Yi-based analysis of the economy. Setting up a platform for Yi-based analysis.
The starting point is one. Everything begins from a single point.
The judgment is binary. Make clear distinctions between black and white, right and wrong. Do not create gray zones.
List the indicators that are considered relevant based on the issues, problems, and objectives. From these, select an odd number of elements to form a unit and modularize it.
The elements that make up a unit are basically three. In some cases, five (Five Elements).
Depending on the number of selected elements, form triangular or pentagonal relationships. Also, combine two units to form a hexagon, connect its diagonals, and clarify their relationships.
Connect and position the elements that make up the unit. Set up bidirectional relationships between the elements.
Particularly confirm the correlation between the elements. Set up the relationships between the elements in the manner of multiple regression analysis.
Set criteria for judging the yin and yang of the functions based on right and wrong, order and reverse. The criteria for the strength, height, etc., of the indicators do not become binary as they are, so make the baseline clear.
Basically, the criteria for judgment are based on dichotomous phenomena such as excess and deficiency, increase and decrease, up and down, rise and fall, order and reverse, positive and negative, before and after, front and back, expansion and contraction, low and high, hot and cold, and do not leave ambiguous points.
There are eight patterns of units formed by binary judgments. There are units that are paired in a symmetrical relationship with front and back. Position the units by the symmetrical pair functions of front and back.
Create a story with the eight patterns based on the flow of people, goods, money, and information, and relate and position each element along that story. Since three elements are selected, naturally three elements can be considered. Indicators include Heaven, Earth, and Man. Also, people, goods, and money. Production, distribution, and consumption. Superstructure, intermediate structure, and substructure. Vanguard, main body, and rear guard. Past, present, and future. Preparation, implementation, and aftermath. Opening, middle game, and endgame. Introduction, development, and conclusion. Strategy, information, and logistics.
The following indicators are considered as candidates for indicators that make up units for economic analysis: Prices, interest rates, exchange rates, stock prices, population, income, growth rate, unemployment rate, oil prices, land prices.
Incorporating object-oriented concepts into this creates a system.
In the I Ching, the arrangement of the Lesser Hexagrams and the Greater Hexagrams (main hexagrams) is key. There is an order to the arrangement. There are rules and standards for the order.
The Lesser Hexagram consists of three elements. The Greater Hexagram is a combination of two Lesser Hexagrams. The Lesser Hexagrams that make up the Greater Hexagram consist of an inner hexagram and an outer hexagram. The inner hexagram represents the inner side, the first half, the back side, the lower side, and the foundation, while the outer hexagram represents the outer side, the second half, the surface, the upper side, and the results.
The arrangement of the lines is such that the Lesser Hexagram lines are placed from the first line at the bottom, then the second line, and the third line in ascending order. The Greater Hexagram lines are placed from the first line, second line, third line, fourth line, fifth line, and the top line in ascending order.
The lines have positions of yin and yang. The first line is yang, the second line is yin, the third line is yang, the fourth line is yin, the fifth line is yang, and the top line is yin. For example, ‘out’ is yang and ‘in’ is yin, so indicators related to yang mean ‘out’. Expenses, assets, expenditures, and investments are yang. Indicators related to ‘in’, such as sales and borrowings, are yin.
There is also an order of heaven, human, and earth in the arrangement of the lines. Earth is physical matters, human is human affairs, and heaven is matters converted into monetary value. It is also said that earth is geographical advantage, human is harmony among people, and heaven is timing. Earth is geography, human is organization, and heaven is environment. Earth is domestic, human is oneself, and heaven is foreign.
The basic order is from top to bottom: heaven, human, and earth.
In the Lesser Hexagram, the first line is earth, the second line is human, and the third line is heaven. In the Greater Hexagram, the first and second lines are earth, the third and fourth lines are human, and the fifth and top lines correspond to heaven.
Time flows from the first line to the top line. For example, age starts from the first line as youth and progresses towards the top line as one ages.
