Will there be structural adjustments in the economy?
The current global economic crisis is caused by the US means that structural adjustment is badly needed in the US. What does this mean?
1. The US has printed too much money to solve its economic problems which has resulted not in an increase in output but in an increase in prices. The deflation only reduces the money stock and prices to their appropriate levels, and reveals the actual amount of production that is going on in the economy. Hence, the surge in unemployment.
2. The problem of low production in the US has been disguised by the surge in the imports of cheap Chinese products paid for by the printing of the US dollar. At the same time, the export of paper money has allowed the US to overconsume its fair share of the world's production as evidenced by the high level of indebted at the personal and government levels.
3. The solution to the US economic problem is to increase the production of goods, which may have been hampered by high nominal wages caused by the printing of money. US wages may have to fall in order to be able to compete with the wages in China. In other words, the US has to with content with a lower standard of living, even if the US recovers.
There are also structural problems in the Chinese economy, the mirror economy to the US.
1. The Chinese had pursued an economic strategy that was used by the Japanese before and shown to be a failure - mercantilism. The tenet of mercantilism is to export and accumulate foreign reserves - a process that is not self-sustaining. If China wants to export, it must also consume imports. This it has done but not in a bilateral way. China exports to the US but imports from Europe. The closure is for Europe to buy from the US which it tries not to. The problem in the global nexus may be the European Community which has a strong anti-trade sentiment with the US.
2. China first absorbed foreign direct investment from the US to set up plants to export back to the US. With China's open door policy in place for nearly three decades, that FDI had been fully repaid. The Chinese export boom has therefore funded the domestic asset inflation, in shares and property - the boom that was exported by the US printing of money. The collapse of the US economy therefore causes a collapse of the share and property prices in China.
3. The solution is for China to allow old export-oriented companies to collapse, and out of that rubble for new enterprises to come up that cater to the new export markets and new domestic markets. For this to happen, China has to improve on its labour laws, the present ones exploits rural workers. Labour laws on minimum wages and proper contracts for employees mean that there will be increasing recognition of labour as a valuable input to production which therefore warrants a higher wage rate. But China's relative lack of innovation especially in quality may have been overlooked by its low prices, as well as disguised by successes in other areas of the economy, particularly tourism. China should refocus on food production. The only major things China needs to import are raw materials for manufacturing.
The EC may be rather insulated from the global crisis, as a result of its clever politics.
1. The EC as an economic bloc may be working much better than expected. The greater mobility within the EC has created an in-house boom which has fueled its economic optimism. While Europe is also affected by the US financial meltdown, its real economy is intact and so long as the banks continue to lend, the EC will grow but at a very low rate. The EC has protected itself with its stringent import rules, which they probably could have learned from the Japanese. But the Asian penchant for European luxuries especially the new rich Asian class is a boom to the Europeans. Structurally, Europe is in good shape.
What about Malaysia?
1. The Malaysian economy has long suffered from a series of bad policies disguised as successes by the use of heritage petrol money to the extent that the petrol reserve may not be there anymore when we really need it.
2. The Malaysian economy has been destroyed by the nationalisation of economic opportunities and the dispensing of the licence to economic opportunities to the elite has created an economic structure that is lopsided and unstable - in the sense that there has been so much extraction of economic rent at all levels that the underlying support industries are weakened. With economic opportunities coming from patronage, businesses are clear that this is not sustainable and therefore has been bailing out of the economy under the cover the outward investments. Even ostensibly government-linked companies (GLCs) whose mandate is to spearhead the structural change in the economy has joined in the Outward Bound movement, abandoning the more difficult job at home (while they continue monopolistic dominance). The attempt by the government to ensure the profitability of natural monopolies in Malaysia will also spell the doom for local business as all rates of basic infrastructure facilities will be raised to uncompetitive levels. The problem runs in the real sector as well as the banking sector.
3. The way out for Malaysia is to rebuild its entire socio-economic-political profile. Fairness and integrity are key issues that affect confidence, not only in the political system but also in the decision to invest long term in this country by ordinary people - which means it will affect their decision to put their roots, pour in their savings and work to improve the society. Without confidence, there will be no genuine investments - investments in one's homeland - and the weakness of the economy will be shown by the secular decline in the standard of living as the cost of living soars and the currency plunges in value. There is a need for an entire remake of the economy which no stimulus packages no matter how will solve.
Monetary Policy In General. Greenspan has done the world a great disservice by preaching the blessings of keeping monetary policy loose. Now, the world has taken monetary policy off the leash - because monetary expansion was not reined in earlier to keep inflation in check. The inflationary pressures are still there. But unemployment rises, there is a political need to act as if to create jobs. Pouring more liquidity into the system will not allow price adjustment but will keep asset prices high while jobs may not be created.
My conclusion is that this is a good time for economies to take time to formulate policies to restructure their economies by removing distortions and by improving the market mechanism. No more politics.
Tuesday, February 10, 2009
Monday, February 9, 2009
Banks & Profitability
In the excesses of the current economic era, the greatest culprits are the banks. Executives pay themselves huge salaries and bonuses while they take entire economies plus all their customers to the cleaners. I agree that their pay should be cut down to size and that their bonuses should be used as part of the insurance money for depositors.
