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PROBLEM OF CONSTRAINED MONEY SUPPLY IN A GLOBALIZED ECONOMY
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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