DETERMINING ERRORS IN MONETARY SYSTEM AND BANKING TO IMPROVE THEIR CIRCULATION (КОД УДК 33)

Пазокиторуди Кейван Алиадел (Pazokitoroudi Keyvan Aliadel) аспирант (Phd student)

Белорусский национальный технический университет, Минск (Беларусь) (Belarusian

National Technical University,  Minsk, Belarus)

Abstract

After observing financial crisis of 2008 in the USA then all over the world, or Detroit’s bankruptcy in 2013 (as one of the most industrial modernist and richest city in the world); even more, Greece’s debt crisis (that it is known to be an successful and great in high-income economy, civilization, quality of life and trade), also many budget deficits and financial crises in every country from USA to the poorest African countries; it could be said that, we have huge basic faults in our financial system that is collapsing.

According to all the economic and political chaosespecially in the last 50 years, the problems that arise, is not from the government legislation alone, but lack of adequate knowledge and corruption in the system. So, it’s better to find a way to conjoin and predict people and market conduct with the economy and math well. 

In this research, with regard to my considerable experience in planning and economizing international projects, additionally having academic knowledge of economy, I want to show where errors in theentire global economy come from, how they affect societies in the future and what we should do to reform them.

Key words: Economic, financial, monetary, interest, money.

Studies indicate that the disparity between rich and poor has been increasing since 1970, at the same time; every currency has been losing its purchasing power. And I think these two issues closely connect with each other.John Maynard Keynes (1919) stresses that a continuing process of inflation or decreasing worth currency, it’s a force that doesn’t just invisible and secretly confiscate wealth of their citizens, but also it brings a nation down and all relations between debtors and creditors, which form the ultimate foundation of capitalism, utterly throw into disorder.It does it in a manner which not one man in a million is able to diagnose. Also in 1933 he mentioned in the letter to Federal Reserve that rising prices is a good symptom because they usually show rising output and employment, and to stimulation of output by increasing aggregate purchasing power is the right way to get prices up, but not the other way round. On the other word, it is impossible to consider that output and income can be raised by increasing the quantity of money. All the currencies that we create to the society or other countries, we should expect that, one day they come back to us.

I have already looked at all trends in currencies and found that almost all of them lost about 95% of their purchasing power since the creation of their central bank. governments have been keeping printing more currencies (that back by nothing) and adding them to circulation for last 30 years, because they have deficit spending every year (for funding the war, social programs, banking system and etc.). when the Treasury issues bonds, banks buy them in auction, then, central bank writes checks and gives the banks to exchange for the Treasury bonds with interest, now money is created with central bank checks. So, central bank and the Treasury just swap bonds, using banks as middleman. This process repeats to enrich banks and debit the public more and more. On the other side, creating bank credit electronic typed money (bank credit) over and over or keeping loan out people’s money with certain reserve ration to others plus interest. It means there is interest due on the bonds that spread out by the Treasury; moreover there is interest due on every one of those loans that the banks made. In other words, there is a payment due every month on the principal plus the interest. It shows that there is interest due to every currency in existence. So the result, there is always more debt in the system than there is money exists to pay the debt (its interest). It’s clear that all of these monetary transactions cause runaway inflation. History discloses that, loss of faith in money and start to save gold as capital by the people repeats. Because gold always preserve it`s purchasing power.

Almost all developed and developing countries have been starting to save a huge amount of gold in the last 10 years. But Adam Smith (1776) notes that gold and silver are not the best wealth of nations, but produce (both technology and product) has the greatest value. It can be induced that, gDP growth (gross domestic product) is a good foundation to indicate deposit interest rate, also balances with amount of treasury bonds.

In the past years, during first and second world war, the USA had 50% world gDP (gross domestic product), they made many airplanes, ships, weapons and etc. every year for exporting all over the world, when the most big countries engaged with war. So the USA used these situations and got more than 65% gold that existed in the world. But Joseph Stiglitz (2002) notes that almost all industrialized countries continuously experienced decrease in economic growth, and at the same time, increase in social inequality in the last 30 years. Certainly, an approach of all New Keynesian economists in foundations is almost the same. Stiglitz as one the a pioneer in this school (especially for his globalization methods) rebukes some rules in management and indicates some reasons that prevent economic growth, such as: replacing manages and representatives who cause problems by new ones in the International Monetary Fund, informing the public about what happens there, unfairness in voting power and suggesting wrong policies to countries in recession (like following austerity measures in economic crisis). He believes that economists good at discerning fundamental issues, but not at timing prediction. The economy should maintain their balance between market roles and government roles.