Banks are a monopoly in the flow of the financial resources of the country, very much like the Russian gas pipelines for Europe. Banks can dictate which no ordinary citizen can protest, with the unwitting connivance of the central bank, if the central bank is not wise enough. If central banks are not careful enough, they can agree to give the mandate to banks to add-on all sorts of charges for the customers, not unlike the bills of some private hospitals that can charge you an arm and a leg for a cold.
I do not know the source of the wisdom of the central bank that allow banks to impose high administrative charges onto the costs of funds to arrive at the Base Lending Rate which even banks, despite their marauding tendency, are even ashamed to impose on their customers such that the Average Lending Rate (6.08% pa in 2008) is lower than the BLR (6.70% pa in 2008).
An ALR lower than the BLR must be an embrassment for the managers of a banking system. In theory, the BLR is the best rate that a bank gives to its best customers. The BLR should be like selling almost at cost but with a small margin to cover costs. Customers with excellent credit ratings should be given the BLR. For the average loan rates of banks to fall below the BLR means that the BLR is grossly mispriced and has failed to provide the price reference for the loans market. Maybe the currently pricing of the BLR is in tune with the people's preference for a discount, whether buying decisions are made on the basis of the discount rate regardless of the extent of the initial over-pricing. The mispricing of the BLR is a way to confuse the market.
Technically, in a down economy, the policy concern is to put cash in the hands of savers and lower the cost of borrowing. In a properly structured banking system, this means to lower the cost of funds as that the cost of borrowing can be cut, as the mark-up is already basic and small. In a situation like ours where the mark-up is high, it is possible to maintain the deposit rates while lowering the mark-up so that the lending rate can be lowered.
The average interest rate for fixed deposits was 3.29% pa in 2008 and the savings deposit rate was 1.42% pa. The BLR of 6.70% pa in 2008 was a mark-up of 3.40% over the average fixed deposit rates and 5.28% pa over the savings deposit rate. The ALR of 6.08% pa in 2008 was a mark-up of 2.79% over the average FD rate and 4.66% over the SD rate.
I think the banks, with the approval of the central bank, have done a disservice to the small depositors. The argument may be that small savings depositors are a cost to the banks in terms of the infrastructure, but banks do impose charges for services even to small depositors using the ATM. If the central bank can provide bonds at 5% to senior citizens over 55, a more effective way is to cut the margins of banks. One way is to cut the fat salaries and bonuses of senior executives. There used to be a shortages of senior executives as the number of banks expand. But the consolidation of the banking system into an oligopoly of the chosen few must mean that there is no such shortage.
One reason for a hugh mark-up is to provide the cover for bad loans. In other words, get the good customers to subside the bad customers. This is the sure way to ruin an economy - by lending money for unproductive uses and taxing the productive borrowers. Such an argument may be a cover for the incompetence of bankers, that they do not anymore know how to lend prudently and in a way that is healthy for the economy. This complete loss of perspective has a cost that depositors pay with their poor interest rates and borrowers pay with their higher than necessary loan rates.
Or, is this mispricing of our financial resources a product of bad economic thinking right at the top where it is possible for political leaders to direct bankers to fund privatised projects which may have doubtful economic viability. Has the elite in this way rob the country of its wealth by ruining its whole sense of trust and truth, so that only the dishonest can have a future in this system?
Banks are a monopoly in the flow of the financial resources of the country, very much like the Russian gas pipelines for Europe. Banks can dictate which no ordinary citizen can protest, with the unwitting connivance of the central bank, if the central bank is not wise enough. If central banks are not careful enough, they can agree to give the mandate to banks to add-on all sorts of charges for the customers, not unlike the bills of some private hospitals that can charge you an arm and a leg for a cold.
I do not know the source of the wisdom of the central bank that allow banks to impose high administrative charges onto the costs of funds to arrive at the Base Lending Rate which even banks, despite their marauding tendency, are even ashamed to impose on their customers such that the Average Lending Rate (6.08% pa in 2008) is lower than the BLR (6.70% pa in 2008).
An ALR lower than the BLR must be an embrassment for the managers of a banking system. In theory, the BLR is the best rate that a bank gives to its best customers. The BLR should be like selling almost at cost but with a small margin to cover costs. Customers with excellent credit ratings should be given the BLR. For the average loan rates of banks to fall below the BLR means that the BLR is grossly mispriced and has failed to provide the price reference for the loans market. Maybe the currently pricing of the BLR is in tune with the people's preference for a discount, whether buying decisions are made on the basis of the discount rate regardless of the extent of the initial over-pricing. The mispricing of the BLR is a way to confuse the market.
Technically, in a down economy, the policy concern is to put cash in the hands of savers and lower the cost of borrowing. In a properly structured banking system, this means to lower the cost of funds as that the cost of borrowing can be cut, as the mark-up is already basic and small. In a situation like ours where the mark-up is high, it is possible to maintain the deposit rates while lowering the mark-up so that the lending rate can be lowered.
