View Full Version : What are an economy's fundamentals?
September 18th 2008, 08:20 PM
So McCain spoke of the fundamentals of our economy. Al Jazeera English had an article referring to the drop in the dollar that said "While the causes for this slide are debatable (and largely attributed to poor fundamentals in the US economy), the global impact of such a major drop in the value of the dollar is undeniable for two important reasons."* and another article had a comment saying "As they say in the financial world, let's look at the fundamentals. "**
So what are these fundamentals that they are refering to?
* http://english.aljazeera.net/focus/2008/06...1431417772.html (http://english.aljazeera.net/focus/2008/06...1431417772.html)
September 19th 2008, 07:05 PM
If you ask me, a fundamental part of economics is growth. The future has to be bigger than the past. More people, more money spent, more growth, more jobs.
We are in a time now that seems to be the reverse. The baby boomer generation shadows us, the new generation is smaller and cannot support the SS for them, or take the jobs, or spend the same money. People are downsizing to save money, businesses have to close, people's lives have to become simpler and they cannot indulge in unnecessary services and purchases. Think, for example, mobile massage services or something. This puts such specialists out of work as well.
If the next generation is not bigger than the previous, we can't support the previous generation, grow in income or expenses, or grow the economy. Things either stagnate, or they downsize. Downsizing is very impacting, as the whole nation cannot all downsize at once. Somebody with a huge home has to buy a smaller one, but then who buys that big home? People get laid off, work slows, people conserve cash. At the very least, the next generation would have to equal the previous, but that doesn't seem to be our case with the boomers.
So ya, I think a fundamental is growth. And with abortion on the rise, people clamoring for families to have fewer children, and all this earth-first, global warming, save the planet stuff, economic growth is not going to happen. Supply and demand rules, that changes things as well. We see layoffs and we see people taking pay cuts, yet gas prices rise, grocery prises rise, and the value of our assets plummets. The gap between the wealthy and the middle/lower class widens.
There are many parts of economy that are cyclical, just look at the charts. Lines go up, then they go down, then up, then down. We may be riding something down right now, but it will eventually start back up if somebody starts making the right decisions in this country. The next 4 or 8 years will be historic, to say the least.
September 19th 2008, 07:22 PM
There are a TON of fundamentals, from inflation to productivity to consumer confidence, to availability and cost of credit, to stability of the monetary system, to the effectiveness of distribution of goods to access to reliable power sources, etc.
They're really the things that drive any economic system.
November 3rd 2008, 06:50 PM
Well, this is obviously way too broad to really answer, but I'll try.
The fundamentals of any economic system are of course the laws of scarcity and increasing opportunity cost.
The first model you should know is the Production Possibilities Frontier. This is the very first thing to learn.
Also, the basic laws of supply and demand are something that no one really understands, but is very important. From this, you can learn how fixing prices and interest rates mess up everything. The market equilibrium is the price where supply and demand meet. Having the price above it means surplus, having the price below creates a shortage. This is probably the most important concept in economics.
Also, monetary policy, consumption functions, and aggregate supply and demand are important beginner concepts. Learn these things and you will be off to a good start. Once you understand monetary policy, you will understand one of the most important parts to current economics, inflation. Inflation is the worst and most unfair and immoral tax we have. It's only possible because of the federal reserve.
When politicians talk about the fundamentals of the economy, they have no idea what they are talking about. They are lawyers, not economists. Paul Krugman won the nobel prize in economics for god's sake. So don't learn mainstream keynesian economics. If you are really interested, consider reading up on Austrian school economics.
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