Dramatic drops on Chinese and Western markets should motivate world public opinion to think more deeply about the nature of contemporary economic system – about the logic of growth.
The New Year of 2016 on markets welcomed investors with profit losses and, according to some economists, more drops are expected at US, European and also Australian companies.
Companies in the Standard and Poor’s index are forecasted to suffer loss in earnings for the second consecutive quarter. The biggest world economy was not able grow fast sufficiently to boost profits. The traditional engine, developing economies, which helped in such a situation in lifting of slow economies are also in trouble.
Respected forecaster established by Nobel awarded economist Robert Shiller of Yale, warned that earnings ratio is at 25, much higher in comparison to the price of stocks to annual earnings averaged over 18 years. It means – more expensive.
The research firm S&P Capital IO informed that the first reports on the results for October to December quarter indicated that earnings per share dropped 5,5 percent compared to previous year. Revenues will fall for a fourth consecutive quarter.
Are these drops result of revelations about real state of Chinese economy? Is it adjustment to the Fed new policies of rolling out of stimuluses?
Dependency of Brazil on exports to China and its close trade relationship costed Brazil recession. China’s drop in demand for commodities has shrunk profits at Brazilian companies. The devaluation of renminbi has contributed to further lose making Brazilian exports less competitive. For example, revenues for Vale SA, the world’s largest iron ore producer, declined by 29.7 percent due to slowdown from China in the second quarter of 2015. Government in August last year has officially announced recession in Brazil. Argentina and Venezuela’s economies also contracted.
Australia may be already recession (officially recession is announced after six consecutive quarters of underperformance). House prices, one the main drivers of the Australian economy, are projected to fall by more than 7 percent in 2016. The fall of these artificially heightened up prices (by speculations of real estate agencies in cooperation with bribed Chinese Communists/criminals while Australian authorities, often interested in high prices by themselves, closed their eyes) may finally allow average Australian to purchase a house. For many Australians home ownership is a dream. A projected fall in house prices may actually cut some profits of already rich but allow poor for a new beginning.
A negative side of falling house prices is a danger of increased, prolonged unemployment. There will be mass defaults of those who bought houses they could not afford. It will also affect spending levels.
The fundamental problem of today’s economy is oversupply (for instance in Australia in housing) and falling demand. One reason for this anomaly is drop in population. It cannot be addressed in short-term solutions. The other factor is, as American economist Norman Kurland observed, distortion of income patterns that led to the abandonment of the orderly processes of supply and demand breaking down the property system.
The current economic system has been founded on the logic of rising stock prices. Whole generations expected increase in shareholder value and higher returns hoping they would guarantee peaceful and relatively prosperous retirement. Money managers were expected to deliver it. Their jobs and bonuses depended on their performance.
The company executive to increase motivations in increasing of quarterly earnings created a system of financial rewards and option packages. Managers began manipulate stock prices with stock options and creative accounting as Enron. The idea of real growth has been replaced by gambling that resulted in bubbles on the market. During better times the wealth has been systematically shifted to few owners who has concentrated capital thanks to abnormalities of economic system.
During last few decades business culture of a cautious and thoughtful entrepreneur, who considered common good, was transformed into greed-driven worse than wild beast behaviour. In African jungle beast like tiger and lion is interested only to feed its appetite. Even wild beast has an “ethic” that programmed it to kill when it needs to eat or defend itself. New businessmen or businesswomen do not honour any limitations in their quest for more wealth. Their ethics allow them for dumping of employees when necessary to boost corporate productivity measures. Or to advertise non-existent jobs only to calm feelings of shareholders who are anxious about the situation of the company. They write jobs description filled with demands they would never meet only to employ their friends. These business people whether Christians, Jews, Muslims or atheists are serving to the system that demands higher share values. New businesses of greed driven worse than wild beast managers are non-accountable and non-transparent closed in the circle of their friends.
A global recovery was subpar, incomplete and uneven – said IMF First Deputy Managing Director David Lipton. – More needs to be done to favor recovery, beyond accommodative monetary policy– he added.
This Wall Street model of capitalism through defective financial, tax, and legal institutions, has contributed to creation of barriers to a truly free and just market economy. We see concentrations of money and power with fewer and fewer competition. Today’s elitist and exclusionary economic system contradicts basic populist values and democratic institutions.
There is an urgent need for the economic system that is based both on sound moral and market principles. We need plan for growth in which every citizen from birth can gain a viable ownership stake in a new capital frontier.