The average interest rate for fixed deposits was 3.29% pa in 2008 and the savings deposit rate was 1.42% pa. The BLR of 6.70% pa in 2008 was a mark-up of 3.40% over the average fixed deposit rates and 5.28% pa over the savings deposit rate. The ALR of 6.08% pa in 2008 was a mark-up of 2.79% over the average FD rate and 4.66% over the SD rate.
I think the banks, with the approval of the central bank, have done a disservice to the small depositors. The argument may be that small savings depositors are a cost to the banks in terms of the infrastructure, but banks do impose charges for services even to small depositors using the ATM. If the central bank can provide bonds at 5% to senior citizens over 55, a more effective way is to cut the margins of banks. One way is to cut the fat salaries and bonuses of senior executives. There used to be a shortages of senior executives as the number of banks expand. But the consolidation of the banking system into an oligopoly of the chosen few must mean that there is no such shortage.
One reason for a hugh mark-up is to provide the cover for bad loans. In other words, get the good customers to subside the bad customers. This is the sure way to ruin an economy - by lending money for unproductive uses and taxing the productive borrowers. Such an argument may be a cover for the incompetence of bankers, that they do not anymore know how to lend prudently and in a way that is healthy for the economy. This complete loss of perspective has a cost that depositors pay with their poor interest rates and borrowers pay with their higher than necessary loan rates.
Or, is this mispricing of our financial resources a product of bad economic thinking right at the top where it is possible for political leaders to direct bankers to fund privatised projects which may have doubtful economic viability. Has the elite in this way rob the country of its wealth by ruining its whole sense of trust and truth, so that only the dishonest can have a future in this system?
Thursday, February 5, 2009
Growth with Investment & Small Consumption
It is possible to grow the economy with just investment and nominal amounts of consumption. In fact, this is how a modern urban society is created.
It is not necessary to focus too much on current consumption in order that the economy must grow. The focus on current consumption is necessarily only when the economy is structured to concentrate on the production of consumer goods. This was the Japanese economic model and, in the last decade or so, the Chinese economic model.
But in order that the economy is able to sustain its growth for a longer time, there is a need to focus on investment. Investment is that part of the current resource that you have which you have decided not to simply consume away (because you have simple needs) and instead used to improve future production (because you feel you will be unable to produce for yourself in the future or because you will have more dependents to take care of).
You could develop your current resources to the gathering of know-how, exploring the environment or just experimenting to find new ways - to produce things for which you think there will be a demand in future, things that people will need.
By focusing on saving current resources from current consumption and investing those savings on projects that will bear fruit in future, we create a society where people are hard at work on their little projects with great curiosity of how to come up with new ideas and putting those ideas into practice. There will be excitement about developing a better world for our children.
If instead we are focusing our current resources on current consumption - which may be necessary in cases where there is constant starvation because of high population growth or poor production technology - then society will be caught in a poverty trap. (Poverty in the modern sense of the word, as in this sense, probably all of history is caught in poverty.)
But we have become enlightened with new possibilities because of our ability to think out of the religious box and into the scientific box. Now, we may have to jump out of the scientific box into new boxes which are now becoming favourites such as the environmentally-friendly box. Whatever it may be, there is a lot of investing for all of us to do and it is better we spend time dreaming and doing rather than eating and grow fat and sick.
It is not necessary to focus too much on current consumption in order that the economy must grow. The focus on current consumption is necessarily only when the economy is structured to concentrate on the production of consumer goods. This was the Japanese economic model and, in the last decade or so, the Chinese economic model.
But in order that the economy is able to sustain its growth for a longer time, there is a need to focus on investment. Investment is that part of the current resource that you have which you have decided not to simply consume away (because you have simple needs) and instead used to improve future production (because you feel you will be unable to produce for yourself in the future or because you will have more dependents to take care of).
You could develop your current resources to the gathering of know-how, exploring the environment or just experimenting to find new ways - to produce things for which you think there will be a demand in future, things that people will need.
By focusing on saving current resources from current consumption and investing those savings on projects that will bear fruit in future, we create a society where people are hard at work on their little projects with great curiosity of how to come up with new ideas and putting those ideas into practice. There will be excitement about developing a better world for our children.
If instead we are focusing our current resources on current consumption - which may be necessary in cases where there is constant starvation because of high population growth or poor production technology - then society will be caught in a poverty trap. (Poverty in the modern sense of the word, as in this sense, probably all of history is caught in poverty.)
But we have become enlightened with new possibilities because of our ability to think out of the religious box and into the scientific box. Now, we may have to jump out of the scientific box into new boxes which are now becoming favourites such as the environmentally-friendly box. Whatever it may be, there is a lot of investing for all of us to do and it is better we spend time dreaming and doing rather than eating and grow fat and sick.
Wednesday, February 4, 2009
No, Not Household Demand - Private Investments!
I don't think that getting the consumers to spend is the answer to the current economic woes - not even in Malaysia.
You get consumers to spend because your diagnosis of the current problem is that it is the result of a temporary drop in the buying spree of the people. Maybe interest rates are on the high side so you drop them. Maybe taxes are on the high side so you cut them. Maybe banks have no money to lend so you inject liquidity into the system by cutting the SRR (Statutory Reserve Requirement). But the current problem is caused by none of the above.
