Thursday, 16 June 2011

The Tao of modern economic policy

Business Mirror

‘Were I possessed only of the least knowledge, I would, when walking on the great way, fear only paths that lead astray. The great way is easy, yet people prefer the side-paths.

“Be aware when things are out of balance.
Stay centered within the Tao.
The Court is corrupt,
The fields are overgrown with weeds,
The granaries are empty,
Yet there are those dressed in fineries,
With swords at their sides,
Filled with food and drink,
And possessed of much wealth.
All this is robbery and chaos.
Far indeed is this from the Way.”

Chapter 53 of the Tao Te Ching, attributed to Lao Tzu.

It seems amazing that these words were written some 2,500 years ago and yet describes the world as we know it today.

The author begins by saying that even if he were of minimal intelligence, common sense would keep a person or institution from doing foolish things. Even though following common sense is easier, people want to go off the path.

The global financial turmoil comes down to individuals and institutions living way beyond their means and then borrowing deep into debt to avoid changing their ways. “Be aware when things are out of balance.” The financial balance sheets of all global banks are so far tilted to the debt side, that standard accounting practices were changed to allow the banks to carry on the asset-side, debt paper that is worthless. If the banks had to declare the market value of all the loans they have outstanding at true recoverable value, the world financial system would collapse immediately.

Remember for years after the 1997 Asian crisis, the business news was filled with the percentage of local banks’ nonperforming loans (NPLs)? The total NPL percentage for Filipino banks is now less than 3 percent. In July 2000 the NPL was 15 percent.

The US banking system is so fragile that even a 5-percent NPL is considered very risky. This is because the capital adequacy ratio of Filipino banks even in the post-1997 years is so very much higher than in the US.

The more severe an economic crisis becomes, the more corrupt the court, the government, becomes. During the economic depression of the 1930s, the US government confiscated all non-jewelry gold holdings of the American people. The government forced the people to sell their gold at a low price fixed by the government. This is nothing less than stealing and extortion.

In 2008 Argentina confiscated the 10 largest private pension funds, taking their assets for the government and then allowing the government to “guarantee” the funds. Outright theft. Last month Ireland imposed a tax on pension money, in effect taking away part of the money that people had contributed for their retirement funds. The US Treasury is now “borrowing” from the US Federal employees’ pension funds, of course, without asking the pension- fund holders if they would like to loan their money to the government.

This is corruption at its worst, and it is not isolated. Hungary, Bulgaria, Poland and France have all confiscated their workers’ retirement funds without permission.

The economic fields of the West and much of the world are overgrown with weeds; unproductive. Global economic growth is not sufficient to maintain today’s standard of living for tomorrow’s population growth or even today’s current population. Government policies have created an environment of nonproductivity.

Greece is the lowest financially rated economy on earth because the government encouraged borrowing instead of production. St. Paul wrote, “If any man will not work, neither let him eat.” If any leader said that, they would be denounced as antipoor. And yet, governments’ philosophy of “If any man will not borrow, neither let him eat” has pushed millions more into poverty in the last three years.

The American people have lost $11 trillion of their wealth since the peak of housing prices in 2007. A survey just released says 47 percent of all Americans would have to sell something to raise $2,000. An old, used car or a new automobile transmission costs about $2,000. The granaries are empty. Instead of storing wealth for themselves, people decided some decades ago to put their faith in the government to fill the granaries, and now they find them empty.

Still, amid what is perhaps the greatest global financial disaster in history, there are more billionaires than ever before. In the US 4.5 percent of all households are “millionaires.” Global “wealth” has hit an all-time high.

“All this is robbery and chaos.”

The fact that the Tao Te Ching described our current situation so accurately proves that what the world faces now is a repeat experience. This is not the first time that people and governments have not followed the way of good economic behavior and common sense.

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