These are related to positions, but the placement of the first line should rather emphasize function and relationship.
In the I Ching, the second and fifth lines are emphasized. The basic principle is to place the fifth line at the top. In an organization, the center and top are placed at the fifth line (king, president, CEO, etc.). In stages, the peak period is placed at the fifth line. This is called the central line.
Next, the opposing lines are arranged. The opposing lines are the first and fourth lines, the second and fifth lines, and the third and fourth lines. If the values of the opposing lines are both yang or both yin, they are considered to correspond. If the values of the opposing lines are yang and yin or yin and yang, they are considered not to correspond.
Basically, correspondence is considered auspicious, and non-correspondence is considered inauspicious, but there are exceptions for the central line.
Then, the second line is the center and representative of the inner hexagram, and the fifth line is the center and representative of the outer hexagram. The central line is the center of the whole.
The lines that make up the Lesser Hexagram and the Greater Hexagram are chosen as a series of related indicators or as the basis for indicators.
First, decide the base.
In economic analysis, I think that the Flow of Funds Accounts or the National Accounts are optimal as they have the requirements as a base and consist of a whole and parts. Therefore, the Flow of Funds Accounts is used as the base. The Flow of Funds Accounts can be viewed in the database of the central bank (Bank of Japan in Japan). The Flow of Funds has stocks, flows, and surpluses and deficits, so hexagrams are created for each. There is also overseas data, so hexagrams are created and analyzed as needed.
For example, the first line is corporations, the second line is households, the third line is fiscal, the fourth line is finance, the fifth line is exchange rates, and the top line is the current account balance.
Additionally, substantive indicators are assembled and hexagrams are created as needed. For example, the first line is stock prices up and down, the second line is unemployment rates up and down, the third line is government bonds increase and decrease, the fourth line is interest rates up and down, the fifth line is exchange rates up and down, and the top line is growth rates up and down.
Then, the lines of each hexagram are matched. Stock prices and corporations, households and unemployment rates, fiscal and government bonds, finance and interest rates, exchange rates and prices, current account balance and growth rates. These indicators can be rearranged as desired. For example, exchange prices and interest rates can be swapped, or stock prices can be changed to land prices.
Then, the order and composition of the hexagrams are assembled according to one’s purpose.
One guideline is to set the origin and assemble from its yin and yang. The beginning of a country lies in its fiscal policy, which has deficits and surpluses. The basis of fiscal policy is taxes, which arise from income and households. Households have increases and decreases, that is, yin and yang, and together with fiscal policy, the four images are formed. The increase and decrease of households affect the earnings of corporate performance, and so on.
You should assemble it yourself. Instead of using a ready-made base. As long as you understand the concept, you can edit it yourself.
When analyzing the economy, there are several points to be aware of.
Firstly, there are eight points where zero-sum equilibrium is established.
- The balance of payments in the international market is zero-sum equilibrium.
- The lending and borrowing in the international market is zero-sum equilibrium.
- The current account balance in the domestic market, i.e., households, corporate enterprises, fiscal, financial, and overseas sectors, is zero-sum equilibrium.
- The lending, borrowing, and capital transactions in the domestic market, i.e., households, corporate enterprises, fiscal, financial, and overseas sectors, are zero-sum equilibrium.
- Both the domestic and international markets’ lending, borrowing, and balance of payments are zero-sum equilibrium.
- Inevitably, the balance of payments and lending and borrowing are zero-sum equilibrium both as a whole and in parts.
- Excess and deficiency are also zero-sum equilibrium.
- Production, distribution, and consumption are integrated. In other words, production and distribution, distribution and consumption, and consumption and distribution are zero-sum equilibrium.
Secondly, the economy is balanced while circulating, which brings about cyclical changes in the economy.
Thirdly, the law of action and reaction operates in the economy, which brings about symmetry.
What does this mean? This is a decisive point in considering the world economy.
And when conducting Yi-based analysis, these must be taken as premises.