The pivotal problem is the bursting of the asset bubble in the US. The bubble burst because banks have been lending money for people to spend until they cannot justify lending to them anymore - as evidenced by the high loandefault rate. People had been spending based on borrowings out of the inflated prices of real estate and stocks. With the bubble burst, people become indebted and hence cannot spend anymore. Banks become insolvent as their lending philosophy is found to be unsound. There was a lack of prudent. Companies close down because the buying stops. The rescue in the US is first to prevent the banks from collapsing - which would otherwise jeopardise the entire economic system. The second step is for banks to start lending again - and certainly it will not be by way of consumer spending. The banks have learnt their lessons. But the government can put some money in pockets through tax cuts - or better still direct handouts or unemployment benefits. But the proper rescue must come from a recovery of investment by businesses so that they will need to rehire.
In Malaysia, the problem is that commodity prices have dropped and this makes the harvesting of our commodities economically not viable. The problem is the cost of growing and the inefficiency of the technology we use. The agriculture suffers from lack of technological innovation. The low commodity prices will have to make them move up the technology curve. If not, then agriculture in Malaysia is a sunset industry.
Our industrial sector has hollowed out. Not only foreigners but even our local flagships which are supposed to champion the Malaysian economy by spearheading the industries have also moved out to foreign pastures - in the hope of earning easy money like they have been nurtured at home in their formative years. The only industries left are those that feed onto the higher operations in China for exports to the US. These small companies are the ones that are being hit and they are the ones that will be closing after the festivities. Tax cuts won't help if you are bankrupt. You cannot get households to consume half-made hard disks.
The services sector is such a shame. You have the unemployed who become self-employed because there is money to be made in speculation - in shares and in property. This was the biggest game in town and everybody has been quite happy to do little for big gains. The global meltdown destroyed this game - for the moment - so these speculators can rely on their past earnings, if they have not lost all in the crash already. But most will tighten their belts because they are now asset rich but cash poor. So, there is nothing that one can do for this groups except to join in their prayers that the market will rise again.
Of all the above factors, the biggest issue is the sudden fall in aggregate investment in this country despite having a high savings rate. The sole cause of poor investment is a loss of confidence in the ability of the government to govern properly by ensuring that those who invest can take all their earnings. The government can tax, like other governments, to provide the safety net for the old and incapacitated - but not to enrich the elite or themselves. So long as the government continues to build projects that lead nowhere, no private sector person will invest in a business that they cannot win either way. The job of the government today is indeed to stimulate the economy. Government deficit spending is helpful, but it is important for the government to re-establish private sector confidence in this economy as the place where fortunes can be made by those who choose to work hard. This is why there is constant flux in the election results - because the people cannot seem to be able to find politicians whom they can have confidence in in looking after their (the people's) basic welfare.
Where, then, can the people find confidence? Religion is a good fallback - with everybody answering for themselves. There is no surprise of the resurgence of religion-centred parties. Abstract concepts such as justice is amorphous, for it begs the question: Justice for who?
At the end of the day, we may just need people who are technically trained and who know how to build systems. It is the system of institutions where each is given the power to move forward while another is given the power to counter-balance, so that the whole system will somehow trudge along dispassionately dispensing justice and injustice to those who are caught by the perfection and inadequacy of the system. When something goes wrong, fix the system. This removes the invisible hands of the elite including the politicians from the system which is a good thing.
When the rules are properly set, we can expect a good game to be played by all participants and can even be enjoyed by those on the wayside including tourists. Only that we need good umpires.
In Malaysia, somebody has run off with the ball insofar as the wealth of this country is concerned. We have failed to redistribute wealth; somebody has managed to hijack it.
You get consumers to spend because your diagnosis of the current problem is that it is the result of a temporary drop in the buying spree of the people. Maybe interest rates are on the high side so you drop them. Maybe taxes are on the high side so you cut them. Maybe banks have no money to lend so you inject liquidity into the system by cutting the SRR (Statutory Reserve Requirement). But the current problem is caused by none of the above.
The pivotal problem is the bursting of the asset bubble in the US. The bubble burst because banks have been lending money for people to spend until they cannot justify lending to them anymore - as evidenced by the high loandefault rate. People had been spending based on borrowings out of the inflated prices of real estate and stocks. With the bubble burst, people become indebted and hence cannot spend anymore. Banks become insolvent as their lending philosophy is found to be unsound. There was a lack of prudent. Companies close down because the buying stops. The rescue in the US is first to prevent the banks from collapsing - which would otherwise jeopardise the entire economic system. The second step is for banks to start lending again - and certainly it will not be by way of consumer spending. The banks have learnt their lessons. But the government can put some money in pockets through tax cuts - or better still direct handouts or unemployment benefits. But the proper rescue must come from a recovery of investment by businesses so that they will need to rehire.
