Currency War

From 1870 to 1914 was the golden age of gold standard. International trade transactions was all settled by gold. Since the gold itself doesn't have any sovereignty mark on it, it was the ultimate fair instrument trade between nations. During this time, paper currency was only used in domestic market, and it is exchangeable to equivalent gold weight at a fixed rate. Circulation of paper money supply is regulated at the amount of gold reserved by the nation. There was no manipulation of currency, inflation was almost zero, and employment remained stable. Trade cycle was self corrected by the market force. Function of central banks were very little.

The end of gold standard come right after the end of WWI, with the treaty of Versailles. The war was never end with surrender but an armistice. The treaty was a inter-soverinty parties involved in the WWI to negotiate the peace. England and France seek reparations from German and Austrians. German was asked to cded territory and some industrial capacity at the same time to commit with the financial reparations. This limited the affordability of German to actually meet the treaty. (This was lead to raise of Nazi on later date.) Therefore, it force German Weimar republic at that time to print more worthless paper currency at unprecedented rates to pay the reparation despite gold availability. The devalue currency also make German product become cheaper , therefore hopefully will induce exports to raise. This mark the beginning of manipulation  and devaluation of currency entail hyperinflation and collapse of economic system.

In economy, there are mainly being categorized into several main products, stock market, commodities, bonds. Each of these markets are invert related to others. A stock market crush will make commodities and bonds market more attractive vice versa. However, for all these markets , there underlying value are all based on its own nominated currency. If the currency of a sovereignty collapsed, it will wipe out whole market systems. Such differences between financial market products, and currency; clearly indicate the currency its the ultimate financial weapon. On 1971, with embarkation from Bretton Wood system, gold was out of the picture. International currencies backed by each sovereignty reputation and good wills become the only medium of exchanges between international markets. Economy since was the life blood of any country civilizations, each nations are now on the race to ensure their currency is cheap, to encourage competitiveness in export, to promote surplus in budget and boost employment. However, there never be all nation's currency is cheap. No one want to be the loser in the races. New agenda systematically arise in this new international currency game. Currencies become a new weaponry system for one nations to undermine their counterparts through manipulation, capital control and trade policies

Since 1971s, second currency war has emerged from skirmish into a chaotic global mess. The players now are no longer limited to sovereignty funds, but international corporation and rich hedge funds which many has no national agenda. It was the reason 1997 financial panic that happened through out south east nations, far east nations and south Americans. Again, the events was never affected US, and her dollar faiths in global markets. Lesson was not learned. Then on 2000 onward, 2 new giant currency bloc joined the game, european union and china. The bilateral trade between US and china, and the interdependency of US banking system with European union, had for the first time, put US at the position, not to undermined the treat of currency war to its national interest. Finally, at the end of the first decade of 21 century, with recent events of 2008 financial meltdown, US strike back with a big blow of its currency weapon , QE plans, which forced many its counter trading parties to revalued their currency relative to US dollar or risks uncontrolled inflation risks within their own nations, which could undermine it social stability. This "betrayal behavior" which quoted by many international currency victims nations, of US, had many of her currencies contender caught off-guard. However, such currency war had end come to its end. Unless otherwise there is a more effective international unbiased regulatory body than currently G7 to G20 forums, and a global concession of international currencies solution, the currency war is only going to be uglier and contagious. Such trend will risks the global market melt down, and forcing all nation back to it own individual iron curtain scheme, which will greatly undermined international logistic systems of demand and supply. It risk a total stagnation, worst collapse of social economy system, at international scales.

Globalization II

Globalization was initially introduced in 1960s, but it took another 30 years to become prominent terms. The first globalization was actually happen early 1900s. It was globalization through steam ship and rail roads. The world, under british empire was interconnected by sea and land. Radio was introduced which made communication across Atlantic faster. Telegraph was enable message convene across continent within weeks. It was the first mark of global financial interconnectivity. Until at late 1920s, the first global financial melt down, that spread in global scale. The interconnectivity of financial market, was a double edge sword that can cut on both side.

