The problem of peer-to-peer financial system

There are many peer-to-peer financial platforms currently. However, there are many problems existing in the system. It has very high transaction costs and adverse selection problems. The amount asked by one borrower does not always exactly matches one existing potential lender, which means a lender may split his/her available funds or a borrower may need to ask for loans from several different lenders. This increases the transaction costs. Moreover, traditional banks have experts to analyze their borrowers' credibilities, but individuals may spend huge amount of time and resources on researching one lender. Some individuals may not be willing to spend too many resources on doing research, and borrowers tend to hide information from their potential lenders, then the problem of adverse selection appears. People believe that borrowers who borrow from the peer-to-peer platforms are highly risky, as they are not qualified to borrow from traditional banks. Therefore, I think the peer-to-peer platforms are platforms that offer individuals to buy smaller amount high yield bonds, there is no any magic in it.

People are becoming more diversified

People will become more and more diversified in terms of all aspects. In modern days, we have so many choices that we are easier to find something which is closest to our preference. Moreover, firms like non-price competitions rather than price competitions in order to have relatively higher revenues, especially they like differentiating their products from their competitors'. Such competitive strategy does not just give consumers more choices, but also make consumers self-correct their preferences and make consumers' preferences more complicated and diversified. Therefore, people's preferences are becoming more and more diversified. Moreover, people's skills, knowledge and information will be more and more diversified. We know that we cannot know all skills, knowledge and information, then we will make our own choices to learn some of the skills, knowledge and information. This will make people's knowledge, skills and information more and more diversified when there is an increase in skills, knowledge and information, which has been happening. In general, we can find people's preferences and capabilities becoming more diversified, which can cause people may become self-centred as they find fewer and fewer similarities with other people.

Where are we heading?

The Industrial Revolution centuries ago has made huge changes on our civilization in terms of the class structures, employment, the whole production process.  The importance of labour force has been diminishing over time since then. Currently we agree that manual labour is disappearing in our economy. People who have skills that machines do not have will be more employable. However, currently people are keen making machines smarter which makes the entire population less employable; therefore, people need to be educated longer in order to stay competitive. I think that the length of people being education will become longer and longer in order to set into the increasingly competitive labour market.

The end of OPEC

I read an article called "The Death of Opec", by Ed Crooks. He points out that there are many signs showing that the cartel is failing to unite together and form some sort of production freezing agreement. As I argue in one of my previous articles that once one member of a cartel cheats on other members, the cartel is about to collapse, the action taken by Saudi Arabia of increasing its supply contributes to the collapse of the OPEC. However, we will not see a big dramatic fall in the oil price, as although the cartel may collapse (the member countries cannot unite together and play a monopoly strategy), the oil market is still an oligopolistic market that the oil price will still be higher than a perfectly competitive market. Therefore, I think that the oil price will stay relatively stable unless there is some major innovation in the energy field.

Taxes and saving habit

Mr Abe's comment in meeting with other G7 leaders shows that he is likely to delay the previous planned increase in consumption tax. An increase in the tax can cause a decrease in consumption as it makes goods and services more expensive. However, as we know that the Japanese government has put much effort to increase the domestic inflation, the increase in tax may help to achieve this, if there is a social habit of saving. When the tax increases and people have sufficient income and savings, people need to reduce their savings to spend on consumption in order to maintain their original standards of livings. Japan is a country that has a social saving habit; therefore, I think that if the Japanese government can choose to increase taxes on consuming specific goods and services, it can help to reduce the people's savings, improve the government budget without reducing much consumption in the economy. The increase of government incomes from taxes can help to increase the investment level in the economy, which is another encouraging reason to increase taxes.

The fall in the US productivity should not be a surprise

Productivity is generally expressed as ratio of outputs to inputs in the production process. Productivity in the US is reported to fall for the first time in more than three decades. The productivity is measured in GDP per hour, which is actually the labour productivity. A fall in the productivity may not be caused by a lack of investment in innovation, as what Bart van Ark, the Conference Board's chief economist stated; it could be caused by firms' optimism about the future economic performance. In recent years, the US has very strong employment growth while the GDP growth rate is disappointing compared with the employment rate. This shows the output (GDP) grows much slowly than the input (employment) grows. Therefore, people should not be surprised about the fall in productivity. The reason for the firms to employ more people, despite their outputs grow narrowly, is largely because they believe the economy will lift up and the increase in their labour force can help them to take advantage in this coming economic boom. 

The tax avoidance crackdown could lead to a fall in the markets

Without cooperation across nations, multinational companies could avoid tax payment in high tax rate countries by transferring profits within the companies. However, currently nations work together to crack down the tax avoidance system. The companies will have to pay higher taxes in the future. This definitely will affect the companies' earnings; moreover, it could also affect the financial markets, especially the equity market. Additionally, their abilities to pay back loans may be affected by the reduction in their earnings after tax. Therefore, the governments could reduce their budget deficits, but if the pension funds are affected by the fall in the financial markets due to the reduction in companies' earnings after tax, the governments may have to increase their deficits to help the pension funds.