In Malaysia, the problem is that commodity prices have dropped and this makes the harvesting of our commodities economically not viable. The problem is the cost of growing and the inefficiency of the technology we use. The agriculture suffers from lack of technological innovation. The low commodity prices will have to make them move up the technology curve. If not, then agriculture in Malaysia is a sunset industry.
Our industrial sector has hollowed out. Not only foreigners but even our local flagships which are supposed to champion the Malaysian economy by spearheading the industries have also moved out to foreign pastures - in the hope of earning easy money like they have been nurtured at home in their formative years. The only industries left are those that feed onto the higher operations in China for exports to the US. These small companies are the ones that are being hit and they are the ones that will be closing after the festivities. Tax cuts won't help if you are bankrupt. You cannot get households to consume half-made hard disks.
The services sector is such a shame. You have the unemployed who become self-employed because there is money to be made in speculation - in shares and in property. This was the biggest game in town and everybody has been quite happy to do little for big gains. The global meltdown destroyed this game - for the moment - so these speculators can rely on their past earnings, if they have not lost all in the crash already. But most will tighten their belts because they are now asset rich but cash poor. So, there is nothing that one can do for this groups except to join in their prayers that the market will rise again.
Of all the above factors, the biggest issue is the sudden fall in aggregate investment in this country despite having a high savings rate. The sole cause of poor investment is a loss of confidence in the ability of the government to govern properly by ensuring that those who invest can take all their earnings. The government can tax, like other governments, to provide the safety net for the old and incapacitated - but not to enrich the elite or themselves. So long as the government continues to build projects that lead nowhere, no private sector person will invest in a business that they cannot win either way. The job of the government today is indeed to stimulate the economy. Government deficit spending is helpful, but it is important for the government to re-establish private sector confidence in this economy as the place where fortunes can be made by those who choose to work hard. This is why there is constant flux in the election results - because the people cannot seem to be able to find politicians whom they can have confidence in in looking after their (the people's) basic welfare.
Where, then, can the people find confidence? Religion is a good fallback - with everybody answering for themselves. There is no surprise of the resurgence of religion-centred parties. Abstract concepts such as justice is amorphous, for it begs the question: Justice for who?
At the end of the day, we may just need people who are technically trained and who know how to build systems. It is the system of institutions where each is given the power to move forward while another is given the power to counter-balance, so that the whole system will somehow trudge along dispassionately dispensing justice and injustice to those who are caught by the perfection and inadequacy of the system. When something goes wrong, fix the system. This removes the invisible hands of the elite including the politicians from the system which is a good thing.
When the rules are properly set, we can expect a good game to be played by all participants and can even be enjoyed by those on the wayside including tourists. Only that we need good umpires.
In Malaysia, somebody has run off with the ball insofar as the wealth of this country is concerned. We have failed to redistribute wealth; somebody has managed to hijack it.
Money, Politics & Business
While we teach our children to respect money and be frugal, what do the grown-ups do?
Grown-ups become ostentatious in their spending as they grab whatever that comes along, feeling justified that they can do whatever they want with their money regardless of others. In the lonely world of theirs, they feel that they need for money to be happy; and, if they do not need the money, they justified it by saying that making money is their way of life which defines the very essence of their existence.
But why do we teach our children to respect money and be frugal. Frugality is not stinginess. Frugality is about not wasting your resources, now throwing about whatever seems to you to be in abundance at the moment. Frugality is about the consciousness of the importance of money in the way we live. Money has an economic role and it must stay that way. To have sufficient money so that we do not have to worry about money matters is the point; to have plenty of money and let money define us is stupidity. We should rise above money issues and focus on the real stuffs of life.
In the economy, money has a role to play and the regulation of money and the task of making sure that money does not misbehave is the job of the central bank. There is a certain failure in this job by central banks around the world. The destruction of money started with the de-regulation of money on the assumption that money will take care of itself. Money is now a drug that has gotten out of control.
In the real world, politicians and businessmen have colluded to share the same mistress called money. Polticians are in power to stay in power and will say and do anything to remain so, even after their expiry dates. Businessmen in power will say and do anything to stay in economic power, but the market will bring them out after their expiry dates even if they refuse to step down. We have our own experience when politicians think they can do economics and run the economy like a political system until their plans fall asunder when the market decides not to play that game anymore - then the politicians blame the market players. It is as if the banker of a card game says that he controls the cards and everybody must play to lose so that the banker can win. Such arrogance comes from tenure, so there must be an enforced expiry date for top politicians - the shorter it should be further up the political power structure.
There is also a need to divorce politicians from money because both are power tools and to have one person or a group of persons controlling all the levels of power is a danger for both the economic and political systems.
Politicians have controlled the economy by nationalising all economic opportunities which they will then dispense at their own discretion. This is why there is so much concern in this country over the issue of tenders, licensing and quotas. We have to build systems of operations for the economy that can be decentralised so that the man and woman in the street can have access to basic economic opportunities by dealing with their local officials, rather than having the big politicians making deals with or becoming big businesses themselves and then retailing their deals down to the ground. The politico-economic system the defines the distribution of wealth nationwide.
The economic system becomes inefficient and not competitive when those with the best business acumen do not have the chance to play direct while the incompetents block the view for everyone. This is why many people have opted not to play this game and have gone on to different playing fields.
