A guide to personal or national finances

Heading to Bankruptcy: Consumption greater than income, leading to debt-driven consumption. Safe growth:  Less consumption than income, and invest the savings. Risky growth:  Borrow to invest, betting that the investment return is greater than the cost of servicing the debt. Safe haven:  Store savings in sound money. Running your personal finance is in many ways similar to running a company or an economy. For individuals:  You sell your time, skills, and energy to cover your needs and wants, hoping to […]

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Tolls on the U.S. economy

The U.S. economy is losing its global competitiveness due to the following policy errors: 1.  High Taxes and Labor Unions are making manufacturing uncompetitive in the global market, resulting in a shift of the economy towards more driven by service & consumption.   Engineering jobs are now replaced with sales and customer service agents, making science, math, and engineering unattractive subjects in college. 2. Stringent immigration laws are driving science, math, and engineering foreigners trained in U.S. universities (often on […]

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Milton Friedman and Big Companies

Milton Friedman had pointed out that socialism and dictatorship is the natural tendency of human societies.  He had also observed that free market capitalism and the subsequent prosperity is the exception rather than the norm in human history. In fact, we can generalize the above conclusions to all human organization.   And such tendency is what drives big companies to failure.  These companies once had all the resources to maintain their market dominance.  Unfortunately, sooner or later the succumb to […]

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Financial Bubbles – Human Behavior & Risk Management

Someone in linkedin asked how human behavior contribute to financial bubbles and how to manage such risk.  Here is my answer: If you think of a bubble being the consequence of inefficiencies in the market, then we can examine how the two premise of efficient market theory can be broken: 1. Misinformation. Academics assumes perfect information to make their models work. In reality, misinformation is everywhere. To be more precise, misinformation is greatest when something is new. That’s why bubbles […]

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Stock Market & Dollar

The recent stock market boom is a symptom of excess liquidity caused by government policies. The liquidity is supposed to be injected into the real economy, but instead it is causing asset bubbles. The premise of the stock market rise is a falling dollar. Recently sentiment of the dollar has become so negative that a correction is over due. However, the government has no sign of monetary tightening, so it is fair to expect the dollar to resume its fall […]

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