For example, the twin deficits of the United States are considered a problem, but this is inevitable because the sectors are in zero-sum equilibrium. In other words, the fact that household balance, corporate balance, fiscal balance, financial balance, and overseas balance are in zero-sum equilibrium means that it is impossible for all sectors to be in surplus. If there is a surplus sector, there will be a deficit sector. The total amount of surplus in the surplus sectors and the total amount of deficit in the deficit sectors will match.
Also, as long as the international market is in zero-sum equilibrium, it is impossible for all countries to be in surplus. If there is a surplus country, there will be a deficit country. The total amount of surplus in the surplus countries and the total amount of deficit in the deficit countries will match.
Furthermore, excess and deficiency are also in zero-sum equilibrium. Excess and deficiency are symmetrical and match.
In other words, when considering the twin deficits of the United States as a problem, looking at the United States alone will not reveal the cause. If the United States is in deficit, it is necessary to look at the position and situation of the surplus countries on the opposite side. Also, the economy is circulating and constantly changing while trying to maintain balance. The problem is when the deficit becomes permanent and stagnates. Stagnation leads to the accumulation of distortions and imbalances. Additionally, it is important to see which sector is in deficit and in which direction it is moving.
In this way, it is necessary to see what kind of phase or hexagram each sector or country presents and in which direction it is heading. Forcing everything to be in surplus deviates from reason.
The issue is not about whether a surplus or deficit is good or bad. It lies in the impact. What matters is how a deficit in one sector affects other sectors, and how a deficit in one country affects other countries. This is crucial, so if we replace the issue with a moral judgment of good or bad just because it is a deficit, the economy will not function properly.
Economy is defined as the activities people engage in to live.
The mechanism of the economy aims to produce the resources necessary for living, distribute them evenly to those in need, and consume them efficiently so that everyone can live. The means for this is ‘money.’
The economy is based on the large circulation of people, goods, and money.
People work, produce goods, and distribute them with ‘money.’
When this circulation does not function properly, it leads to rising prices, uneven distribution, and distortions of wealth, resulting in disparities between rich and poor, class differences, and social division. One of the methods to solve this is Yi-based analysis.
Position all countries using units organized by Yi-based analysis to clarify the roles and functions between nations. To do this, identify the strengths and weaknesses of each country based on the criteria of Heaven, Earth, and Man. It doesn’t have to be all countries; just the major ones will suffice.
By deriving the increase and decrease of corporate balance, household balance, fiscal balance, financial balance, exchange rate, and current balance from the surplus and deficit in the Bank of Japan’s flow of funds table, the actual situation becomes clear.
Incidentally, the hexagrams of Qian (Heaven) and Kun (Earth) do not appear.
Pay attention to countries that are diagonally opposite and have a relationship of front and back.
The global market is in chaos.
The global market is driven by the great circulation of “money.” The great circulation of “money” causes the flow of transactions, resulting in ups and downs, increases and decreases, ins and outs, ON and OFF, surpluses and shortages, openings and closings, expansions and contractions, deficits and surpluses. This is the concept of yin and yang. Yin and yang arise from the distinction between self and others, internal and external. Yin and yang seek balance, thus creating attraction and repulsion, action and reaction. The entropy of the market increases.
Whether a nation can produce or procure enough resources for its citizens to lead a minimum standard of living is a decisive indicator.
This is reflected in the current account balance.
Fluctuations in exchange rates (appreciation or depreciation of the yen) arise from the current account balance.
Great Yang corresponds to a current account surplus and yen appreciation. Lesser Yin corresponds to a current account surplus and yen depreciation. Lesser Yang corresponds to a current account deficit and yen appreciation. Great Yin corresponds to a current account deficit and yen depreciation.
Moreover, transactions are equivalent exchanges. The economic value within the scope of transactions is zero-sum balanced. Money flows from the buyer to the seller. Money flows from the seller to the buyer. This bidirectional flow forms transactions. Therefore, the economic value within transactions is preserved as zero-sum.