The world economic failure is the result of money taking a centre stage in the political and economic game. The obsession with money has everybody mesmised into a standstill. "Now that we have money, what do we do?" There is a poverty of ideas and innovation. The reason the world economy is standing still because banks and businesses do not know what to invest in anymore. The current technology has gone to the level that it has failed to serve mankind anymore (is this why we are all edging towards self-destruction?) If so, then a slower GDP growth is the answer rather than stimulus packages to save the world. Slow down, relax and be happy.
Even in a money-using world where money is everywhere and in everything, the trick is really to think out of the money and into the real world where money becomes a slave and not a master. In this money-not-important world, the reality for happiness is family relationships (and not the office), friendship with people we have met (and not fighting with rivals), our sense of how we are going to actualise ourselves (and not waiting for a bigger position), and quietly preparing ourselves for our own demise (and not trying to monuments to remind others of us).
All the reality in the world can be reduced to just a few simple thoughts in our own minds. We only have to make sure those are our own thoughts, and not something we have memorised and not properly understood. We have to synchronise our thoughts with our hearts. You will find that you can live without money in your mind.
Grown-ups become ostentatious in their spending as they grab whatever that comes along, feeling justified that they can do whatever they want with their money regardless of others. In the lonely world of theirs, they feel that they need for money to be happy; and, if they do not need the money, they justified it by saying that making money is their way of life which defines the very essence of their existence.
But why do we teach our children to respect money and be frugal. Frugality is not stinginess. Frugality is about not wasting your resources, now throwing about whatever seems to you to be in abundance at the moment. Frugality is about the consciousness of the importance of money in the way we live. Money has an economic role and it must stay that way. To have sufficient money so that we do not have to worry about money matters is the point; to have plenty of money and let money define us is stupidity. We should rise above money issues and focus on the real stuffs of life.
In the economy, money has a role to play and the regulation of money and the task of making sure that money does not misbehave is the job of the central bank. There is a certain failure in this job by central banks around the world. The destruction of money started with the de-regulation of money on the assumption that money will take care of itself. Money is now a drug that has gotten out of control.
In the real world, politicians and businessmen have colluded to share the same mistress called money. Polticians are in power to stay in power and will say and do anything to remain so, even after their expiry dates. Businessmen in power will say and do anything to stay in economic power, but the market will bring them out after their expiry dates even if they refuse to step down. We have our own experience when politicians think they can do economics and run the economy like a political system until their plans fall asunder when the market decides not to play that game anymore - then the politicians blame the market players. It is as if the banker of a card game says that he controls the cards and everybody must play to lose so that the banker can win. Such arrogance comes from tenure, so there must be an enforced expiry date for top politicians - the shorter it should be further up the political power structure.
There is also a need to divorce politicians from money because both are power tools and to have one person or a group of persons controlling all the levels of power is a danger for both the economic and political systems.
Politicians have controlled the economy by nationalising all economic opportunities which they will then dispense at their own discretion. This is why there is so much concern in this country over the issue of tenders, licensing and quotas. We have to build systems of operations for the economy that can be decentralised so that the man and woman in the street can have access to basic economic opportunities by dealing with their local officials, rather than having the big politicians making deals with or becoming big businesses themselves and then retailing their deals down to the ground. The politico-economic system the defines the distribution of wealth nationwide.
The economic system becomes inefficient and not competitive when those with the best business acumen do not have the chance to play direct while the incompetents block the view for everyone. This is why many people have opted not to play this game and have gone on to different playing fields.
The world economic failure is the result of money taking a centre stage in the political and economic game. The obsession with money has everybody mesmised into a standstill. "Now that we have money, what do we do?" There is a poverty of ideas and innovation. The reason the world economy is standing still because banks and businesses do not know what to invest in anymore. The current technology has gone to the level that it has failed to serve mankind anymore (is this why we are all edging towards self-destruction?) If so, then a slower GDP growth is the answer rather than stimulus packages to save the world. Slow down, relax and be happy.
Even in a money-using world where money is everywhere and in everything, the trick is really to think out of the money and into the real world where money becomes a slave and not a master. In this money-not-important world, the reality for happiness is family relationships (and not the office), friendship with people we have met (and not fighting with rivals), our sense of how we are going to actualise ourselves (and not waiting for a bigger position), and quietly preparing ourselves for our own demise (and not trying to monuments to remind others of us).
All the reality in the world can be reduced to just a few simple thoughts in our own minds. We only have to make sure those are our own thoughts, and not something we have memorised and not properly understood. We have to synchronise our thoughts with our hearts. You will find that you can live without money in your mind.
Tuesday, February 3, 2009
Having An Intimate Relationship With Money
[This is being inspired by Sakmongkol's posts on the relative economic success of different cultural traits.]
Having a proper and intimate relationship with money is probably the most important thing that a modern person needs to master in order to be considered successful in the concrete jungle that we now live.
Those who fail to have a healthy monetary relationship are doomed to fall by the wayside of the economic mainstream - if they have no ancestral land to fall back on and they are landless, they become the disenfranchised, the homeless in their own land.
