Theory of Integrated Macroeconomics


Prof. Solomon Budnik has developed his project of the Internet Stock Exchange for global securities settlements. This project is based on Prof. Budnik’ project and bylaws of the Alternative Int. SE solicited by the Israeli Finance Ministry.

By Professor Solomon Budnik

Professor of Comparative Law, currently chairman of the Aerospace company UTG-PRI LTD. – Tel Aviv, Israel.

Subtitle: Crisis of Unified Economic Systems and Uniform Currency. Macroeconomic Geometry.

ABSTRACT

IN RE: New advances in open economy modeling

With regard to economic modeling, it should be noted that we deal now with the expanding economic universe with ever changing space-time continuum due to ever expanding world population and consumer market. No artificial economic model could adjust to such  circumstances or fit various rigid and incompatible economic systems, particularly not the Nobel Prize in Economics gained behavioral, equilibrium, and game models.

In re:   human behavior and free market  are unpredictable, being unstable, and exercise a cumulative effect upon given economy due to mass public and monetary upheavals. For example, the economy of ill-conceived socio-communist and socialist states was and is based on social rules instead of the rule of capital, and couldn’t therefore be properly planned and predicted, as proven by history.

Astoundingly, the  economic system in USA, etc. is not capitalistic but Capitolistic, judging by politically induced state interference into free market affairs, with catastrophic results remedied by same state with trillions of dollars of misappropriated taxpayers’ money, forcing thereby future generations to slave themselves to repay that national multitrillion dollar debt to totalitarian and human rights violating China and totalitarian, racist and terrorist Arab states controlling the US State Dept. with oil dollars.

The equilibrium model is also wrong, since it contradicts the common sense, physics and geometry, for a physical or economic system doesn’t function or operate in a vacuum of economic space, and  an equilibrium can only be reached  by two corresponding systems positioned in the same economic plane, which is impossible. It means that no monetary system can reach a state of equilibrium in ever changing environment and monetary parameters. In fact, a model or a system in equilibrium is a dead, non-functional body, as is Zimbabwean Central Bank which has abolished its worthless national currency.

The  economic game model is wrong as well, since a game needs at least two players, with the end result of a  winner and a looser, or means a single player that plays with a third-party invented program (Russian and Israeli central banks that used the American FED’s model with devastating results), and usually a game theory is applied post-factum to a past event, as the Israeli economic game theorist applied his game paper to a so-called Oslo Accord and its step-by-step Israeli concessions  never matched by the opposing PA,  the Arab terror outcome of which the Israeli people and economy suffer under since 1993.

In all such circumstances, the society and the free market rebel and correct themselves via revolutions and financial downfalls, with trillions of dollars lost. Accordingly, as the Church had separated itself from the state and became a quasi financial institution above the state, the free market economy should function as a non plus ultra financial institution ruled and protected by integrated macroeconomics with a self-correcting mechanism of a three-tier stock exchange system developed by me.

Accordingly, I suggest that in order to prevent future economic depressions and collapses, the common  macroeconomics should be replaced by integrated macroeconomics (as formulated by me) separated from the monetary and fiscal economics induced and controlled by the state via central bank and the treasury which are self-conflicting bodies without taxpayers’ control.

The reason for such a change is that the capital market should be free from the state control in both

THESIS

Preamble: this paper has been composed due to the fact that all previous economic theories and models have failed in the modern turbulent economic circumstances of the intertwined, dependable and unstable global markets and economic powerhouses, with unpredictable fluctuations of domestic and foreign capital.

In re: let’s reminiscent briefly on the history of the past empires, state unions and confederations that had led to the rise and fall of the British Empire (despite the gold standard of the Pound Sterling which was the primary reserve currency for much of the world in the 18th and 19th centuries, but perpetual account and fiscal deficits, financed by cheap credit and unsustainable monetary and fiscal policies used to finance wars and colonial ambitions eventually led to the pound sinking (read current U.S. economic situation), Spanish and Dutch empires, whose economics were based on colonial assets, and the fall of the Austrian-Hungarian entity. The USA had united independent states which then exist on cash injections of the Treasury and the Federal Reserve via dollar printing and the issue of now unsellable state bonds, e.g., the state of California, which has now a budget deficit of $42B, while the overall national debt per American household is now $35.000, to rise to $75.000 due to President Obama’s financial policy. Economic crisis in America happened a number of times, albeit dollar was the world reserve currency guaranteed by gold.

In post World-War II, the US dollar took over the sterling’s dominant position and became the world’s newest reserve currency. The Bretton Woods Accord, the first major economic transformation toward the end of World War II, established the International Monetary Fund (IMF) and a way to value the various currencies of the world relative to each other. All foreign currencies would trade in relationship to the US Dollar and only the US dollar (as the reserve currency) would be tied to a gold standard (meaning the value of dollars circulating must be backed by gold reserves). The Roosevelt dollar was a schizoid, two-tier dollar, whose purchasing power at home did not match its gold parity abroad. At home, it was a fiat monetary unit, not convertible to gold; abroad, it was convertible to gold at $35 per ounce.

