Will 2013 be a better, or even good, year?
The world economy has first to undo several twists in its markets:
1. Those who have been trying to argue that, despite the sustained pumping of money, there is no inflation, or even inflationary pressures in any economy of the world whatsoever, must be thinking that they have somehow discovered a black hole where all money flow into and maintain a balance in the respective economies. I don't think there is any magic in economics. When you pump money into the economic system, you hope to get output growth (which is hard in an overproduced environment), but you are likely to get money following into markets (commodities, equities and real estate) at home or simply foreign exchange outflows (which weaken the currency) and drives up (or make prices higher) in commodities, equities and real estate in other countries. The currency flows are obviously the black hole and that excessive liquidity is sloshing around global markets looking a punt - now honourably called investment.
2. Let it be learned from Japan that blowing the asset bubble is not something to be taken off lightly - for more than twenty years, it is still undergoing deflation in the property market - because prices have gone many times beyond the means of the ordinary Japanese, and many are unemployed. Abe now tries to stop the deflation by reflating the economy by printing money and he is looking for a tough central banker to do that. One good way is to rebuild the economy after the tsunami. While Japan may be going through its most difficult time yet, this could be the start of its long-term recovery which may need another 5 to 10 years at least. Laying the foundation could be biofuel and a whole spectrum of lifestyle change and new services particularly in entertainment (notwithstanding the Koreans).
3. China may be getting it right to change its political leadership - which will undo some business arrangements so that some adjustments can take place in the property and business sectors. The interlocking of politics and industries is not something that is uncommon in Asia and this is unhealthy as it leads to an acutely skewed distribution of wealth. The dichotomy of the society produces political instability. Would the super rich pay their workers well so that the workers can live comfortably in new urban centres? Would the Chinese be productive enough across the board to bring about balanced economic development and growth? It will be interesting to see.
4. The US is just at the beginning of the bursting of the asset bubble. The US conventional economic wisdom is that money pumping will save the economy from depression and massive unemployment - which is correct in being able to avert the problems for a wild. The long-term solution is output and productivity growth - which the US may be hard pressed to say that they have the edge. The Koreans seem to have snatched that edge and the production centre is still China. We have hoped that the end of detente would have a peace dividend which would have bring about growth and prosperity to the world. The US seems to be adamant at keeping the world in conflict and encourage human beings to kill their fellow beings. If the monetary expansion in the US is to expand harmed conflicts around the world, in the midst of recession and unemployment, then the US policy direction is dangerous for the world.
5. Especially in Europe where output has slumped and many young people are unemployed. Will there arise yet again a unifying leader in Europe who will blame immigrants and foreigners for their depression? Are their indeed too many human beings and not enough jobs - or is it that European cities are already passed their prime as economic entities and are now mere relics worth just a glance for the passerby? Has the excess liquidity of the super-rich from elsewhere flows in to maintain an ancient regime of style and fashion - and culture?
6. Have Malaysians bailed out of this country, taking their cash to their chosen paradise outside their homeland while the only thing that is worth while to do at home is to speculate on asset prices. When will Malaysians roll up their sleeves and get down to do some real work? The monetary authorities do not seem to be able to get the relative price mix right. Ours seem to be a high-inflation low-productivity growth infested economy. While the opposition takes the current economy as an opportunity, it does not have a clue either of how to get this economy out of the quandary.
With this, I hope to make amends for my long absence and provide some provocations as thoughts. May you have better insights. Have a good year.