FUTURE TRENDS IN INTEREST RATES MECHANISM, BUSINESS INTELLIGENCE, FINANCIAL MARKETS AND INDUSTRIAL MANAGEMENT DECISION MAKING PROCESSES
Prof.Dr.Mehmet Erdas Berlin, 14.10.2010
The earth is moving in elipse path steadily around itself and others, whatever and whoever stays lags behind, looses the contemporary attachment and performance. The leading and lagging of wealthy nations in their development process, depend up with complete causality on their knowledge and capital accumulation, especially reproduced in higher quality of their human capital. The brain-drain process from the rest of the world into developed countries is feeding the economic growth and scientific discoveries. Without the new inventions of further basic elements and materials, new patents and trademarks, enabling the funding of the innovation process through economic growth by market automation, conducting more research and development in their technology centers, international companies or universities, Germany, USA, Japan could not have been performed well up to 15.th of Sept.2008.
All science fiction stories are aiming at letting the mankind think of another pseudo reality, outside of natural laws. The nature is uniquely reproducing itself with all of its energy and natural resources infinetely. The increasing earth population against the destruction power of weapons produced to protect only the achieved wealth and growth on earth is threatening the existence of mankind on this uniquely infinite but limited earth.
Another financial crisis much more severe than the one in 2008 should be expected, unless redistribution of wealth and growth on earth happens under peace and concensus. Risk management and technology assessment processes should be based on reliable, high quality of data without any uncertainty or redundancies. The right decisions can only be taken relying upon up to date, precisely high data quality. The Business Intelligence tools can provide you with such valuable data, enabling clearly defined business processes based on master data management in financial and industrial decision making processes. The compettition between China and Russia against US, Europe and Japan on the value, stability and sustainibility of exchange rates could lead to more protection in world trade through punishing customs policies.
It can be said that decontrol and deregulation of the interest rates have been manipulated by energy prices and Exchange rates mostly in the past two decades and in the whole history of the capital accumulation. A new definition of interest rates on a complex time scale could accomplish the re-distribution of wealth and growth on earth, re-balancing or re-matching of aggregate demand and aggregate supply, as John M. Keynes has suggested. we will briefly discuss the main economic functions of interest rates for the consumers, companies, sectors, national and internatiponal economies.
In classical economic theory, the interest rate is simply regarded as the price of capital or liquidity advantage, in a very similar analogy between the rate of exchange between goods and services, which contain an added value. In the case of money interest rate concept, the real money value amounts at a different time horizon are exchanged. In fact, money could be any material or good as long as it serves the functions of money. The speciality of the interest rate as a price of Money capital is the way in which the exchange event occurs between an amount of money today and another amount of money tomorrow. Consequently, the pure rate of interest is a time-dependent function of money or intertemporal price of money to money exchange at a different point in time scale. Therefore, the complex time scale has to be the main factor in the exchange of money against money without any additional value, therefore this time scale has to be complex, consisting of real and imaginary scales, accounting for both production and distribution of goods and services at the same time, such that the supply and demand functions, could be exactly matched at a certain point in future, without any excess or idle production capacity.
The interest rate is simply defined as the price of capital in the capitalist economic system, but the interest rates, in comparison with the rates of profits, are meant to have the main determining role over the volume of investment, of savings, level of employment, the level of prices and the balance of payments, determining the capital accumulation process and capital stocks. Due to its intertemporal nature, the price of capital or the complex interest rate is the single determining variable for the intertemporal allocation of time, energy and resources in the economy.(Malinvaud, 1969.). The complex interest rate mechanism as the price of capital, energy, time and resource available for production and consumption at two different points in time, determines all the other economic decision variables and the level of investment in conjunction with productivity of the capital. But on the other hand complex interest rate determines the level of savings and all other timing and resource productivity preferences for all economic activities. The complex interest rate determines the aggregate demand and aggregate supply for all financial funds and available scarce economic resources in the economy. Finally, the complex interest rate as the price of capital is the main central determinant of productivity and time value of all economic activity in a period of time traded in the capital markets. The vital central importance of complex interest rate as the price of capital in the capitalist economic system, prevents from monapol or oligopol markets, enabling all of the market players for free competition market automation.
In a free market economy, the interest rate is simply the price in the money and capital markets. There is no doubt that the
rate of interest is regarded as a price which performs the same function like the price of any good in its market.
In the literature numerous interest rate theories have been set up in order to explain why the rate of interest exists and how it
is determined. Most of the theories, especially earlier ones, depend on a single factor in the explanation of the interest rate
phenomenon. Adam Smith,in his ‘The Wealth of Nations’ explains that the reason for a lender charging interest for his money is because of the borrower making a profit out of his money. Thus, the interest rate of money is always a derivative revenue rate on complex time scale consisting of both the real and the imaginary components. It is the basic idea that interest is coupled to future profit expectations and its rate is determined proportionally to that of the profit. On basic questions about the existence, why the rate of interest exists and how it is determined, there are basically the abstinence theory, productivity theories and uses theory. These theories are classified as single cause theories of interest (Conard, 1959. p.30-40., Fisher, 1982. chp.2.) to justify the existence of the interest rate through the productivity argument of capital, and the interest rate determination is simply left to the supply and demand for funds as in any other commodity market in the economy.
The existing interest rate mechanism, ruling over the international Money and financial capital markets, can not measure any more the complexity of all economic activities in relation to scarcity of all resources regarding the limitations like the environmental boundary conditions, climate change, finite energy resources, lack of demandor the idle capacity of production, the capital productivity, liquidity, the cost of abstinence from capital and the profit maximization goal of capital. As you can see all economic activities require the availibility of capital, processing energy, labor, time, communication and transportation for both production and consumption. The final goal of production is consumption and social welfare. The monopolistic nature of interest rates mechanism leads to the idle capacity in periods of decades in capitalist system. This can be prevented by introducing the complex time scale in the definition of interest rates, instead of only real time scale, explaining only for real capital stock and solving the supply side problems, but we have to include the imaginary time scale for demand side, explaining for more innovation through productivity increase by fair distribution, social justice leading to more spendable income and demand forces, without idle capacities occurring as residual value after every decade.