Real Life Economy

The vicious cycle of our new economy – Part 5. Equilibrium in a limited market

To fully understand why our economy is in its current shape, we need to establish some basic understanding regarding the ideas of equilibrium in a limited market (our current economy). lets start by understanding why our economy is a limited market. It is so, because there is a limited amount of money available in any moment, with a countable limited amount of people using it. The limited money supply is based on a very simple logic, it reflect the amount of good and services in a specific market. It is extremely important to keep such a balance in place to prevent inflation.

Inflation by itself is a complicated subject. If you’re searching to understand more about it, you can start here. For the moment, we will say that inflation is a process in which due to overprinting of money each coin value decrease, making it less valuable. If any government will start printing money with no sense, the actual money that people earn or save will lose its value. A reality that is not desired neither by the masses neither by the government. Due to that point, the amount of money available in a market is known and can be calculated, evaluated and controlled if needed.

The philosophy behind the way our economy is built, dictates that a certain market should have at any moment enough money for all its people. the “people” refer to individuals actively participating in the market. Participation requires from a person to earn and spending his money constantly. It is called “The circulation of money”. As long as they do so, each individual is reflected in the mechanism called “local economy”, which in it terns promise each individual will have the money to live out of its earnings.

Sounds like an utopia? well, this is the theory. So why the reality is so different? It is quite simple to understand.

Maintaining the economy in that way requires to keep a certain balance. The rule of this balance is simple, from the moment some money is spent by a certain group, some other group will need to spend and equal amount immediately to keep the balance in place. In a fair world, in which every person is earning based on his job and spending based on the actual value of a product he needs, everyone should all have enough money to live respectfully. In that manner, some people will have a bit more at a certain time and some people a bit less in other, but a fair income will exist for everyone constantly.

The riches people of the world

It is easy to understand what will be the consequences of creating a concentration of money by a person – Somebody else will not have enough. Now lets go back on our reality. Based on publications made in Fortune magazine in January 22 ,2018: “Oxfam have found that  in 2017 The World’s Richest 1% Took Home 82% of Wealth Last Year”. 

Based on the “law of equilibrium in a limited market” presented above. is it not easy now to understand why the majority of the people are fighting to earn enough to live distantly? The money exists, it is just concentrated in one side of the equation draining the rest of it.

Read more in the subject  and many others and start understanding better the world we are living in.

Share with me your opinion. Awareness and open conversation are the key to promoting the creation pf a better world.

 

book review

Book Review: “Manias, Panics and Crashes” by Robert Z. Aliber and Charles P Kindleberger

My fevorite quotes from “Manias, Panics and Crashes”:

Swindling increase in economic booms because greed appears to grow more rapidly than wealth: it’s as if the increase in wealth trigger an increase in greed”

“Money is a public good; as such, it lends itself to private exploitation.”

“To ultimately survive, it is also essential that you become aware of the signs of a bubble and avoid them at all costs. You will probably leave profits on the table but will also avoid the painful and debilitating financial collapse that follows along with those who were either too short-sighted or greedy to avoid entrapment in the Pollyanna Paradox.”

rate: 10/10

Book review manias, panics and crashes

 If you ever asked yourself how come we are going from an economic crisis to another, this is exactly the book you’re looking for. As many other aspects of our current reality, a proper explanation for our lives is coming long after we pass the first traumatic events. Globalization is in its middle steps of evolution in matters of social and political structure, nevertheless our economical system is global for many decades now.

In this 368 pages book, Robert Z. Aliber and Charles P Kindleberger has managed to describe in a fluent and simple vocabulary why we are already all connected and what is going on in our economic system. I truly enjoyed reading it. It gave me insights regarding the bubbles of the last decades, a deeper understanding of the net of investment moving it power around the world and equipped me with better tools to handle my personal investments.

In an era of digital and global investment, the need of the people to understand better how and why to invest, is a necessity for the purpose of promoting their wealth and their well being. If you’re not extremely familiar with economical terms but aware of the world around you and its recent evolution, or if you have anything to do with investments… I would recommend you to be added this book to your immediate reading list!

If you search to purchase the book:

Manias, Panics, and Crashes: A History of Financial Crises, Seventh Edition (The most fordable version I found online)

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