Those of you who have been following my thoughts here would know that I am quite happy with the recent developments in the economy, i.e., that at least there are some countries such as Malaysia which are beginning to take a stand against the American nonsense (after Japan) of printing money at zero interest rates and holding the world to ransom at gunpoint.
I hope this will lead to a structural break in the global mentality. With higher interest rates, some currencies should strengthen which is a good thing. There should be a way to reflect the weekness of the US dollar. That Malaysia is amon the few countries that go this route is commendabble.
Higher interest rates and a stronger currency may help to restrain some the inflationary pressures coming from the global commodity markets. Malaysia may suffer a bit for commodity producers and the foreign investors who are here to reap the benefits of low wages as a result of the weak ringgit. But these are labour intensive low productivity activities which we could be less dependent on. We should expect some difficulties for these activities. We should expect some difficulties for speculators of properties as well as the stock market. These difficulties are nothing but the needed adjustments for higher interest rates to reduce prices as a result of some difficulties for businesses. Without these difficulties, businesses would continue to live in a dream world of more profits from little efforts and lots of inflation.
These difficulties will be good for making businesses search for higher productivity economic activities. Hopefully, a stronger ringgit will make less unattractive ringgit wages. This may help to reduce the current brain drain and, if possible, to reverse it.
But my great consolation is that with higher interest rates, now or expected, there will be enough fear among speculators. We are now seeing a reaction by speculators in the oil and commodity markets, who think that they may need to reverse their long positions. There is crack here, and the prices of oil and commodities are seeing some selling and a lowering of commodity prices.
This last bit of development, to my mind, is absolutely crucial. The higher global interest rates may mean a weakening of global demand and thus leading to a weakening of commodities prices. If downward adjustment of commodity prices is what the world needs right now. There is a need for the world to insulate itself from America in terms of monetary policy. With lower prices or lower price increases, there is a chance to stablise world politics. When this stability is established, there may be a chance for investments and real economic growth.