of international trade is to be, and the resultant change to world economies. For this we choose the motor assembly plants. Aside from the forest ( or lumber industry ) and the energy industry comprising petroleum, gas and electricity exports to the United States from Canada, the motor assembly plants situated in Canada are the biggest exporters of " manufactured goods " to the United States. This results in a large employment of highly skilled Canadian labor.

First of all, one has to realize that these plants are essentially American owned subsidiaries, situated in " a foreign country " and employing " foreign labor." The first signs of changes taking place within the automotive industry, was the closing of plants within the United States, whereby plants are being closed in the northern states, the original " home " to the industry, and new plants opening in the southern states to replace those closed in the north. The primary reasons for these are twofold. The first is, or are the so - called incentives granted to the industry by way of cash expenditures by these southern states, tax relaxation and other perks in order that local job creation be created. Secondly an apparent " understanding " that this " labor " is protected from union activity. This possibly also applies to all ancillary industries that are " parts suppliers " to the motor assembly plants.

Thus a shift within the US, which relates to labor costs and union activity and possible tax incentives. Now the scene is starting to shift to Canada, where some of these assembly plants are either already closing, are contemplated to be closed, and destined to be replaced elsewhere within the U.S. southern states. To understand this enigma, takes a complete mind - shift in economic analysis. The Canadian dollar is valued at 64c to 65c to the U.S. dollar and their labor force is looked upon as being very productive. The basic reasons for this change are thus not so much that of "currency value " as it is labor activity (trade unions) and taxation. The unions in Canada today have become very militant and in certain industries and services. Have now reached their " past shelf life date " stage. Tragically they do not as yet recognize this. They either do not recognize what is happening within the automotive industry, or choose to ignore it. Having recently won further concessions in bargaining new contracts with " The Big Three, " they have essentially sealed their fate for the future of the industry in Canada, and consequently the jobs of their members. There is a limit to one's worth, and it is past time for unions to recognize this.

The irony of the present situation, is that when these plants were originally created in Canada, the currencies of the two countries were more or less of equal value to each other, and the reason for locating production in Canada, was virulent union activity in the U.S.A. Of course, it did not take long for those U.S. unions to see to it that similar union activity be created north of the border

CHOICES ---- CHOICES !! Perhaps one can start to understand how this " picture " is starting to unfold!!

General Motors are not alone in this unfolding scenario. We will get back to this in a moment. Within NAFTA, American owned companies originally constructed plants in Mexico to feed the United States markets. Low wages and the non - existence of trade unions were the incentive. Within the last two years, some of these plants have already ceased production, and have been re - located to lower cost - producing countries!! SO MUCH FOR THE CONCEPT OF NAFTA!!

So hopefully one is starting to ---- GET THE MESSAGE !!

APEC may become " the final straw that breaks the Camels back " of the distribution of the economic wealth of nations. This is because of the very mix of economies, for they comprise the " Us " and " They " of the conundrum of exports and imports. The " who will be exporting --- and the who will be importing. The who will be manufacturing --- and the who will be the consuming. The who is the West --- and the who is the East." We leave it to you to decide.

CHOICES ---- CHOICES !!

The point we are trying to make --- IS --- what the politicians are attempting to do --- IS --- not what to the Multi - Nationals and the Conglomerates have in mind!! Or --- on the other hand --- IT IS !!

We had better be aware of what is presently unfolding.

The common denominator that applies to APEC and ASEAN ---- is CHINA. !! Already a member of the World Trade Organization and APEC, China was admitted as a member to the Association of South East Asian Nations a day or two before this article was completed. We once alluded to China as being the " GENIE " that would be let out of the bottle, were it to be admitted as a member of the WTO, and it has become a member of both of these within the year 2002. There thus is no "going back " --- into the bottle --- or otherwise !!

The present anomaly, and perhaps as well the irony of the situation, is that China presently requires Western " know - how " and capital investment in order to both strengthen and broaden it's economy and export potential. In order to generate foreign currency, it is looking to the self -same Multi - Nationals to set up plants, that in the long term it intends competing with and eventually subjugating economically. And slowly but surely --- the West is obliging. On the obverse side of the coin, where the West is looking to that 1.2 Billion Chinese market for their exports --- it does not exist as yet. Perhaps but 10% of it's population ( + - 120 Million people ) are economically capable of purchasing Western made products or services So much for that that presently mythical markets for Western products. When that market eventually exists, Chinese owned factories will have long serviced it.

So do we buy this time : Or don't we !!

THE BATTLE LINES HAVE BEEN DRAWN -------------- LET THE BATTLE BEGIN !!

GETTING DOWN TO SPECIFICS !!

Everyone is talking ---- " EXPORTS " --- " EXPORTS " ---- but nobody ---- is talking " IMPORTS --- " IMPORTS. "

The point has to be made. Who is exporting and who is importing. There has to be a " them " or " us." --- because these two words will define the ECONOMIC ARMAGEDDON OF THE WORLD !!

Is it that Globalization is envisaged as " everyone taking in each other's laundry, " --- because if this is so, we had better be aware that some have more washing than others. Let us be more specific. An economy EXISTS only where there are jobs --- and job creation. Putting aside subsistence farming where everyone grows their own food, an economy cannot exist without jobs ---and ongoing job creation. For these two reasons, we had better be careful of the choices " we " (our politicians ) make on our behalf. How can you have " free trade " where there is no limit to imports that can destroy local job creation !!

How can one allow the free flow of currencies ( finance ) that can denude countries of their very life - blood to exist !!