In early 1990s, right after the berlin wall event, it was the boom on innovation in telecommunication. Cold war was ended. Capitalism finally emerged from the iron curtain of communism and socialism. Nations come to international forum, for the first time, with negotiation and concession, through treatise, capital control policies and international trade taxes policies become more accommodative to enable effectiveness of global financial activities to be convened. It was the right time for global corporation which initially struggle to take advantage of global market, for all the obstacles and limitation imposed since 1930s through late 1980s. These global corporation has no national agenda,a and non-soverignty entities. The global trade treatise, which mostly lobbied by many of these international corporations, was a 21 century version of Magna-carta. It make capital flow freely without boarder. It enable them to take advantage of global man power supply, natural resources, taxes polices, logistic and geopolitical advantages to maximized their profitability interests, even at the cost of their own nominal national interests. What happen next was exponential growth and advancement of technological breakthrough that facilitated the interconnectivity of global financial market at the unprecedented scale.

With loose regulator on global stages, where by, there is no real true global government to oversee these global corporations financial activities, the frenzy greed and irresponsibility of financial exploitation, it was the time boom for global financial market melt down. At classic term, financial products was only sold at it underlying real assets value, with mainly limited to it own geographical local stages. However, at today global financial market, derivative market has no such limitation. Sub-prime mortgage could be loaned at Taxes, packaged by broker firms at new york, underwriting by London Banks, and sold at german markets. And many of such derivation was only a scheme which no real assets value but only virtual financial products which it price fluctuated relative to it underwrite financial products which sold at different markets. Suddenly such, a whole level of house of cards was build overnight at the speed of light through internets, 24-7.

At current trends, the hot money bloated under the second globalization scheme without proper regulatory remedies, will eventually reach to its limit, and should it burst, and it will, will produce a unprecedented scale of financial catastrophe which will literally wipe out all the stock market, commodities and bonds markets on the true global terms. It will destroy not only the economy activities, but will bring forth global logistic , social trust, civilization connectivity, culture and religion crisis. It will bring forth WarWorld III, not by weaponry, but by culture social panic. The world will not fight among sovereignty. The world will fight within their own sovereignty, and implode.

Sovereign wealth fund

Sovereign wealth fund or SWF is a form of investment institution fully owned by state administration and handled by government central bank. The SWFs was originally was focusing to provided adequate reserves for trading liquidity and funds government projects. Prior to abolishment of Bretton Wood , by President Nixon 1971, the impact scale of SWFs to market movement was relatively insignificant compare to other financial institutions. Fiat currency system escalate the size and number of SWFs existed globally. 

American introduced global fiat currency system nominated with US dollar to avoid Gold Run by global communities, and enable the nation to buy more with debt currency. The influx of Dollar printed out of nothing to enable US to fund the purchases of commodities and goods from US trade partner. This provided surplus of budget to US trading partner at the unprecedented scales. This make number of countries who received the dollar able to accumulated the surplus reserved faster. As central banks are not formed to handle enormous unprecedented wealth at such scale with no historical references, for the first time, central bank required to figure out how and where to invest this surplus reserve to counter inflation. The immediate option to such enormous funded SWFs was low risk low return and high liquidity instruments. US Treasury bills and bonds become the only options. Such implication in fact is good for US, since the fiat currency system nominated in US dollar make SWFs has no other option but to put back printed dollar back to US, with minimal interest. It make all SWFs could not afford to devalue the Dollar. This had since make US trading partner such as Japan and China as the continue to buy US Treasury bills and bonds at its budget surpluses. This enable Us continue to buy commodities and goods with cheap dollar, then selling low interest bonds (normally below annual nominal inflation rate) to fund government activities, then paying back by simply printing more money.

However, after years 2000s, with exponentially growth of monetary supply in the market, SWFs could not afford to continue only invest into low risk low return instruments such as treasury bills and bonds because they keep losing the underlying value of the invested bills and bonds, as long as US print more money faster every years. Since most of central banks aware that US policies on fiat currency system was a no win proposition to them, and they could unlikely to change the system without getting them-self hurt, they now looking for alternative investment scheme which could provide high return at shorter time. The gained now is not only focus on monetary but as well as geopolitical interest and technological know how acquisition. 

