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Archives for October 2010

The Role of Optimized Trade in the Worlds Economy

October 29, 2010 By Shane Ede 5 Comments

First, let’s get the basics out of the way. From the World English Dictionary, we get this definition of Optimize:

2. ( tr ) to plan or carry out (an economic activity) with maximum efficiency

The world is a big place.  There are billions of people that live in various places all around it.  Heck, even at the poles.  What is the role of trade, and, more specifically, the role of optimized trade in the world economy?  A couple of days ago we spoke about isolationism and the stagnation that could occur after an isolationist stance is taken for a long enough time.  The specific example was that eventually the supply and demand would reach an equilibrium.  In truth, an equalized supply and demand trade system is a fully optimized trade system.

In our every day lives, we buy things that are made all around the world.  In fact, it seems that we buy more foreign made items than we do domestic ones.  Why?  The common answer is that it’s cheaper to make these things in foreign countries than it is to make them here.  Why is it cheaper?  Because the trade to and from those countries has become optimized to the point that it’s so efficient that the costs of freighting those items here is still cheaper than making them here.

Freight ShipMaking trade routes more efficient through optimization reduces costs for trade along those routes.  Many of the things that we have today wouldn’t be available to us if we hadn’t optimized the trade routes here.  Consider oranges.  They don’t grow up here in the northern plains.  The only way to get them is to import them from someplace like Florida or California.  If the trade routes between Florida and the northern plains hadn’t been optimized by the invention (and use) of the combustion engine and, later, the invention of the federal highway system, it would make oranges too expensive to ship way up here.  The oranges would either rot on the way here, or the added expense of keeping the oranges from spoiling on the way here would be cost prohibitive.  But, because that trade route has been optimized to a greater degree, it’s possible for me to go to the local grocery store and buy oranges that were grown in Florida for nearly the same price as I would for produce that was grown here.

Optimized trade has a grand role in the worlds economy.  The more optimized the trade becomes the more likely it will be that things will be made in so many more places around the globe.  It will become easier to get authentic items, rather than semi-authentic items made here.  Eventually, when the trade has become optimized fully, a stagnant period will occur.  That scenario is impossible to imagine right now, because there are so many parts of the world that have no access to optimized trade.  We call them 3rd world countries.  They are so far removed from the optimized trade that many of the things that you and I in our 1st world society take for granted are mere dreams for them.  A fully optimized trade system would eliminate that.  Who knows, maybe someone will invent the transporter and we’ll have instant transfer of freight.  Imagine the possibilities!

Image Credit: Freight Ship by SpammT, on Flickr

Shane Ede

I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.

You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.

www.beatingbroke.com

Filed Under: economy, Financial Miscellaneous, ShareMe Tagged With: freight, optimized trade, oranges, shipping, trade, trade route

Isolationism and Stagnation

October 27, 2010 By Shane Ede 2 Comments

Isolationism isn’t a new idea.  At it’s root, it is the idea of being alone.  Isolated.  There have been a few countries that have used Isolationism to cut their country almost completely off from other countries.  China, Japan and North Korea all are examples.  China and Japan have opened up, but North Korea is still cut off from most of the world.  (OT: Did you know that North Korea is technically still at war with us?  An Armistice was signed, but no declarations of the end of the war.)

Given a long enough time as an isolationist country, a stagnation can be reached.  I don’t believe any of the above mentioned countries ever reached that stage.  But, at some point, a country that has no exports and no imports will find an equilibrium of sorts.  The capacity of the manufacturing industry will be reached as will the consumption limits of the people.  When that happens, the economy of those countries will stagnate as well.  The law of supply and demand notes that the supply (and price) of an item can be an important factor in the demand for an item.  The opposite is true as well.  But, if demand is level, there is no need for increased demand and prices are likely to drop.  As the stagnation continues, the country will be forced to open it’s borders to outside trade in order to stimulate the countries economy.

How does all of this relate to personal finance and Beating Broke?

Mo Money Mo ProblemsPeople can be isolationist as well.  We each have a personal economy.  And each of our economies is a bit different.  When we treat our economy with an isolationist view, we too can stagnate.  But, how do we do that?  The most extreme example is to take all of your money and put it in a coffee can and then bury it in the back yard.  Or to take all of your money and stuff it in between the mattress and the boxspring.  That money is isolated from the economies of other people.  And while it isn’t necessarily shrinking (as long as you aren’t buying things), it also isn’t growing at all.

A less extreme example would be that of the person who keeps all of their money in a savings account that pays little interest.  With no growth (interest), your personal economy will eventually reach an equilibrium.  That equilibrium will be signified by the 0 cash flow situation that will occur when you begin spending as much as you make and are unable to add any more to your little lumpy mattress stockpile.  Given enough time, it will actually swing the other way as you find yourself pulling a bill or two out to buy stuff.

But, all of this is fixable.  All you have to do is be open to ways to grow your personal economy.  You can be open to increased imports (interest + wages).  Growing your exports (value of your work) can help grow your imports.  Finding a good savings account to put your savings in will grow your imports (interest).

Don’t let your economy stagnate!  Take the little extra time that it will take to find a better rate for your savings.  Find a way to increase your work output without increasing your hours, or take on overtime or a second job to increase your income . Maybe you can increase your financial knowledge and education with a finance degree.  The basic idea here is that you have to be open to new ideas, new products, and to the value that your economy has to you.

The effect that isolationism can cause to a region/country. Without outside import/export, optimization occurs and stagnation ensues.

Image Credit: Mo Money Mo Problems by greggoconnell, on Flickr

Shane Ede

I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.

You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.

www.beatingbroke.com

Filed Under: economy, ShareMe Tagged With: economy, economy of you, isolation, isolationism, isolationist, money, Personal Finance

Breaking Up With Debt

October 22, 2010 By Shane Ede 3 Comments

Listen, Debt.  I just don’t think this is working out any more.

It’s not you; It’s me.

Broken Heart Cookie 1I just don’t see us going anywhere in the future.  I just don’t feel the same way for you that I did before.  It’s not easy on me, either.  Please.  Don’t cry.  It’ll be ok.

You’ll find someone else.

Someone who wants you; Who needs you.  Someone who can treat you the way you deserve to be treated.  Yes, you will.  There are lots of fish in the sea.  I’m sure there are several that would like you, Debt.

No, there’s nobody else.

I just feel like I need some time without anything holding me down.  Some time to find myself and be free!

I can’t be friends with you, after this.

I’m sorry, but I still find you attractive, and the temptation for a late night debt call would just be too much.  I don’t want to give you any false hope, and I have no emotional feelings for you any more.  I know it seems cruel, but I don’t want to lead you on and make you think there’s anything left between us.

Goodbye, Debt. 

I hope you find happiness and joy and someone who loves you.

Image Credit: Broken Heart Cookie 1 by Olivier GR, on Flickr

Shane Ede

I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.

You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.

www.beatingbroke.com

Filed Under: Debt Reduction, Financial Miscellaneous, ShareMe Tagged With: break up debt, debt, Debt Reduction, debt relationship

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