Hopefully we have finally made our point.

If we allow the ongoing shift of production to nations who have lower wage costs, lower taxation levels and the absence of trade union activity ( virulent or otherwise ) --- the " WEST " as we understand it and know it --- is economically doomed !!

This is our ECONOMIC ARMAGEDDON . We had better get to understand this. The sooner --- the better.

We said that we would bring up several factors as this article came to a close, so this is perhaps the stage at which these are due for repetition. Four or five factors will decide where, how and when this economic battle will be fought : And it's possible outcome. Among these, and not stated in their order of importance are the following. Trade Unions and trade union activity. For this is one of the prime reasons that Multi - Nationals and Conglomerates locate production plants elsewhere. Currency values and low wage costs is another. So under - valued currencies are a decisive or contributing factor. Tax incentives, lower taxes and the laxity or non - existence of "human rights " laws are another. Then finally we arrive at those " Trade " organizations to which particular countries belong already --- or possibly will do so in the not - too - distant future.

The World is surely placed with two choices, the one being " Free Trade " --- and the other being " Regulated Trade. " Under free trade the " West " cannot win the economic battle. Under regulated trade it stands a chance. While it may very well be that the Multi - Nationals of the West are the owners of the productive output situated in the" East " --- we doubt that this will remain so, but in any case, the jobs in Western Society will have been long gone.

Within the two choices available, several scenarios could occur. If our choice is " globalization and free trade " then we see a convergence of trade associations vying with each other in order to dominate in the flow of goods and services. In the end this will be the final result. The "West " ( within their various trade associations ), will band together in erecting tariffs and quota restrictions against all the other nations with whom they cannot compete because of lower wage costs and little or no union activity. These economies will be forced to trade with each other, despite the fact that much of what is exported and imported between them, could have been purchased outside of their trading blocks at far lower prices. This would be the only way in which jobs and job creation could be protected within their economies. Hopefully by this stage trade unions would " have got the message " and accepted new labor laws that would truly protect them against foreign competition. The second option of "regulated trade " would be based on the seven principals previously enunciated, plus possibly a few others. This would regulate the flow of trade between nations, giving each the opportunity to a share in the export of goods and services, all at " given market prices " --- obviating price competitiveness and subsidies, and re - aligning currency values to better reflect their parity to each other. Above all, all currencies will be protected against market forces, and domestic economies will be given the power to control the flow and use of their currencies. All this we foresee as unfolding within the next 25 to 30 year span.

Are economists presently suffering from " tunnel vision " !! What is the agenda of the World's politicians, and who are those people who perhaps influence their decision - making. After all, " it takes two to tango. " Exporters are not endangering domestic jobs. They are more likely to be the job creators as are all others who deal with domestic activity and the domestic market. This logically leaves us with the IMPORTERS who are intent on competing with local production or domestic services, and those multi - nationals who re -locate to other countries with the sole purpose of re - exporting their production back to their own domestic market and at the same time into the other markets of either "trading partners " or those who merely subscribe to " free trade " and " open borders "

Reverting back to NAFTA for the last time. While there may be few signs that any of the participating nations economies are presently suffering from inter -active competition with each other, this may not be long in forthcoming. To this one has to add the influx of imports now contemplated to be undertaken. or already perhaps in progress. Unless they each get down to seriously analyzing what their present product mix is, that keeps them "afloat " economically within the same " boat " ; and in concert act to protect these major concerns against common products from " common economic enemies, " they will each in turn become a casualty to that economic war that will start to unfold within the next five years.

The present recession masks this activity presently, as the effect of the recession has not been equally felt as yet. But it soon will be. Those companies that are destined to survive the recession, will again start to compete with each other in the global economic markets, for export market share, and it will be a case of the survival of the fittest. The debt loads carried may be a deciding factor, as will the scramble for each and all of them to re - locate their production and sales elsewhere to get their costs down.

Perhaps even the " Kyoto Protocol " may become part of the conundrum. For it is the " West " who have been the greater polluter's and who are now faced with the greater sacrifices to be made, and resultant economic cost and possible loss of jobs.

Have " we " --- the " West " thought all this out to its logical conclusion. !!

We end this article with a look at THE EUROPEAN ECONOMIC UNION.

It started with 6 founding nations. It spread to 10 ; then 15. It is now contemplated that another 10 nations be admitted to the union within the next --- TWO YEARS !! But what is the present situation.

Of the original six, the driving economic force in Europe was West Germany. When it expanded to ten members, this situation still applied. However, when Germany undertook re - unification with East Germany, things started to change. The economic load has been a drain on West Germany's economy, and from an "accommodating " trade union activity and wage cost factor, there are today very different circumstances that have evolved. While all this was happening, "open borders " and customs union was established, to finally end up with a common currency.

The strains are already evident with the present 15 members. Farm subsidies and balanced domestic budgets are a major bone of contention. How then with another 10 new members with their hands out holding their " begging bowls. " The common currency value loss over the past three years presages more and more problems forthcoming. Ethnic and cultural differences are already adding to unfolding economic problems. The unrestricted flow of peoples and job - seekers only hasten the economic imbalances of regions and countries. So too is it with over-production and the protection of existing manufacture and resources.

WE SEE WITHIN ALL THIS ---- THE SEEDS OF THE NEXT RECESSION BEING SOWN !!

CHOICES !! --------------------------- CHOICES!!

WE HAVE BUT A MAXIMUM FIVE YEARS LEFT TO MAKE

THESE CHOICES.

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