the direction of fund flow.

Although everyone is only concerned about the amount of funds, what is more important is the direction of the fund flow. No matter how much funds are input, the funds will not circulate in the market if the fund flow is directed at repayment rather than investment. Furthermore, if the collected funds flow to financial or capital markets instead of the business world, we would only see a recurrence of a bubble economy.


Capitalism was established under a modern accounting system. Therefore, those who cannot understand modern accounting systems cannot understand capitalism.


If total assets, i.e., total capital, were to contract, funds would flow to the collection side, which means repayment. On the contrary, if total assets were to expand, funds would flow to investment. Restrictions of equity capital direct the fund flow to the collection side. One should be careful when actually taking actions that restrict equity capital.


In principle, while a rise in interest rates directs funds to the collection side, a drop directs funds to the investment side. However, the effect of interest rate fluctuations depends on pre-existing conditions.


We can expect subsidy measures to improve corporate earnings temporarily. But, as the effect is only temporary, it is important to build a system with which corporations can improve earnings by themselves.


The reason why funds do not flow to the business world lies in the earnings structure and bad debt. In particular, problems in the earnings structure prevent corporations from maintaining proper prices in the market. When corporations are forced to struggle with bad debt without securing their earnings, the economy cannot help being directed to a contracted balance.


First of all, it is important to stifle excessive competition and adopt a system that allows corporations to maintain proper prices. If excessive competition is left as is, the market will shortly become oligopolistic and monopolistic. And this opens the way for deterioration of market functions.



Since 2008.9.24.

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