How the money works... part 2

So folks I am finally back on my blog, sorry for my apparent absence..here’s  continuation to my previous post titled ‘How the money works... part 1’.......

I think the inequality in the world monetary system is quiet apparent. The system clearly reflected the beginning of Capitalism at the world stage after the Second World War. This further led to the cold war because the Russians did not want the American dollar to rule the world. As we all know, they lost. 

I am not against Capitalism or Communism. In this case I take the middle view. Capitalism is a good idea, excellent in fact, when put in an envelope called Democracy.  Democracy - that granted everyone equal rights and freedoms. There is no democracy at the world stage. Countries are democracies but the world is not, as the assigning of quotas shows. 

Countries had to grant their citizens equal rights ....but with whatever quota they were given. 

So equal rights in US and Europe meant - Free Health care, Unemployment pay ( very capitalistic !!), Free Education,  Pension Plans , Big Mortgages, Social Security. They had, they borrowed, and they had more.

  

And equality in Africa meant- Maybe someday everyone will have water and electricity and polio drops!! They couldn’t fulfil it, so they borrowed!!

But things are not as hopeless as they may seem. Many Asian countries including India and China were able to attain rapid growth, thanks to Education and Infrastructure development. 

The US consumer’s total consumption per year is $ 9 trillion. China's consumers spend $ 1 trillion and Indians about $ 600 billion a year. This is mainly because Chindians have a higher savings rate. ( Chindians is an accepted word in Economics nomenclature for Chinese and Indians it’s just amalgamation of the words ....)

The US can print cash and they have to pay about 1 -1.5 % interest on their bonds and countries like India have to pay 4 -5 %. So the US had access to a lot of liquidity. Which in fact led to the whole credit-crunch and sub prime mess.

 People were given loans, who should not have been given loans. The lending rates were so low ...that it was always assumed that the percentage rise in price of the property would be much higher; hence the loan was always safe. The real estate brokers sold homes to people with absolutely no documents. These loans were called NINJA loans (No Income, No Job, Asset). The brokers made these loans because they dint care if the loan would be paid back or not, they only had to hold the risk of the loan for a few days, till it was "securitized". Then these securities would rest with banks in their balance sheets. These derivatives were so complex...I'm sure they were some highly complex y= f(x) equation that mindle came up with when he was interning at Lehman. Then they were "sliced" and "diced", assigned arbitrary ratings by rating agencies and sold left and right. When the prices fell and hit the fan, the ones who had created this crap were left holding most of it themselves . A dozen or so HUGE corporations collapsed or became "financial Institutions" that were deemed too big to fall, for the sake of Mankind. This is a whole different topic of debate and there have been many good articles on the subject. 

I don't know if the current credit crisis signals an opportunity for India and China and other Emerging countries to play a larger economic or political role in the world. But there certainly are signals from many countries that they want to negotiate a new world monetary system. The world monetary system is always changing...the introduction of Euro for example has given the governments of the world an alternative to dollar reserves. I think the current crisis certainly means that the role of the US will be diminished in the long term but I don't know how effectively and quickly India can increase its importance in the world stage. 

I hope Manmohan Singh is PM when/if the monetary system is "renegotiated". 

Anyway in conclusion, I think the Entire concept of money is flawed. There is no point on putting a cap on the wealth of the world and then dividing it disproportionately. Yes, there is a cap on the total money because even though the money supply is always increasing, inflation ensures that the value of money is always eroding at a certain rate which keeps wealth constant and people senselessly  going about the Rat race. In fact a big part of the slowdown in the US can be attributed to the higher number of educated adults in Asia who are a cheap source of labour, both in the Services and the Manufacturing Sector, as a consequence, the virtual collapse of the US Auto Industry (both due to credit crunch and losing to low cost Asian rivals).

 Almost all manufacturing jobs (Factory Jobs) could be lost to technology and automation (Robots) in 30-40 years, the technology will exist. Thanks to excessive automation, Mankind has lost many jobs to computer programs. A company's point of contact today is the Internet website and everything can be done online. The only thing that motivates corporations is profit. The term "Corporate Responsibility" is clearly a paradox.  Excess food is destroyed by producers to drive up food prices and hence profit. How can this be allowed in a world where people die of hunger.

So my point is ... The current monetary system will lead to a situation where many human beings will lose their sources of Income and their lives,  as there will be less and less jobs because of Man vs. Technology. Right now we are in the phase of Man vs Man, because it is one country over another trying to divide wealth. 

In this scenario, it is the duty of the world leaders to define a minimum level of equality for the whole world, for every person. In my opinion at least food, clean water, electricity, primary education and basic health care must be provided to everyone in the world. It is possible. But does Mankind have the will and the Integrity to provide basic equality to everyone in the world?? Judging from 2000 years of human history, I highly doubt it.

Folks at least have some basic courtesy I have put in lot of effort to write this... I know many people are reading my blog, I can see that from number of views...at least write 1 line commenting how the post was.....it will hardly take 30 seconds...