Global public listed corporation are known to own most of the proprietary of  cutting edge technological know how especially US corporation. As those company share are often publicly listed, SWFs can access to the technological know how simply by employ buy out strategy. By acquiring such corporation through SWFs, nation of less developed condition can have direct ownership to cutting edge technological know-how which provide advantage oftenly to military therefore geopolitical interests.

 

With introduction of financial derivatives, now the SWFs can manipulate the underlying commodities prices simply by speculating the derivatives instruments. Today, most of the commodities export countries are heavily rely on high commodities price for survival, if one nation are hostile against other, they simply could use the enormous scale of SWFs to manipulate the underlying commodities derivative therefore causing volatility of the commodities, which could create huge impact to the stability and sovereignty of a nations. This enable huge countries with huge SWFs to always be on the upper-hand of global financial control. And the small countries will have negative implication behind such global financial games. 

With time, SWFs had evolved from pure governmental reserved management fund into a formidable and practical financial war instruments. The SWFs has since made the global financial market become more complex and more volatile. SWFs now is an official economical nuclear forces that could cause global financial melt down, that will give huge impact to global social stability. Such institutions if not properly regulated, could very much become the beacon of WWIII.

Debt Instrumented Economy Model

Today our economy is fueled by debt. Economy only growth when debt continuously introduced. This because of fiat currency system set in placed since 1971. Fiat currency is a currency pegged by government ability to service the interest of debt. It does not tie to any kind of commodities such as gold and silver. It make government , or the bank cartel to able to print money at will as long as the public sentiment confident on the government public to service the debt. It enable government for the first time be able to use future resources.

Debt is leverage instrument commonly known today. We buy a house, we leverage by ratio of 90:10. It introduced debt to our account at certain interest rate. It entrusted the debt to us for betting our future capacity to pay it off. It does make sense to most of public since for the first time, one does not required to save up to years of working, then only be able to buy a house at full price. It gratify most of people in instance, making such economy model so favorable on facet. However, the truth behind the debt economy model, it only really benefit the riches. As originally most of the real estate are owned by the riches, it enable the riches to command an future resources simply by selling it. In fact, the property price ever since increase at astronomical level, since suddenly, there are so many affordable buyer, but the available piece of real estate very much limited by its nature. And again, since most of the financial institution is owned by the riches, the riches could simply secure the debt they introduced to the public by making the piece of property they sold at the first place collaterally tie to the term and condition of the debt. It make public working for them forever by selling the property at high prices, with high interest rate.

Introduction of debt make flux of money supply into the market. Since the resources now is multiple by the factor of future available resources. it enable all financial institution to bloated. With so suddenly so much money and resource to be utilized now, which only get to be paid by future generation, gratification surge, private and public consumption raise to a whole new level. Economy was doing good, since now people spending like there is no tomorrow. Debt was pass on from one to another like the value of which ever transaction they are into it will continue raise forever. The truth fact was, people just in the game of switching debt chair hoping there is another fools willing to take the barton at higher price for the speculative instinct. Government and financial institution understood the game. Ever since all economy surge event solely due to more debt was introduced at sentimental value rather than real productivity innovation or technological innovation. So, in order to continue enjoy the gratification now, and knowing it will never required to be paid by now generation, government, politician and financial institution continue stimulate the market with policies encourage public to continuously put themselves into debt. Credit card, car loans, private loads, school loans, pay-it-later scheme become new economy trend. As baby booming age now all in its golden age of productivity and peace time after cold war, it create miracle economy booms like everyone is a genius by themselves.

