GDP is too simple to tell the performance of one economy

Consumption is everything, it is the most important part in the GDP function: GDP=I+C+G+(X-M). Without consumption, there will be no markets, because markets are there for consumption. Moreover, investment and government spending is used to boost the consumption. People need money for consumption. I believe, consumption should always be encouraged. In terms of evaluating one economy, I think consumption should weight more when we are calculating the performance of the economy. Government spending should weight a bit less, because some of the spending will not be added directly to the market. Exports and imports should be put into more categories. Raw materials and final goods will have different effects on the economy. When evaluating one economy, simple addition and subtraction cannot give us an overall picture about how the economy is on the right track, we need to evaluate the impacts of all different parts.

Bad news stops the Fed raising rates, so it is Good News! Is there anything wrong with this logic?

Bad situations have made the market so happy that the common believe that the situation will force the Fed to withdraw its plan of raising rates by the end of this year. Even after Goldman Sachs announcing its quarter profits down 39 percent from 2014, the share price of Goldman Sachs has stayed relatively stable. The drop of the profits could be foreseen by the poor performance of the financial market this quarter; meanwhile, such report could put pressure on the Fed's decision on the rate changing. The current situation is like: "bad things happen to stop more bad things happening". We have foreseen most of the bad news, maybe some of them is actually worse. However, we have stopped being panic about the bad news we have already predicted. We start to think the bad news could stop the others from taking more unwelcome actions, especially the US Fed. This is a very worrying thing. I think we need to take positive actions to restore the market confidence, instead of sitting and waiting for the news coming. Because the market may be recovering itself, but if there is any piece of information that is out of our expectation, it will create a huge shock in the market.

How can we test if the money system works?

Previously I discussed about the possibility of the private issuing money system and I think three rules should be set: a complete separation between ownership and management, private firms only issue money to pay their workers’ wages and the government taxation on firms’ revenue. After setting the three rules, I think the next step is how we test if the model works. The first phase is to build up a model by computer programs. Computer programs can give us some ideas how the system will work in our real world. The second phase is to start from a small community, if it passes the computer test. Containing it in a small community can also contain the possible damage within a small scale. The money generated by the new system could be seen as a kind of foreign currency, with a floating exchange rate. The floating exchange rate can use the market force to value the new currency. In addition, it helps to prepare the next phase. The final phase is to transfer the old money system to the new. The exchange rate can help this stage and replace the old money with the new money.

foreign aid: why not supply goods which have the biggest price increases?

Angus Deaton from Princeton University won the 2015 economics Nobel Prize, everyone thinks he is well deserved. I want to discuss his opinion on foreign aid. Mr Deaton says, "I am in favour of giving money not just in Africa, but for Africa". There is a difference between "in Africa" and "for Africa". "For Africa" has purposes, but "in Africa" does not need one. I always think foreign aid does not help a lot, here Mr Deaton tells me the answer of it. Inspired by Mr Deaton, I feel that it is extremely important to do market researches before giving out aids. Amount does not matter, if money is spent in correct purposes. Moreover, I think we can also rely on the market in the developing world itself. The market can distribute scant resources in the most needed field. Therefore, why not supply goods which have the biggest price increases? The goods have the biggest price increases, usually the goods most needed in the market.

Three basic rules that might make the private issuing money system work

The first rule is a complete separation between ownership and management. The second rule is that private firms only issue money to pay their workers’ wages, instead of owners’ profits, the revenue received will be used to reinvestment or paid back to the owners as profits. The third rule is the government taxes a firm on its revenue at a higher rate, if the ratio of the total wages to revenue is higher. These three rules can decrease the likelihood of dangerous levels of deflation or inflation. Because the system increases the amount of money at the level of the nominal GDP. And the government has the control of the supply of money, that by increasing the whole tax levels the government can reduce the amount of money issued by the private firms, as the cost of paying wages increases. Moreover, such system will increase the level of competitions. Firstly, it lowers the entry barriers, especially in the service sector where labour cost is the main cost of production. Secondly, workers want to work in a firm that generates more revenues, which means they are likely to get higher wages. Thirdly, the labour productivity might improve as workers’ wages have a direct link with their production. Fourthly, firms will always be careful to control their sizes within an efficient scale.

Some self-righteous beliefs about the quality that private-issued money should have

From my earlier article, I was talking about the possibility of the private-issued money. I want to continue this topic today as well. The most important is under what rules the private issue their money. Without putting any rules on it, the society will not all agree on the value of the money that the private issue. I think there are three fundamental rules that we should set when allowing the private to issue their money.The first rule is who has the right to issue the money. The second rule is what quantity of money one private institution should issue. The third rule is how the private-issued money circulate in our financial system. Then we need to test if these rules work. Firstly, these rules should allow money to flow and exchange freely. Secondly, the rules need to avoid hyperinflation or deep deflation, or at least have the tools to solve such problems. Thirdly, these rules give the third party a way to intervene in the financial system just in case that something goes wrong. The last, the rules will encourage competitions instead of monopoly. For the next few days, I want to focus on this question how we can possibly establish a system of private-issued money.

Maybe the money printed by the central banks is not needed

Money is the medium of exchange, this is the concept of money. Moreover, money itself can circulate in the society independently. The main character money should have is everyone agrees on the value of money. Therefore, if we can have one thing that has these three characters, it can be used as money, even if it is not produced by the government. We can find this type of things: for example, gift cards. Gift cards are not made by any government institutions or banks, they are made by companies and have all these three characters. If one day all companies have their gift cards and different companies’ gift cards are exchanged without any limited, then why do we need the money printed by the central bank? When such exchange happens more frequently, the society itself will start to allow the companies to issue money in terms of the values of their production. The only role of the government in the field of monetary would be the watchdog of the markets.