Americans of that era learned rather quickly that the maintenance of wealth in tangible form was preferable to paper wealth, so as bank runs became more pronounced, they rushed into and hoarded gold, since a growing distrust of banks meant an equal distrust of paper money.

Executive Order 6102 of April, 1933 and the United States Gold Reserve Act of January, 1934 changed all that. The 1934 Act raised the official price of gold to 35$ per ounce from the 20.67$ paid to Americans who, under the threat of a 10,000$ fine and/or 10 years imprisonment, had been forced to turn in their gold a few months earlier.

The gold standard caused major problems in the 1960’s when France (under the London Gold Pool) called America’s bluff and demanded gold for payment of debt, rather than US dollars (they understood that USA were printing more money, to finance the Vietnam conflict and fund new social programs, than we had available in gold reserves).

Due to the rapid loss of US gold reserves, President Nixon had no choice but to abolish the Bretton Woods accord in August of 1971 and he took the US dollar off the gold standard (it was $35 per ounce then).

Ruble of the Imperial Russia had also been guaranteed by gold, but that colonial and agrarian country, notwithstanding its industrial output of the 1913, existed due to wars and foreign loans. The crash of that economically poor, on bayonets unified empire was inevitable, as well as the crash of the following Soviet empire due to its domestic and international aggression and annexation, failed Communist “planed” economy, fifteen fictitious republics on Moscow’s payroll,  one-side introduced fake ruble-dollar parity, purchases of grain abroad for dollars, arms race and non-repaid foreign loans, paid-off by Russia only recently.

And nothing have come up of  the idea of the  Belarus-Russia economic union and  unified currency, and  Belarus now lobbies the EU.

With regard to Euro, it had lost  30% of its value at the issue, and that issue and the annulment of the former European currencies has cost tens billions of dollars. The economy of the leading EU states had thereby been undermined due to the incompatibility of the different economic systems and internal state protectionism of the EU members. The economy of minor states had been damaged due to sharp discrepancies  between the low wages and 2-3 times higher prices due to joining the EU where wages are 10-20 times higher. Example: Bulgaria, Czech Republic, and Baltic States which are virtually bankrupt.

Euro keeps its mark due to free circulation of the paper money in a monetary spread now affecting the UK and Switzerland, but  Euro can fall to a critical point due to reduced  consumption and production,  credit crunch and the strengthening dollar.

EU Central Bank and the Bank of Israel (BOI) had followed suit by emulating FED’s actions applicable in USA only, i.e., by zeroing all interest earning saving deposits and to buying-in own state bonds. In  Israel, the American-led BOI had unreasonably devalued the strong shekel by 30% in favor of  weak dollar and Euro due to threats of total strike and extortion  by the leftist subversive Israeli Labor Union (so-called New Histadrut), albeit the Israeli import is 3-4 times larger then export, and BOI had bought-in the Israeli state bonds, albeit there was no huge foreign debt as in USA, had depleted the Treasury of its large  tax income of 15% on now non-existing shekel saving deposits of the bank customers, had reduced the interest rate to 0.5% thus depriving the bank clients and the banks of their earnings, and made thereby poorer  the consumers. Said erroneous and highly damaging actions had deflated the Israeli economy with no official inflation, caused mass unemployment, closed companies and factories, and caused the 20%-50% rise in travel expenses, food, gas and RE prices due to actual inflation concealed by the BOI, since  its actions are in contradiction to all written and unwritten free market rules, with negative results for Israeli economy, for the reduced money supply wasn’t compensated by a $750B stimulus  package and capital infusion in banks and companies, as in USA.

In Russia, on the contrary, its Central Bank had opted for inflation vs. deflation, and had allowed large interest rates at falling consumer and RE prices, with now value appreciating ruble, thus saving the consumer market, its money circulation and earnings on saving deposits.

Paradox but fact: dollar had appreciated against foreign currencies despite the collapse  of the U.S. economy, since all countries buy up dollars for currency reserves and support of their U.S. market dependent economies.

Hence, it is obvious in my opinion that the U.S. and EU economies and monetary expansions were based quasi on the Einstein’s formula Е = мс2, i.e. energy of the economy is equal to the money mass  multiplied by the speed of its circulation in the quadrature of the given monetary territory. But in case of  the  reduced  circulation of money, as occurs now everywhere, the economy of a state shrinks and is subject to a gravitational collapse due to a  financial black hole.