In a zero-sum scenario, there are no profits or losses. Deficits and surpluses are different concepts from profits and losses. Profits and losses are distinguished based on the work of “money” within a unit period. Profits and losses are distinguished from the buying and selling, lending and borrowing of “money.” Additionally, profits and losses are distinguished by long-term and short-term work.
Interactions between nations arise from action and reaction, relationships. Where there is yin, there is yang. A country’s current account balance maintains equilibrium by periodically repeating deficits and surpluses.
When a country (self) trades with the global market, a current account balance arises. Trading with the global market creates a relationship between internal (yin, back) and external (yang, front). The current account balance results in ins and outs, surpluses and deficits, surpluses and shortages, yin and yang. Deficits and surpluses periodically alternate, causing the circulation of goods and money.
The current account balance causes fluctuations in exchange rates (yen appreciation, yen depreciation).
This world is divided into heaven, earth, and people. Heaven is nominal, money, distribution. People are people, consumption. Earth is substance, goods, production. The distinction between heaven, earth, and people positions individual elements.
Heaven, Earth, and Humanity are in a tripartite, rock-paper-scissors relationship. Nominal values are based on reality. Reality is manipulated by people. People are trapped by nominal values.
Individual elements are rooted in money for heaven. People are rooted in people. Earth is rooted in goods.
Prosperity and decline, change and transformation are the way of the world.
Everything has yin and yang, and from yin and yang, the front and back arise. Look at the extremes. Know the hidden aspects. What form should you take next?
All things flow and continue to change. All phenomena are impermanent. Change, constancy, simplicity. There is no stopping, thus the essence turns into action.
Look at birth, illness, aging, and death. See the present. Be true to yourself.
Now, where are you, and what should you do? What is your connection?
Heaven creates the nation. People build homes. The earth nurtures things.
Heaven distributes. People consume. The earth produces.
Heaven balances. People need. The earth supplies.
Heaven blesses. People work. The earth creates the place.
Money circulates around the world. People work. Fruits come from the earth.
Finance is governed by heaven. Household economy is governed by people. Companies are governed by the earth.
Heaven, earth, and people harmonize to keep the world turning. When heaven, earth, and people conflict, the world falls into chaos.
When the household economy takes the center, finance and companies balance. Exchange rates move finance and current accounts. The household economy and exchange rates take the center.
In the small hexagram, the first line is earth, the second line is people, and the third line is heaven. In the large hexagram, the first and second lines are earth. The third and fourth lines are people. The fifth and top lines are heaven.
International trade creates distinctions between domestic and foreign. Domestic transactions form the inner hexagram. Foreign transactions form the outer hexagram. The domestic market consists of the first line as enterprises, the second line as households, and the third line as finance. The foreign market consists of the first line as finance, the second line as exchange rates, and the third line as the current account balance.
Finance works behind the market, so it is external.
Therefore, the main hexagram is the first line as enterprises, the second line as households, the third line as finance, the fourth line as finance, the fifth line as exchange rates, and the top line as the current account balance.
Yin and yang are determined by the surpluses and shortages of the balance of payments (created by the Bank of Japan in Japan) and the surpluses and shortages of loans and borrowings.
With this structure, finance responds to enterprises. Exchange rates respond to households. The current account balance responds to finance. The middle is the relationship between households (consumption) and exchange rates.
Build an economic system based on the flow of funds statistics. Look at the indicators that support the results of the analysis.
First, look at domestic affairs with the inner hexagram.
If all the inner hexagrams are yang, then yin lurks in the outer hexagram. The outer hexagram includes the financial and overseas sectors. Be cautious.
Indicators include leading indicators and lagging indicators. Leading indicators are signs
Not only “money”, but also people and things can be used to divine.
For example, the first line of production, the first line of population, the third line of total income, and so on.
Or, the first line of total population, the second line of unemployment rate, the third line of total income, and so on.
Create an economic system based on the flow of funds statistics.
Look at the indicators that support the results of the analysis.
First, look at domestic affairs with the inner hexagram.
