The biggest
problem of today’s economy is that it is supported by change — for example,
emergencies, temporary or tentative fluctuations, transformations, or
uncertainties or irregular expansion or growth.
Basically the
economy is a house of cards. Because it stands on changes, it is unstable,
uncertain and insecure, and as such, this is an inevitable condition.
We shouldn’t
forget that the basis for stabilizing the economy depends on the state of
negative areas, i.e., debt, capital, revenue, that are stronger and more firmly
fixed.
One might say
that the principle of periodic profit and loss works with the addition of a
time axis to the cash basis.
Periodic
profit and loss is based on the space formed by adding a time axis to the
economic space created by the coordinate axis, i.e., people, commodities and
money.
The principle of periodic profit and loss is the concept of figuring out or controlling economic phenomena using the structure in the unit period and the time structure created by the unit period and long-term period.
There are
limits, even when seeking a short term balance. For this reason, we should give
up the per-annum balance principle of finance.
Economic
balance should be adjusted through short- and long-term time structures.
To achieve
this it is necessary to investigate finance from both the profit and loss
structure in the unit period and the time structure of cash flow in the short-
and long-term.
From an
accounting point of view, having debts means having acquired assets of the
worth of those debts, and having assets means having matching debts or capital.
This is not
understood correctly.
What we should
be careful to note is that assets and an estate are different things. An asset
that does not appear on the accounting books as an asset has no value on the
books, even if it is actually of great value.
The value
posted on the books indicates the value of the asset. No matter how much higher
or even lower the actual value of the asset is than the value recorded on the
books, it does not pose a problem for accounting.
A bad debt
generally indicates an asset whose value has depreciated from the value
recorded on the books. However, this is clearly an error.
Even if the
asset has depreciated from the value listed on the books, as long as it is being
utilized or contributing to management activities, it does in fact have some
kind of value as an asset.
This means
that the collateral value has decreased, so it is a bad debt. However, it is
wrong to call it a bad debt for this reason.
The term bad debt
is used when falling behind in repayment, and stagnated repayment is caused by
income problems.
One important
point is that repayment of the principal of a loan is not shown in profit and
loss. It is important to determine whether a debt is bad or not as a problem of
revenue, i.e., from the viewpoint of cash flow. And this judgment should not be
based on whether or not the asset in question has decreased in value.
This can be
more clearly understood if we cons
This is where
the viciousness of financial institutions these days becomes clear. Financial
institutions are supposed to evaluate business operations, but they just follow
the principle of collateral because they do not have the ability to evaluate
business operations.
As a result,
they replace long-term problems with short term issues and crush companies that
are otherwise excellent businesses.
A loan that is
not posted on a company’s books is not a debt on the books.
We need to
remember that repayment of the principal of a debt is not an expense.
And this means
that funds for the repayment of the principal of a debt should be generated
from depreciation allowances and appropriation of earned surplus.
This also
means that the principal of a debt is not intended to be repaid using any means
other than the depreciation allowance as a basic rule.
It is a common
misconception that depreciation is an expense that is not associated with
spending. But this is an outrageous error, and if you continue to act on the
basis of this misconception, you’ll end up with severe cash flow problems.
Moreover, with
regard to current Japanese corporate taxes, taxes themselves may not be cons
So people use
depreciation allowances and after-tax profits as funds for repaying loans.
The problem is
that we must use the appropriation of earned surplus to finance all of the
funds to repay a loan taken out to acquire an asset that is not a depreciation
asset .
A typical
example of an asset that is not subject to depreciation is real estate, i.e.,
land. When the price of land increases, it is possible to finance funds using
unrealized profit from the land as collateral.
However, once
the land price starts to drop, it then becomes a burden on the company’s fund
management. As a result the company’s investments will decrease.
Is a
government bond a debt? If it is a debt, it should be paid back. However, we
should not forget that a government bond is a public debt and that it supports
the monetary system.
The cause of
the exacerbation of financial problems is that long-term fund plans have not
been established for each business operation.
There is
thinking, something like an unwritten rule, that a nation is not permitted to
gain profits. This is wrong. If you are not allowed to gain or borrow, the only
thing left is extortion.
Taxes are a
kind of extortion. The notion that, “to the winners belonged the spoils,” was
the beginning of taxation.
After the
establishment of the nation-state, a concept developed that a tax would be an
expense used by the nation to serve the people.
However,
people somehow think that their hard-earned money is being snatched away under
the name of authority.
Bes
A nation
should also gain profits. In the private sector one cannot do business if one
cannot make a profit. But it doesn’t work that way in the case of a nation.
A nation must
take measures crucial to maintaining the safety and everyday life of the public
even if it does not make a profit. Moreover, a nation needs to correct any
unfairness among its people. And there is no way to achieve this other than by
using taxes.
If it is
possible to make a profit, you should do so with no reservations.
You should
earn wherever you can by, for example, charging for public projects or using a
system of beneficiary liability. On that basis, a nation should give up the
per-annum balance principle and introduce the principle of term profit and
loss.
There are big
waves being felt in the cash flow surrounding international markets. These
waves of cash flow actually form the international markets and build up the
economic structures of individual nations.
Each country
needs to change its economic organization along with these waves of cash flow.
Countries that
comprise the international markets change their external relations from the
current account surplus to current account deficit, or from current account
deficit to current account surplus, along with the waves of cash flow in the
international markets.
These changes
in external relations are reflected in exchange rates and the currency value of
one’s own country, and they modify the domestic industrial structure under the
flexible exchange rate system.
This sort of
cash flow in international society has an impact on the amount of currency
being distributed in individual countries, and it forms the state of finance,
household budgets and private companies.
The flow of
people and commodities and the flow of cash have a two s
The reality of
the economy lies in the flow of people and commodities. Cash flow exists to
stimulate the flow of people and commodities.
And in the
case of a money economy, the premise is that first of all currency is
circulated in the market.
There is a
large flow of currency in international markets. This flow changes direction
according to the global situation at the time.
The flow of
currency is basically a circulating movement that generates waves. The waves in
the fund flow generate big swells in the economy.
The currency
wave appears as a financial excess or shortfall in a family’s or private
company’s budget. And the role of adjusting this excess or shortfall is
performed behind the scenes by financial institutions.
Therefore, the
size of excess savings or excess loans and the loan-deposit ratio become
important indexes.
It is wrong to
discuss whether a current account surplus or deficit is acceptable or not. The
standard for determining whether the balance of a current account is a deficit
or surplus is not an absolute.
It is
determined by the state of the market and the unique movements of individual
countries at the time. And it is adjusted depending on the coordinate axis
covering a long-term period, and it is difficult to determine the direction of
the currency flow only through trends in the unit period. A unit period is
actually an effective way of acknowledging the state of domestic industry.
The overall
trend of the economy should be judged by cons
The important
thing is not to fight against the currency flow, but to use it proficiently.
What policymakers should do is stabilize the economic state of their own
countries by utilizing the waves of the currency flow.
The relative
virtues of the floating rate system, fixed exchange rate system or currency
system are not technical issues, and they do not pose an essential problem.
The floating
rate and fixed exchange rate systems have both good points and bad points. They
are not absolute systems. The point is that we should select the most suitable
system for the time.
However, it is
not possible to understand the big wave of cash flow through only shortsighted
thinking.