Until recently, the debt game had come to the brink of total collapse. Unfunded government obligation such as medicare, retirement funds, unperformed private debt, overload government debts, with stagnant of industrial productivities, and negative demographic trends; the risks is imminent . Among all the issue created by the debt, negative demographic trend was the vicious of all. The debt model only will work when young generation has the capacity to service the debt passing down by prior generation. It is like running on the barton. Currently demographic trend shown that at most of the developed country, there are far less younger generation in population compare the the coming retirement of baby booming age generation. The old players exist at no new player to make the replacement will utterly cause the greatest disturbance to the stability of our current economy model. The riches are already exist the game since they introduced the debt game. The 90% of the rest of the public population is the one that is not prepared to such phenomenal catastrophe economy apocalypse . It will potential destroy everything we known of if the house of card collapse abruptly. It will create global social chaos. Unfortunately, government and banks cartel are not taking effective step to allow the economy cool down itself. They continuously feeding for debt to hopefully cure the debt. What do you think about our economy and social structure at our current economy trend? Unless new industrial innovation or some kind miracle global economical collaboration, we are going nowhere.

Correlation Between Technological Innovation with Economy

Steam Engine invented by James Watt during 1781 mark the first economic boom in our modern society. Work done by utilizing steam with heavy mechanical parts proven to be much more effective and powerful in relative to animal and human strength during that time. It make western civilization to overpower the eastern nation despite civilization in the west was much younger by archaeological records. Productivity increase follow by higher quality of goods could be produced at the shorter time and economical way open up unprecedented wealth to the nation who master the art of steam engine. Larger and larger mechanical meant was now accessible such as steam ship which make goods to be transported internationally faster and cheaper.

Second revolution come with discovery of electricity. Electricity make power transferable and storable in a very efficient and safe manner. Battery made of ceramic jar compound was invented to store energy.  Discovery of direct current by Thomas Edison make electricity bulb possible to make night time a day light. Tesla alternative current make possible of cheap power grid to be installed that able to connect power through out a large region despite differ capacity at many terminal point. A single power pant can feed a whole city. It make a city economy even more prosperous. Giant business organization like General Electric was the product of such revolution.

Third revolution come with democratize of horseless carriage of automobile. Henry ford Model-T mark the history milestone of individual mechanical transportation revolution. Automobile induce development of infrastructure such as road and bridges interconnect cities. It open up the whole new level of communication and trade within a region making new kind of economical boom. Cities make adjacent town become new cities. Accessibility make economy competitiveness within region more efficient therefore increase incentive based economical innovation.

Fourth Technological milestone is telecommunication. Telegraph make information spread faster than ever. Intercontinental and geographical limitation for people to communicate become less obvious. Efficient communication and information exchange make possible cross continental idea exchange further enhance the technological breakthrough which give birth to new economy. Alexander Graham Bell, father inventor of telephone taking another step to make communication through individual more powerful. Business now can be conducted through voices and faster making trade more efficient.

Then coming the age of electromagnetism. Radio and satellite was made possible. As ephemeralization dictated, the invisible force of electromagnetic open up a new level of inter connectivity. It was the cradle of internet and world wide web. It made computer and electronic equipment to be valid for mass produced to utilize the availability of electromagnetic force in the sky. It open up a whole new kind of business never fully comprehended by public. A greatest boom in the history since 1989.

As such are some of the brief correlation of economical boom with discovery of new technological breakthrough. Although, many of technological event such uranium revolution (nuclear energy, from Einstein E=MC^2), quantum mechanism etc, were not mentioned here (no doubt many of the above breakthrough was directly or indirectly from such discovery); the important message from this essay here is to emphasize that, all the historical economy boom and burst is direct correlated to technological event, rather than financial aspect. Economy boom when useful technological innovation is introduced. And Economy become plateau or downward when technological invention stagnant.

   

Economy is not about money, it is about people

History of modern economy started from invisible hand concept by Adam Smith during 17 century. Market force was recognized as the major factor that dictate a market growth or otherwise. As economy structure become more complex, invention of trade mechanism was introduced such as the concept of money. Money concept made economy growth faster, as it made trading more convenient , save and efficient. History shown allocation of money will ultimately decide the trend of economy growth. at least at its facet. 

