Fake Capitalism

The free trade merchants have existed for all the centuries in the history of mankind. But the capitalism that Adam Smith has defined in his famous book (the wealth of nations, 1776) with some features and specific characteristics is already dead.The Adam Smith capitalism system was defined to promote better production, full competition, and create equal opportunities. Todays, none of these features are alive. The equal opportunities and healthy competitions are declining. The gap between poor and rich is widening. The social, economic, educational, and political inequalities are growing. The business ethics are diminishing and CEOs only mission is to   maximize the investors' wealth regardless of the well-being of consumers and workers.As Marx argued in the first volume of his book named “Das Kapital” Published in 1867, The capitalism will not be a stable economic system because it is based on private profit with no boundaries. Capitalists will become increasingly powerful and control all the means of production while working people will become increasingly poor and fall into poverty.Although Marx did not say when this will happen, but some analysts believe that the true capitalism died in 1929 when the great depression happened. Since then the western economic system has changed and the law of supply & demand cannot work effectively and freely anymore. The mischiefs of human nature which is created by their greed does not let the societies to live with equal opportunities. Today a fake capitalism is in place and control the world economy.These days, the big corporations have monopolized the world economy. Big companies have ruined the healthy competition, restricting the freedom. Facebook, Google, Amazon are the tech gate keepers. Big Banks, pharmaceutical companies, airlines have made the distribution of power unequal. It is said that 40% of the US airports belong to one airline. This list can go on and on.What we call capitalism does not offer any kind of equality today. From economy to social and political opportunities, all are in favor of the wealthy people and the working and middle class all around the developed societies are feeling injustice. This situation can not last forever.
On the other side, many analysts believe that another crisis is on its way due to many reasons such as unsolved causes of 2007 crisis, US deregulations and protectionism policies, and increasing global debts to 1.7 times more than 2007. All developed countries have been taking expansionary monetary policies since January 2019 and starting to cut their interest rates to avoid another crisis.So, let’s pray that the coming financial crisis do not ignite a big social unrest in the western world, which if it happens, the costs and consequences would be so huge and undefinable to the extent that the world will witness a new world order.Mahmoud Gonabadi, June 12, 2019

Dare not raise the interest rates

Dare not raise the interest rates

“Undetected Shadow banking has been in place all around the world since the crisis 2007 and has loaded the whole world including China with the low rates loans. Today no developed country dare raises its rate much in fear of market crash. However how long could the countries keep their rates unchanged?” MG. Nov. 22, 2018

Apparently, the major world economies not only have dared not to raise their interest rates but also have decided to adopt the expanding and accommodating monetary policies. It is not a big surprise if later in 2019 they start reducing the rates back toward 0.5%. In the first week of 2019, China decreased its "required bank reserves" to stimulate the economy in response to its economic slowdown. The US federal reserve bank also said that the bank might not raise the rate in 2019 and would adjust the process of its balance sheet normalization.

On Thursday January 3th, China reduced its “bank reserve” requirements rate from 17% to 14% which was an aggressive step toward easing the monetary policies. On Friday January 4th, 2019, few surprising economic indicators were published which supported the US FED policy announcement that the rate might not be raised in 2019 and the bank balance sheet normalization process would be adjusted

These measures by China and US were strongly positive for the market and changed the global equities markets direction to positive trends. Both US and China central banks actions and announcements in the first week of 2019 had a big positive impact on the equities market on Friday Jan. 04. They have also started the trade talks since January 7, 2019 which is another positive sign for the global equities markets.

Now the question is that how long these bullish trends will last? The global equity prices have been declining in the second half of 2018 drastically which is far from a simple correction. The current global economy is not healthy at all and loaded with huge debts. The interconnected global financial system is not ready to protect itself against any fraudulent acts, social movements, and hackers attack.

these easing and expanding policies are only buying time and opportunity for the policy makers to address and solve the main issues that the financial system is facing. Unless the trade war is stopped.  the global financial system is reformed, and the global debts which have spread out among governments, corporations and people all around the world is addressed.

This positive market trends will not last long and bounce back to a speedy decreasing trend again and continue to fall as a leading indicator of the coming financial crisis. As Mr. Gordon Brown, the UK Prime minister during the last crisis is saying: “whatever created the 2007 crisis is not gone away and it will create another crisis soon. today’s leaderless world is sleep walking toward a huge economic depression”. 

Mahmoud Gonabadi. Jan 12, 2019