PROBLEM OF CONSTRAINED MONEY SUPPLY IN A GLOBALIZED ECONOMY
Morpheal
With increased globalization more money potentially flows out of any
nation's economy, inclusive of investments in enterprises on foreign
soil. That capital investment in foreign economies is made from the
money within a money supply regulated system. That capital does not
return wholly and directly to stimulate economics at home. It is
anticipated it will return, with profit, but that is a gradual
process, and does not really replenish the capital reserve of the
money supply as a whole. This means, in a closed system, and most
economies follow the closed system model of strictly regulated money
supply, there is less and less money as globalization progresses. Less
spent, less invested, less available. However the total amount of
capital in circulation remains the same. Balance of trade does not
really provide the right measure. While important it does not indicate
how much of the money supply has become capital invested abroad, into
asset ownership in foreign countries. It is that outflow of money from
a regulated money supply that needs careful attention. Where the money
supply is reduced by the outflow of capital the money supply needs to
be increased to enable domestic investment, and to sustain and grow
the economy. However, in the globalization model, we see no
regulations, no controls, as to any increase in the amount of money
created by government, as additional to the existing money supply,
assuring that that additional money supply will remain in the domestic
economic sphere. That money too tends to migrate as investment into
foreign assets, rather than sustaining and growing the economy at
home.
The bottom line is that stimulate economics at home more money has to
be created, and a government needs to create jobs, stimulating real
growth with emphasis on public rather than private sector spending.
Only in that way can any reliable control and influence be exerted if
the assumption is a free market system where money can otherwise
migrate, as capital investment, to wherever investors chance to
choose. That is, the money created can otherwise migrate to any
foreign country, and do little good at home.
We must remember that when money is spent, as capital investment, in a
foreign country, that foreign country does not necessarily spend its
gains from that investment back with the nation where that investment
came from. If Y spends capital to build a factory in country X,
country X can spend the money that is invested there with country Z,
or any other, and it does not have to figure into the balance with
country Y. This is the very nature of a “free” market system. There
are no constraints as to where the spending goes subsequent to the
investment of capital. The assumption that in the world system the
money eventually comes back, in the short term, to where it originated
from is more often a false assumption. In the long term, in a healthy
world economy it is expected back as dividend profits, in return for
investment, but when the world economy falters that too is a pipe
dream, further impacting and constraining money supply as to the
domestic economy.
Robert Morpheal
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