Understanding economy events from recorded history scripts, logs and books, modern economic pundits unanimously concluded, monetary policies is what economy subject all about. Stimulation, spending, debts, export and import are all monetary. 20 Century economic figure such as John Maynard Keynes and Milton Friedman agreed on regulating economy can be done through regulating the monetary supply. From creation of IMF during 1944 at Bretton wood to abolishment of gold standard on 1971 by Nixon; it made monetary system controllable by America (since US dollar is International Nominated currency). Monetary Valves (such as interest rate, discount rate, government bonds) were installed through out financial institution around the world to regulate the monetary supply. However, economist might been chasing the wrong shadow.

From the perspective of fundamental on economy, it should be always and will be about people. Economy term itself is come from greek means household management which mean again people. People is the one who buying and selling. People is what supply demand came from. And in fact, in all of economical revolution from agrarian economy to industrialization to today information boom economy are driven by innovation of people, not money. Money is nothing mere than a medium of convenient exchange. It is a economy apparatus. It does not induce or cause people to spend. Imagine if million dollar is given to every each of us, but if there is no goods nor services to be purchased, the million dollars mean nothing. Money is good incentive to encourage people to do what they did for the economy for the pass 500 years and so, but was never the root of economy itself.

Economy should be subject of psychology. Ultimately a given nation economy condition is very much depend on psychological wealth of its people. If a nation fill good citizens who possess strong psychological strength, oftenly, the nation wealth grow exponentially. Innovation, creativity and perseverance are the result of psychological aspect. Money in fact was never the best motivator. All great man never look for money, they look for a vision. However, vision is never in the equation of modern economy structure. 

Vision is something we envision for better goods for all. Alleviation of  standard of living, social status, social development all involve humane aspect of vision. Monetary wealth incentive had since accidentally increase our technological breakthrough for the pass 500 years, however, it hinder any form of social development. When you see there are nations (developed countries) of citizens who enjoy lifestyle of King could never experienced before 500 years today, while billion of poor nation (under developed countries) country people cant even has proper access to basic needs (such as water, sanitation and food), the common sense should had tell us that the current economy system is ill. The saddest part, social development today even measured by how much money you had or you have. Modern society population are always ignorance against the current real situation especially when they are in comfortable life. Such trend will eventually make human social structure self destructive. 

The good news is today, many of us have a better freedom to express our concern. There are plenty of channel enable use to share our thought appropriately. By collective informative empowerment at the right magnitude and attitude, we all be able to make changes regardless government monetary policies. As nature always come back with vengeance,  the law of nature of economy will always prevail. Economy is about people. Therefore, if we really want to change current economy system, the best way is by starting change ourself and act upon it. 

Real Estate Economy is Local

In today global capitalism economy structure, virtual everything is available to global market 24-7. One side of the world market closing is another side of market opening. American Stock exchange will direct impact the economy sentiment of it eastern nation counter part. Isolation of economy downturn has since become obsolete after berlin wall crushed down on 1989. Today, as long as your portfolio are in financial derivative, you vulnerable to any global economy incident.

However, Real Estate investing, aka property investing is very different from other financial apparatus investing. Even though, there many paper derivative of property investing such as reit or mutual fund or public company; still such portion of investing scheme are not comparable to stock market or commodities derivative exchanges.

First, Real estate as refer to it term itself, is an estate, therefore are local. Real estate value are mainly driven by local market sentiment or it local supply and demand aka population. Local population is what really make a piece of real estate valuable or otherwise. A healthy demography which has a lot of young people who eventually translate into home buyer will drive the market up. While a aging demography where older population selling off homes with no enough young home buyer to absorb the supply will drive the market down.

Second, local political stability is very important to have your land valuable or desirable. Regardless how global market is booming, if your piece of land is situated at country where it is not very desire to live in, your property is worthless. Property only as good as the safety, comfortability, conveniency and shelter quality it could provide. Regardless you bough to live in or rented out, is about livability.

Third, infrastructure and tenancy quality of the neighborhood. A home is nothing but a home. The value is driven by the neighborhood quality it could provide. Buying a home is buying its neighborhood. Imagine regardless how luxury your unit you bought with, but your unit is situated in the middle of slump. It make your property worthless as it is to your vicinity. As equal, if you bought a luxury vacation villa, but there is no access to it, your home is worthless.