To put the whole thing in another way, success or failure in modern life is now centred upon one's management of money and wealth. This is what (almost) all of us are engaged every moment of our waking days (including some moments in our nightmares when we have to think about kids' education).
Money is a concept invented by human beings to placate their fears about the unknown future and the unforeseen circumstances that will incapacitate them and render them economic incompetents. So human beings sought out things in nature as well as things they invented themselves to embrace and hold on to. And the funny thing is that, as more people are seen to be hugging the same types of things, the more other people want to embrace whatever so many people are embracing.
In other words, value is created by demand.
And as a result, Say's Law follows: Supply creates its own demand. Hence, we have central banks creating money by lending to the government (to finance war and public monuments for national pride), banks and property developers creating physical assets to be paid for by the man in the street with his future income (if any), banks and businesses creating financial assets by selling shares of equity ownership, and banks and other financial institutions creating other financial assets by repackaging financial assets with value-enhancer such as insurance.
If the unschooled person is lost in this asset jungle, then this is why education is the key to success in the modern world - in order to be able to play this economic game of life.
But if the educated person is lost in this asset jungle, he or she can still survive by working hard (if he or she can find a job) and save (in order to buy car, house, tv, and a home entertainment system).
So, how do we have a proper and intimate relationship with money (and wealth):
Education. Why is education important? The modern society is an artificial construct of the education people. Therefore, education is important in order, first, to be at par with the thinking of the modern society (even if we do not understand the workings). Second, education is needed to support the modern soceity. In traditional times, it was religious knowledge, followed by science and technology for the purpose of saving labour. Now, it is science and technology but for entertainment. Third, education is needed in order to able to understand the workings of the modern society and how do the successes and the failures come about and how the defects of the modern society can be fixed. This latter function of education is much more specialised and harder, as evidenced by the difficulties that the current fixers of the world economy have. Qualification: Education refers to the broadest range of training and knowledge, not just that which is propagated by universities.
Work and Economic Opportunity. To be able to participate in the economic mainstream is important. To be excluded from the modern society for whatever reason and to disallow people to try to earn a living and feed their family is the greatest form of cruelty. People want to work. People must work.
Save. The Chinese dictum on saving is this: If you earn a dollar and spend ninety-nine cents, you are good; if you earn a dollar and spend a dollar and one cent, you are doomed. None of that rubbish that is being propagated by the illiterate policymakers who encourage ordinary people to spend until they are bankrupt so that some inefficient firms will stay alive - swapping personal indebtedness for corporate solvency.
Invest. This is the scourage of the modern society. People do not know where to invest, because people do not know what is wealth any more. Central banks around the world have printed so much money that the traditional money that we know it now has no more value. People now don't want money. People want value. Does the modern society have no more value?
Value. If you were to ask me, I would any time put my money in the proper education of my children so that they can learn and be trained in values that do not die, such as honesty, trustworthiness, truthfulness, integrity, grit, perseverance, self-reliance, self-realisation, clarity of thought, courage, bravery, firmness without aggression, gentleness without cowardice, generosity, kindness, understanding, sympathy, compassion, helpfulness, resourcefulness, service. Only after when I am comfortable that my children have some proper values would I then venture to think of helping them out on the real estate, something which I feel they should do on their own. I have seen too many adult spoilt brats. This country is being spoilt by them.
It is true. Money is quite a useless thing, without which we cannot survive in the modern society that we have constructed. Hence, most people try to opt out of the modern society and live in the kampung, in order to avoid the use of money. But then they run into timber companies. Money is quite a useless thing, as it is something that we must have and not use. Isn't this the meaning of treasure? Most people follow such pristine routines that they fail to live.
The problem with most obvious political solution to the economic problem of the electorate that they are trying to entice is that they try to hook the electorate to their political camp with economic drugs.
The problem with money is that it is easily printed. To print money thoughtlessly is akin to the mind of the thief who thinks that the cleverest way to make money is to steal. It is one of the greatest paradox of modern life - that the shortest route for the individual is not necessarily the best route for society as a whole. To take the short cut for oneself could have been done at the expense of our neighbours who have to toil so that we can live comfortably (and pontificate).
Conclusion: To have a proper relationship with money, don't be greedy; live.
Having a proper and intimate relationship with money is probably the most important thing that a modern person needs to master in order to be considered successful in the concrete jungle that we now live.
Those who fail to have a healthy monetary relationship are doomed to fall by the wayside of the economic mainstream - if they have no ancestral land to fall back on and they are landless, they become the disenfranchised, the homeless in their own land.
To put the whole thing in another way, success or failure in modern life is now centred upon one's management of money and wealth. This is what (almost) all of us are engaged every moment of our waking days (including some moments in our nightmares when we have to think about kids' education).
Money is a concept invented by human beings to placate their fears about the unknown future and the unforeseen circumstances that will incapacitate them and render them economic incompetents. So human beings sought out things in nature as well as things they invented themselves to embrace and hold on to. And the funny thing is that, as more people are seen to be hugging the same types of things, the more other people want to embrace whatever so many people are embracing.
