Consumption is the most degrading factor in the US economy. Faber argues that a consumptive economy can never grow and I concur with these sentiments. It is only through capital investment and not capital consumption that growth can be experienced in the economy (Callum).In the Chinese and Middle East context, Faber notes that the Chinese economy is a growing economy due to its investment and increased production rather than consumption. Additionally, China exports to the developing and emerging economies totally bypassing the old world order. However, its overdependence on raw materials such as oils from the Middle East could be undone in the future. The Middle East is known for its instability and therefore the overdependence on their oil for production could greatly affect the economy (Callum). Question 2:The approach reduces the moral hazard by ensuring that the creditors do not experience losses. This is due to the fact that losses on the creditors’ side have a more detrimental effect on the institution than the loss of Equity by the institution. Creditors impact more on the company than the equity holders. The Creditors can easily cause more losses in case they themselves incur losses. It is ideal than a rescue that protects both creditors and equity holders (Mark).This approach eliminates the problem completely due to the fact the owner who has all the liberty to invest on behalf of the creditor and who has access to more information acts responsibly. This is due to the fact the owner incurs charges and possible losses in case of poor investment options.Question 3: Senator Lincoln proposed that commercial banks be forbidden to trade derivative securities in 2010. This is with the intent of preventing the banks from using cheap deposits to subsidize risky derivative businesses. The proposal also prevents banks from using emergency banking facilities. This proposal encourages financial intermediaries to divest their derivatives by forbidding the government from giving these bank assistants such as tax breaks (Yves). Despite the fact the proposal will enhance the regulation of derivative claims, it would not impact more on the number of claims that are received by the government. Additionally, this regulation may force banks to move to other countries where they experience little or no regulation.Question 4: A subsidy to the physical capital investment increases the capital needed on investment and reduces the amount of capital provided by the investor. The subsidy, therefore, gives a level effect to the company. Taxing labor also reduces the expenditure on the labor and therefore doesn’t have a more long term effect on the organization it does not impact on the growth of the company but only has a level effect Research and development have the capacity and potential to increase productivity in the company. When productivity is increased there is a chance of increased growth thus it has a growth effect.
The Terminal Phase of a Credit and Asset Bubble