Richard D. wolf (2012) says that just until 1970 all real wages continuously were rising in the USA and if they were falling sometimes, expenditures were falling too. But then this trend has changed. He considers four reasons for it in that time: 1- Raising the substitution of robots and computers for workers. 2- A rapid increase in applying women for work. 3- Production movement from USA to Japan and Europe. 4- Massive immigration from all over the world to USA.I think the fifth reason is, lack of any balance in extending currency supply and available capital. Between 1970 and 2002, the average number of working hours per year by American rose by 20%, on the other side at the same period in France, germany, Italy and some other European countries this average dropped by 20%. Those workers borrowed all these wages that employers didn’t pay their workers for more than 30 years before, with interest through employers and banks. I think, certainly struggling just to pay their bills, is one of the main reasons to borrowing and take the talents and original ideas away fromdomestic production. But when economist Milton Friedman and Thatcher encouraged people to take huge amounts of debts, persuading more privatization, making government to control the economy less (when the free market was not ready yet) and other inefficient military expenditures, then purchasing power declines. They just beat the classical approaches to economics. Neoclassical thinks government should rule the economy, social problems and leave the free market to look after the distribution of wealth. Their assumptions and mathematical models were deformed, and became the framework for what we today called capitalism.

Herman Daly notes that before 1989 we had battle between communism and capitalism (free market), finally communist failed because of various reasons such as: inefficiency, human rights lack of respect and etc., but not because of that capitalism does better.

John Hicks once wrote that the story of economics in the 1930s was the battle between Hayek and Keynes. we can see that Hicks was right, and that this battle continues to this day as witnessed in our current policy debates. And that battle is the one between Samuelson and Mises, and the fateful choice was the late 1940s.  Rather than following Mises’s Human Action, the economics profession went the path of Samuelson’s Foundations. Also he insisted on dire warnings from Friedman as well as earlier from Friedrich von Hayek. Samuelson and Stiglitz both believe that market is not perfect alone and free markets do not stabilize themselves. In this way they note, not only necessary to control privatization for economic growth, but also legislating right policies (strategies) to provide suitable fundamental is crucial in every country. Unfortunately today we are not good enough about it or we think that it’s not essential.

Conclusion

I would mainly want to mention some issues that in this research try to analyze and evaluate possible answers:

  • — The current system that rules banking mechanisms, governments and large companies is making them richer, in addition weakening then removing light productive industries. while after 1990, all countries in the Southeast Asia, such as: Malaysia, Singapore, Philippine, South Korea, Taiwan, China, Japan and India, even more modern countries like: USA, germany, Canada and Australia; started seriously expanding their industries through those light productive industries. Because establishing and running these manufacturing don’t cost a lot, moreover they are more flexible (in modernizing technology with short expenditure) than the larger ones, also they have a bigger share of gDP (gross domestic product).
  • — Finding optimum way in connecting light productive industries with largermanufacturing to supply relative base and to perfect each other in the market.
  • — Reforming monetary policies to prevent the public when they disobey government orders, if they know that almost all deficit spending and keep raising taxes are just because of banks and politicians avarice, also funding military for wars. Finally it causes inflation as well as decreasing purchasing power.
  • — Priorities should be determined for investing or renewing economic projects, because natural resources, capital and human resources are limited. It is important that first assessing future reaction of all agents for new policies then perform them.
  • — It should be ascertained which roles need to govern by politicians or economists and which ones assign to free market.
  • — Due to the mentioned explanation about debt monetary system that considers an interest for every currency that exists, so it may find new models to remove deal interest rate from monetary cycle (deal interest rate is different from deal interest). It causes not only maintain monetary system, but also motivate people to invest more in domestic projects rather that foreign ones and prevent a massive influx of real estate purchase that creates inflation.
  • — Making balance betweengDP (gross domestic product) and amount of creating currency by central bank to preclude from inflation as well as deficit spending. Certainly we are already far from currency backed by gold or Silver, but with the knowledge of history it’s reasonable enough to go back to this system.

References

  1. Blanden, J. gregg, P. and Machin, Stephen (2005); «Intergenerational Mobility in Europe and North America,» London school of Economics Center for Economic Performance, April.
  2. Keynes, John M (1919); ‘The Economic Consequences of the Peace’, New York: Harcourt, Brace, and Howe, Inc. pp. 220-223
  3. Samuelson, Paul A (1947); ‘Foundations of Economic Analysis’, Cambridge: Harvard University Press.
  4. Smith, Adam (1776); ‘The wealth of Nations’, London: w. Strahan and T. Cadell.
  5. Stiglitz, Joseph E (2012); ‘The Price of Inequality: How Today’s Divided Society Endangers Our Future’, New York City: w.w. Norton & Company.
  6. Stiglitz, Joseph E (2002); ‘globalization and Its Discontents’, New York City: w.w. Norton & Company.
  7. Stiglitz, Joseph E (2010); ‘Freefall: America, Free Markets, and the Sinking of the world Economy’, New York City: w.w. Norton & Company.
  8. Stiglitz, Joseph E (2008); ‘The Three Trillion Dollar war’, New York City: w.w. Norton & Company.
  9. webb, James N (2007); ‘game Theory: Decisions, Interaction and Evolution’, London: Springer.
  10. wolff, Richard D (2012); ’Democracy at work: A Cure for Capitalism’ , Chicago: Haymarket Books.

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