Qian is expanding finance, household, and business. There is a risk of economic overheating and rising prices. We look at indicators such as price and land price trends.
It rarely appears.
If all the inner trigrams are yang, then yin lurks in the outer trigrams. The outer trigrams are located in the financial and overseas sectors. Be cautious.
There are leading indicators and lagging indicators. Leading indicators are signs.
Dui is only finance decreasing, yin, and household and business are yang.
The hexagram of Dui constantly appears in the era called the lost era. At first glance, the surface looks shiny, but serious situations may be progressing behind the scenes.
We need to pay attention to the movements of finance, exchange rates, and current account, which are the outer trigrams.
Before the bubble burst, Kan was present, and after the bubble burst, it turned into Dui. During the bubble, the hexagram of Xun appeared.
We need to look at not only the circulation of funds but also the hexagrams established by other indicators. Additionally, if necessary, we establish hexagrams by assembling substantial indicators. For example, the first line is the rise and fall of stock prices, the second line is the rise and fall of the unemployment rate, the third line is the increase and decrease of government bonds, the fourth line is the rise and fall of interest rates, the fifth line is the rise and fall of exchange rates, and the top line is the rise and fall of the growth rate. Alternatively, we can change stock prices to land prices or view government bonds as tax revenue. However, we need to pay attention not only to the surface movements but also to the back side, especially the outer trigrams.
The bubble created three surpluses: equipment, employment, and debt. This means the waste of heaven (debt), earth (equipment), and people (employment).
Li is finance increasing, household decreasing, yin, and business is yang. The decrease in household means that future purchasing power is overshadowed. This was seen for a while after the bubble burst.
Zhen is finance decreasing, household is yin, and business is yang. It can be said to represent the current Japan.
Xun is finance increasing, household increasing, and business is yin. It was seen during the bubble, representing a decline in private vitality.
Kan is finance yin, household increasing, and business decreasing. It often appeared after the bubble burst.
Gen is finance yang, household yin, and business yin. It represents a situation where private achievements are taken by finance. It is seen in totalitarian and dictatorial countries.
Kun is finance yin, household yin, and business yin. It represents Japan after the bubble burst. After the bubble burst, Japan has always appeared to be in fiscal deficit, but it is not necessarily so when viewed in terms of increase and decrease. The key is to read subtle changes from the increase and decrease.
During the period of high economic growth, private companies were primarily in a state of capital shortage, while households had a surplus of capital, maintaining a balance in fiscal and financial matters. As a result, there was a strong correlation between economic growth rates and corporate sales, which was supported by rising land prices. Thus, companies were considered “yin,” households “yang,” and fiscal matters were balanced by “巽” or “坎.”
As the market became saturated and growth slowed, the tension eased, and the correlation weakened. However, the policy-driven appreciation of the yen led to the use of appreciated assets to compensate for the lack of profits in core businesses. This was the cause of the bubble. Failing to recognize the fundamental changes in the economic structure and addressing the bubble with symptomatic treatments led to the collapse of the market. This caused the economic structure itself to malfunction, leading to a prolonged stagnation. This is evident from the trends in capital surpluses and shortages.
To restore economic health, the relationships between companies, households, and fiscal matters must be returned to a normal state. However, this will require a significant amount of pain and determination.
Next, the economic system can be replaced with the Five Elements.
A pentagon can be formed with the current account balance, finance, fiscal policy, households, and enterprises, and each can be connected. Furthermore, the relationships between them can be related to the inflow and outflow of goods and money.
For example, households pay taxes to the fiscal policy in the short term and are reimbursed through benefits. In the long term, they are reimbursed through public investment.
The income of the fiscal policy comes from taxes and government bonds, and the expenditure is the redistribution of income and public investment. The income of households comes from income and loans, and the expenditure is consumption and housing investment. The income of enterprises comes from sales and loans, and the expenditure is income and capital investment. The income of finance comes from deposits and loan interest, and the expenditure is loans and deposit interest. The income of the current account balance comes from exports and loans from overseas, and the expenditure is imports and overseas investments.
