The economy is extremely logical.
The state of economy will soon come to the surface only if you analyze it according to the accounting logic.
It is the power of “Money” that moves the current economy. In the work of money, there are short-term and long-term workings.
When we say inflation or deflation, we soon call to mind the commodity prices, namely the inflation of flow. The phenomena of inflation (or deflation), however, are not only in the commodity prices but also in the assets, i.e., in the stocks. Today, it is rather the inflation of assets (or deflation of assets) that confuses the world economy. The inflation by commodity prices affects our living quickly, but the inflation of assets takes time to influence our life. It is because the inflation of assets is caused by the long-term movement of funds. And this inflation of assets is the phenomenon called the Bubble.
Long term functions of funds are hard to appear on the table. The reason for this is that short-term funds are recorded by the terms of earnings and expenses on the Profit and Loss, while the work of long-run funds only appears in the forms of Assets, Liabilities and Net Assets.
The inflation of flow and the inflation of stocks are not necessarily linked. The flow, however, has a characteristic that constrains the stocks, and therefore the inflation of stocks has a character to turn toward the shrinking direction when it reaches the critical point, unless the inflation of flow derives at the same time. When the asset markets shrink, the long-term funding will be suppressed. The most affected by the working of long-term funds is the investment of private companies. Since investment is an element that affects income, as consumption also does, the total income is suppressed and economic growth takes a load.
In today's accounting system, the profit is treated as a final barometer of the economic state. In other words, in the current accounting, the state of management, namely the state of economy is measured based on the Profit and Loss of a period. The problem is the flow of money that does not appear on Profit and Loss. The flow of money which does not appear on Profit and Loss is mainly a problem of the Balance Sheet transactions. It is because the Profit and Loss are made up based on buying and selling. The flow of money that does not appear on Profit and Loss comprises the amount of repayments for long-term borrowings, working capital, and funding source of capital investment etc., and by clarifying the flow of these funds and seeing the equilibrium therein, the management state, which otherwise could not be seen, becomes visible. Where does the money that does not appear on the table come from? How is it procured? Where and how is it spent? Seeing those through is the key. Capital investments are financed by long-term borrowings and net assets. The repayments of long-term borrowings are procured from depreciation and net assets. The funds of operating capital are procured from short-term borrowings and operating net income. By minutely looking at the increase and decrease of assets, liabilities and net assets in all industries of all sizes based on the "Corporate Statistics" issued by the Ministry of Finance, we can see the work of long term funds.
Appraised value of land average