I would elaborate and picture the economic model in geometric terms of universal macroeconomics, i.e. a circle within a square. Central Bank and the SE of any state are the gravitational monetary bodies in the center of the circle of thereby attracted  economy, and distribute financial energy – the money mass and securitized wealth within the boundaries of given economic universe, whose revolving circle represents the circulation of capital. The “square” of the GDP, cornering the circle of the economy forms four corners – fields of the given financial space, representing respectively the banks, the RE market, consumption and production.

This represents my Unified Field Theory in Economics, as per Einstein’s theory in Physics, applicable to macroeconomics where accordingly monetary forces between the objects of  economy are not transmitted directly between them, but instead go through intermediary financial fields whose  interactions should be unified  (from strongest to weakest) to prevent the crisis of economy.

To substantiate: when too much monies are pumped into that system as in USA prior to the crisis, the ill fetched economy expands and depresses said fields – cornered banks, RE market, consumers and companies,  constituting the depression with corporate bankruptcies where macroeconomics enter into the conflict with the microeconomics (strongest vs. weakest). To rebound, the economy must contract to relieve the tension from said affected segments of the economy and that had happened recently in USA, proving my assumption.

 Here I also introduce the terms of the “spot” money, “intangible” money with delayed transaction and repayment, and “remote” money, the discrepancies in which had led to enormous consumers’ debt and credit crunch in USA. The matter is that the US economy and financial market were erroneously oriented toward assumed  wealth of the consumers, i.e.,  their unsecured credit cards and loans (intangible money with delayed transaction and repayment), but the actual wealth of the consumer is the real money in his pocket (spot money) and remote money in his bank saving account, so if the US credit report companies and lenders would have had checked and calculated the actual cash status of the consumers/debtors using my money terms above prior to issuing  a mortgage or a loan, the monetary and economic crisis in USA could have been avoided.

It means that apart from the usual state and corporate credit rating, the new gross consumer credit rating (GCCR) should be introduced and used to constitute the essential part of the advanced modern macroeconomics, and that is particularly applicable to REITs, Fannie and Freddie in USA. Here, my term of the General Growth Personal Income (GGPI) should be introduced (as previously applied to RE properties), and calculated by the FED or any Central Bank via IRS and Tax Authorities to keep the economy in check and prevent any crisis.

Nota bene: the problem of common macroeconomics is that it is not based on the Rule of Golden Section and the Fibonacci sequence, albeit all universal systems from the human body, plants and up to the universe are based and develop on this very same principle. To elaborate, I would define the monetary correlation between various states and economic systems in the  following approximate ratio, applying Fibonacci figures: USA to the EU as 1:2, USA – UK as 2:3, to China, Japan, India, Mexico respectively as 3:5, 5:8, 8:13, 13: 21, and so on, showing the dilution of capital, having in mind the relevant buying potential of the consumers  which is low in China and India,  in relation to  the billions of people in said states.

The expanding global economy also reflects the geometry of the Fibonacci spiral that approximates the golden spiral of the universal macroeconomics and globalization based on irrational constant of economic dynamics.

This is all because the GDP based common economy is assumed to be closed, no imports or exports occur.

So my opinion  is that any economy should be based  on  the financial pillars consolidated under one roof, i.e., the real estate market, the stock exchange and the gold trade should constitute a uniform, self-containing system, as the project developed by me, namely the Alternative Int. Stock Exchange, to include the Real Estate SE  and the Gold SE, constituting my Integrated Macroeconomic Theory.

I suggest therefore that apart from the GDP, modern economy should be linked to the Gross Foreign Product  (GFP), as termed by me, including foreign revenues of domestic companies and the offshore assets. This implies the repatriation and reinvestment of the foreign gained income and fled capital as the amortization of the domestic corporate and private assets that constitute thereby  the Cumulative Gain Product (СGP), a term  formulated by me. Said new measure  can mitigate the domestic economic crisis and attract foreign capital due to adjusted financial parameters and upgraded credit rating of the given state.

In re: Concerning the collapse of major U.S. and EU investment banks, with heavy losses at the NYSE,  Russian, EU and Asian stock exchanges and monetary systems and to mitigate the economic and financial situation, I have devised the  project  of the innovative Alternative  Int. Stock Exchange  (AISE), to be established in Jerusalem, to include the Real Estate Stock Exchange and the Gold Exchange to secure investors’ assets and gains. Said project is based on my previous project and bylaws of the Tel Aviv Alternative Stock Exchange solicited by the Israeli Finance Ministry.

Said uniquely integrated three-tier financial system would attract large capital due to innovative self-compensating triple index which is not entirely GDP oriented, as the world economies are based  erroneously upon, leading to collapses, so the Israeli economic and financial system would thereby be based on our introduced GFP as well, thus securing the stability of capital and market and bringing the economy out of recession.

Reprinted with kindly permission of Solomon Budnik. (C) 2009 by Solomon Budnik. All Rights Reserved.

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