Finally, investing real estate are almost restricted by it own government regulation and policies. All government tend to have control over it property supply and demand to secure it own political interests. making your own country home unaffordable to your own people, tend to make your citizen quality bad. A country only as good as its citizen itself. Therefore, all socially stable country, always impose certain restriction on how foreigner can own the local property. Politician understood that, foreigner are just foreigner. They are not staying here, therefore , houses here has no sentimental value to them. Any Short term property market down turn will bring down the whole property market if major percentage of property is owned by foreigner. It is the concept that make stock market vulnerable, because it is easily accessible by global investor.  However, as long most of the property is owned by local healthy population, regardless economy condition, as long people are staying here, they are unlikely to push the panic button to sell off. And local people will keep the property occupied which is to avoid high vacancy that drive a neighborhood into a ghost town. Therefore, a good government property investing policies very important to make it property market vibrant and healthy.

Economy, Poverty, Stability, Competitive, Future

Economy had always been with us since millions years ago. It was not prominent until we shift from gather and hunter lifestyle to agrarian community.  Agriculture made human for the first time be able to be a settler. Community proved to be more effective in expand its demography by settle in one strategic location than continuously roaming around. Expansion of population made subject of economy become the pivotal pillar for our human culture ever since.

In any complex civilization, it consist of population scale which required to be regulated. Human behaviour has to be regulated to ensure stability in a given community. Kings, barons, aristocrats or the great pirate (depicted in Dr. Fuller series) ; were the first group of "class" to acknowledge such concept. Unlike gather and hunter, virtually everyone are equal in term of economy, which shared everything they hunted without surplus. In fact, food and meats was very difficult to be store given the primitive lifestyle we all used to be. Agriculture made storage possible, with corps and corns often yield more than enough to feed a community during good season. The surpluses of harvest instead of given to people (which make them without incentive to bow to the kings or ruler classes) become a useful tools for ruler class to exert control over majority population. By controlling how and when to feed the people, we may have power over people. Regulated population was translated into stability, but at the expenses of systematically subservient condition to major population. That was the trend until industrialization age, when people can no longer within the poverty and revolution took place in many countries.

Incentive was what make human to behave in the way they behave. Jobs, roles, and responsibility, all are traced to the basic necessary gained and needed of each individual. History prove people are much easier to be control by psychological  meant than forces. Therefore, starve and poverty imposition was obsolete. In fact it eventually create back fire to the ruler classes. New ideology such as sociology, democracy and marxism  was the product of poverty imposition. Instead of making people a lower class, ruler class now create a new class of middle class. It make people can possess property for the first time. It give many most of us today something to lose, should we want to change any current circumstances now. Competitive economy policies was created. It make everyone in the context of paper regulations, has the equal chances to move to upper class. Hope is there. Something to lose and hope make human behaviour stable. The system created to ensure people are not desperate, therefore, under control. Good business to ruler class again. Same trend, different scheme at different time.

However, despite rulers class uses the economy, military and even technological meant to continuously exert their influences to majority of people, current economy trend with exponentially technological development has open a whole new opportunities to human kind to rethink what is best for our species regenerative. The brief history of economy as a tools to regulated people seem to be harsh in some way, but given superstitious ,naive, self interested , paranoid instinct human nature (when we lack of proper knowledge and wisdom access) during ancient time (when writing and printing was not even a prevalence social mechanism); utterly freedom without "cruelty" regulated society, perhaps we had long time perish from the history books, let alone discovery of sciences and economical growth that in certain degree uplifted the overall standard of living today. The true question here is, are we as human kind are playing our roles to properly educate ourself, and understand the history (therefore not repeating the same old mistake, and stop using history to critic human event today, make action rather than complain), and let the truth as authorize what is best for our civilization? We are at the cross road in human species history book, either we evolve or we perish... The road will not be easy, as complexity of culture and demographic now was never be comprehend through history pages. Bottom line, this road was never an option. It is necessary by nature.