If the fiscal policy deteriorates, it hinders the redistribution of income. If income decreases and the purchasing power of households declines, sales will decrease. If sales decrease, income will stagnate, and tax revenue will decrease. If goods are in short supply and the circulation of currency increases, prices will rise.
In the Five Elements theory, the relationships of mutual generation and mutual overcoming are important. Taxes arise from households. Increased taxes put pressure on households.
The Five Elements are mutually relative and interdependent.
“Money” circulates like water. Goods flow along with the flow of “money.” Although the total amount of water remains constant, droughts and deserts can occur due to weather, geographical advantages, and human utilization. Maintaining the normal circulation of “money” is similar to water management.
The flow of “money” does not move in a straight line in a single direction. “Money” does not exert its utility unless it circulates. If “money” is blocked or hoarded for personal convenience or selfish desires, its flow stagnates, becomes stagnant, and causes turmoil and chaos. It can create tsunamis and floods, sweeping away everything. Human power is powerless before a great flood.
People use “money” to connect with each other, confront each other, create chains, and move the whole. By observing each other’s movements, positioning, and understanding relationships, we can see the mutual generation and mutual overcoming.
The river in front of us seems to flow in one direction, but eventually, it pours water into the ocean. Water evaporates from the ocean, becomes clouds, and eventually falls as rain on the mountains. The same applies to great rivers like the Yellow River and the Nile.
The movements of the economy cannot be predicted by looking at a single country, a single enterprise, or a single household. It is not even like a weather forecast.
The root of the economy is transactions. Transactions are established with a counterpart. If there is someone who gives, there is someone who receives. If there is someone who receives, there is someone who gives. They harmonize and form a whole, so it cannot be established by one person alone.
Before lamenting that we are in deficit, it is more important to clarify what kind of work and impact the deficit has and where it affects. Moreover, it is not that surplus countries are superior and deficit countries are inferior. Whether in deficit or surplus, the important thing is to fulfill one’s role and be able to live.
When a country’s current account balance is in deficit, there will always be a country in surplus. When the fiscal policy is in deficit, either enterprises, households, the overseas sector, or finance will be in surplus. The key is whether balance is maintained. Deficits and surpluses are relative, and it is important to understand how a deficit affects a surplus country and how a surplus country benefits a deficit country. Without knowing each other’s roles, it is impossible to determine what is right and what is wrong.
This applies to both international and inter-sectoral relationships. The more one tries to solve it by force, the more complicated the situation becomes and the further away the solution gets.
The relationship between deficit countries and surplus countries should be mutually complementary. They are in an interdependent relationship.
It is a mistake to view the role of a key currency country as an entrenched right or privilege.
Each country has its own role and function. Ultimately, it is a matter of balance, and every role has its advantages and disadvantages. It is essential to remember that, fundamentally, it is a zero-sum game.
The current global economy is highly interconnected, and unilateralism by a single country is not viable. It is necessary to adopt interdependent and complementary policies.
Although it may be difficult now, in the near future, cooperation will inevitably be required.
The facts point to this.
Humans may believe that they can manipulate the economy as they wish.
Just as they once believed they had mastered nature through science and technology.
This arrogance, this lack of fear and respect for the heavens and the gods, quickly brought about retribution.
The idea of nature conservation is arrogant. Nature has never been protected by humans, not even once.
Humans have always been protected by nature.
When they forget this, humans will no longer be protected by the natural world. That is the law of nature.
Even if one were to obtain the power of the gods, they could never become a god, let alone surpass one.
Without the heart to control power, one will only self-destruct with the power they thought they had gained.
Fear yourself.
When humans are happy, they scorn the gods.
When they are unhappy, they curse the gods.
However, the gods remain gods.
It is humans who need the gods,
The gods do not need humans.
God does not speak; He only points the way.
Whether to believe in God or not is a matter for humans to decide.
Seeking harmony between heaven, earth, and humanity—that is the essence of Yi.