There is always one key to the deal: money flow. Every businessman since the guy that sold the serpent the apple in the Garden of Eden knows this. The only people that do not know this are fools and some economists.
You cannot even begin to think about making a profit until you get the money in the door. Revenues, not earnings, run a business. Once a business has the revenues then it can concentrate on maximizing profits either by lowering expenses or raising prices, both methods that create income.
Money flow is also what makes prices increase. We hear so often about “asset price bubbles” and how these bubbles break. But that picture is completely wrong. It is not a “bubble.” It is a “balloon.” A rubber balloon increases in size as air is pushed into the balloon, right? An asset balloon increases in price as money goes in and it does not burst; it deflates. An asset balloon is like a toy balloon with a hole in it, as money is always coming out as people sell the asset.
Therefore, the balloon deflates when no more money is put into the asset. It is like the stock market. As I have said before, people sell their stock for a million reasons from health-care needs to a need for a vacation. So, there is always “normal” daily selling. If the stock market BUY button was broken and stopped working for 30 days, prices could literally go to zero as all the money/air came out of the market.
If money flow is so critical—and it is—how does it apply on a national level? We say accurately that money is the lifeblood of an economy so then as in the human body, the money must flow into the economy like your own bone marrow is constantly creating new blood. Yet, the numbers that economists use would seem to often contradict that idea.
Using the benchmark that economists use—the current account—Germany posted positive money flow of $387 billion in 2017. The Philippines current account for 2017 was a negative $315 million. While there is a huge difference between “billions” and “millions,” the German economy grew 2.2 percent and the Philippines’s grew by 6.7 percent.
Certainly this is a “bratwurst” and “mango” comparison in many ways. But if money flow is critical to the healthy life of an economy, we should see a close correlation and even causation between money flowing into and out of an economy and economic growth. Yet, there has not been a positive current account in the United States since 1981 even as its economy grew. We know that a large portion of the US economic growth over the past decades was paid for by borrowing and debt. But Canada is not a “debt salve” and runs a negative current account yet still has economic growth.
Maybe money flow is not important to economic growth. Maybe more money flowing in would create more economic growth. Or maybe the economists have it all wrong with their data or at least what the press and media report.
You have read in the press about the Philippines “current account” which supposedly measures money flow. But what if it does not? Current account is measured from “the sum of the balance of trade, net income from abroad and net current transfers (such as from loans and for loan repayments). The current account measures money flowing in and out of a country as a result primarily of trade flows.
The capital account measures money flowing in and out of the country as a result of capital flows. The last time the Philippines recorded a negative capital account was in 2007. The last time Germany experienced a negative capital flow was in December 2016.
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