In other words, value is created by demand.
And as a result, Say's Law follows: Supply creates its own demand. Hence, we have central banks creating money by lending to the government (to finance war and public monuments for national pride), banks and property developers creating physical assets to be paid for by the man in the street with his future income (if any), banks and businesses creating financial assets by selling shares of equity ownership, and banks and other financial institutions creating other financial assets by repackaging financial assets with value-enhancer such as insurance.
If the unschooled person is lost in this asset jungle, then this is why education is the key to success in the modern world - in order to be able to play this economic game of life.
But if the educated person is lost in this asset jungle, he or she can still survive by working hard (if he or she can find a job) and save (in order to buy car, house, tv, and a home entertainment system).
So, how do we have a proper and intimate relationship with money (and wealth):
Education. Why is education important? The modern society is an artificial construct of the education people. Therefore, education is important in order, first, to be at par with the thinking of the modern society (even if we do not understand the workings). Second, education is needed to support the modern soceity. In traditional times, it was religious knowledge, followed by science and technology for the purpose of saving labour. Now, it is science and technology but for entertainment. Third, education is needed in order to able to understand the workings of the modern society and how do the successes and the failures come about and how the defects of the modern society can be fixed. This latter function of education is much more specialised and harder, as evidenced by the difficulties that the current fixers of the world economy have. Qualification: Education refers to the broadest range of training and knowledge, not just that which is propagated by universities.
Work and Economic Opportunity. To be able to participate in the economic mainstream is important. To be excluded from the modern society for whatever reason and to disallow people to try to earn a living and feed their family is the greatest form of cruelty. People want to work. People must work.
Save. The Chinese dictum on saving is this: If you earn a dollar and spend ninety-nine cents, you are good; if you earn a dollar and spend a dollar and one cent, you are doomed. None of that rubbish that is being propagated by the illiterate policymakers who encourage ordinary people to spend until they are bankrupt so that some inefficient firms will stay alive - swapping personal indebtedness for corporate solvency.
Invest. This is the scourage of the modern society. People do not know where to invest, because people do not know what is wealth any more. Central banks around the world have printed so much money that the traditional money that we know it now has no more value. People now don't want money. People want value. Does the modern society have no more value?
Value. If you were to ask me, I would any time put my money in the proper education of my children so that they can learn and be trained in values that do not die, such as honesty, trustworthiness, truthfulness, integrity, grit, perseverance, self-reliance, self-realisation, clarity of thought, courage, bravery, firmness without aggression, gentleness without cowardice, generosity, kindness, understanding, sympathy, compassion, helpfulness, resourcefulness, service. Only after when I am comfortable that my children have some proper values would I then venture to think of helping them out on the real estate, something which I feel they should do on their own. I have seen too many adult spoilt brats. This country is being spoilt by them.
It is true. Money is quite a useless thing, without which we cannot survive in the modern society that we have constructed. Hence, most people try to opt out of the modern society and live in the kampung, in order to avoid the use of money. But then they run into timber companies. Money is quite a useless thing, as it is something that we must have and not use. Isn't this the meaning of treasure? Most people follow such pristine routines that they fail to live.
The problem with most obvious political solution to the economic problem of the electorate that they are trying to entice is that they try to hook the electorate to their political camp with economic drugs.
The problem with money is that it is easily printed. To print money thoughtlessly is akin to the mind of the thief who thinks that the cleverest way to make money is to steal. It is one of the greatest paradox of modern life - that the shortest route for the individual is not necessarily the best route for society as a whole. To take the short cut for oneself could have been done at the expense of our neighbours who have to toil so that we can live comfortably (and pontificate).
Conclusion: To have a proper relationship with money, don't be greedy; live.
Monday, February 2, 2009
Billboards & The Art Of Self-Deception
Certain countries have a tendency to elect political leaders who seem to suffer from bouts of insecurity as if they fear the ordinary people have forgotten what they look like.
As a result, these leaders put up billboards - at the expense of the taxpayers - to remind them how important they have become and hence worthy of veneration.
It is, therefore, an embarassment for many of us to have to put up with the false smiles of these little individuals beaming down from the billboards, normally hiding behind their immediate bosses - who apparent are quite agreeable to such nonsense.
These political leaders have forgotten that the game is not about them - but it is about the jobs they have been entrusted to do.
As a consolation, it is good that we do not get many statues. But we do have lots and lots of photographs, though.
Maybe, we should be a bit more forgiving - afterall, don't billboards peddle junk, anyway?
As a result, these leaders put up billboards - at the expense of the taxpayers - to remind them how important they have become and hence worthy of veneration.
It is, therefore, an embarassment for many of us to have to put up with the false smiles of these little individuals beaming down from the billboards, normally hiding behind their immediate bosses - who apparent are quite agreeable to such nonsense.
These political leaders have forgotten that the game is not about them - but it is about the jobs they have been entrusted to do.
As a consolation, it is good that we do not get many statues. But we do have lots and lots of photographs, though.
Maybe, we should be a bit more forgiving - afterall, don't billboards peddle junk, anyway?
Subscribe to:
Posts (Atom)