Finance – How the Great GDP Hoax is Stealing Your Wealth

The Descent of Finance

Are you unintentionally limiting the amount of money you are making in your business every day? You are the one who invested your life, income, reputation, money, house in your business. Imagine telling your family every morning as you leave for work,”Bye everyone, I’m going in today to do 20% of the things I can be doing?”

The FACT is that if you are not learning… if you are not constantly implementing new strategies in your business, you are doing exactly that. Making just a fraction of the progress, money and success that you could be making.

The problem is that the way the GDP number is calculated is deceiving. The GDP = Consumption + Business investment + Government spending + Exports – Imports. You may hear economists on TV say that the GDP has grown lately, and that is a good sign that the economy is recovering. Next time you hear that you need to pause and think about how the GDP is calculated and what this means when we use it as an indicator of economic growth. Look at what is really happening in the economy and compare it to the growth in this number. It might explain a lot about why the current administration in Washington is convinced that government spending is the solution, and why it is deceiving everyone into believing them.

Unfortunately, many business owners like him are faced with obstacles towards realizing this kind of success: Either they have no time to plan for the future; or if they do, they are not plugged in to the right ideas, techniques and systems out there. Or, more importantly, many of them are afraid to think big… afraid to act like a leader… and are afraid of change.

It’s a pity, because with the same time, effort and money it is possible for them to design a plan for their business to LEAP FORWARD ahead of the competition to make double, triple what they are making now.

An even more serious problem would arise out of how to set the boundaries between those sub-sets of depositors/institutions which would be covered by the deposit insurance, the lender of last resort (LOLR) facilities, etc., and those not so covered. The central bank would be unwilling to extend its operational remit to dealing with financial markets and institutions where issues related to systemic stability are limited and customer protection of much greater importance.

One more proposal was delegating supervisory responsibilities to multiple agencies outside the central bank. This option requires full and free exchange of information among multiple agencies at national and international level. Within the European Community, legislation has imposed a duty on these authorities to cooperate, however implementation of this may be more difficult. This model also requires the harmonization of capital standards. This would imply that the risks incurred would be subject to the same standards irrespective of the unit of the corporate organization they are incurred.

An obvious problem with the model is allocation of responsibilities between different supervisors. Traditionally, countries have organized their prudential framework along institutional lines. This has generally been on a tripartite basis (banks, securities firms, insurance companies), except in countries such as Germany and Switzerland which have universal banking systems, where securities business is generally regarded as the banking business. So it is difficult to allocate it under the specific supervisor.

One alternative proposal was to divide the structure of supervision into two purposes: systemic stability (prudential supervision) and customer protection (conduct of business supervision). This was the Twin Peaks proposal, advocated in the UK primarily in the work of Michael Taylor (1995 and 1996). The supervisory body charged with customer protection would naturally take the lead in some areas, markets and institutions. Contrary to this, the body charged with responsibility for systemic stability would take the lead in dealing with the payments system, and with certain aspects of banking and, perhaps, other financial markets. In practice, however, to a large extent a ’systemic stability’ regulator and a ‘customer protection’ regulator most probably would implement the regulation of a bank in exactly the same way, so there would be considerable duplication and overlap. Dealing with two supervisors would also raise the cost of supervised entities. The Twin Peaks concept has, so far, not found favor in practice, though, the US system has evolved in a way that approximates it, with the Federal Reserve coming close to a systemic stability (prudential) supervisor, and the Securities and Exchange Commission (SEC) undertaking the conduct of business role.

One important point is dividing tasks according to micro and macro approaches. Customer protection issues are generally associated with micro level decision-making, while systemic stability deals mostly with macro, however to some extent with micro-level as well. It has been argued that keeping macro part of systemic stability issues with the central bank and micro part with an independent agency would restore clarity and responsibility.

It is worth discussing how this problem applies to developing countries. The financial structure in developing and transitional countries is quite distinct from developed economies. They tend to be simpler, more dependent on standard commercial banking and degree of blurring boundaries in these countries is low. In developed countries the complexity of financial sector and blurring boundaries force central bankers to extend their activities further away from traditional limits. It also creates multiplicity of supervisors or unified supervisory body outside the central bank. This is not the case in developing countries. The banking system, insurance companies and stock exchange can co-exist without much friction or overlap.

Thus, the strength of argument concerning the changing structure of financial system and whether the central bank should regulate non-bank financial institutions as well largely depends on the degree of blurring boundaries between various types of financial intermediaries and readiness of the central bank to tackle with the responsibilities that lie outside its historical sphere of expertise. Practically observed trend towards separation of regulatory function from the central bank can be explained by the development of the financial markets in different countries that tends to make this argument decisive

Resource Author Francisco Rodriguez Higueras
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