Saturday, January 24, 2009

Water, Water Everywhere

When everywhere is dry,
A drop of water is precious.
When everywhere is dry,
More water gives life.

But when there is flood,
People are drowning.
When people are drowning,
More water makes things worse.

To improve things,
Drain the water.

Tuesday, January 20, 2009

Confidence & The Art of Lying

Policymakers are apt to think that they are creating confidence by saying that "everything is going to be alright."

Confidence is created when the public knows that the policymakers have done their homework - i.e. diligently collecting data, analysing the situation, and thinking through the whole situation - and then they make their pronouncement - that "everything is going to be alright."

But when we know that the policymakers have been busy making public pronouncements left right and centre everyday to seek attention, and in the midst of their busy schedule they come out to say something like "everything is going to be alright," the general public knows that these people are bullshitting.

The general public knows that these peple are bullshitting because we see these people all over the place - they kiss babies and babes, they slaughter buffaloes and pretty girls, they put on their pearls and glittering jewels, they put on their shiny suits and gowns, they carry themselves like princes and princesses, they talk like they know everything, they talk like everybody is stupid.

To create confidence, the government must first put in place experts whom we have confidence. And when they speak, we listen.

Do not give us people with influence who want to climb to the top and pretend they are experts in areas they are not trained in. We know they are fakes by the imitation policies they pronounce. They have no ideas, and they do not have policies that will be good for the country.

This is why we are caught by lethargy - timid policymakers who hid behind popular policies.

We should ask old leaders who have served their useful lives to shut up so that we can proceed with making advance with offsetting the effects of their policy errors and recovering from the consequences of their errors.

The younger generations should be allowed to suffer their own errors, rather than the errors of their elders.

Once, we have replaced politicians with technocrats, we would have better confidence in our own policymakers. Until such time, we shall continue to wallow ourselves in disbelief in the wonderous things the politicians tell us.

We have learnt to live in blissful silence in the midst of utter rubbish.

Sunday, January 18, 2009

Salleh Ben Joned

Ever since Sakmongkol AK47 in his blog on 30 November 2008 mentioned Salleh Ben Joned, I had been wondering when I would have the chance to meet Salleh again. I had this thought in my mind yesterday afternoon when he materialised right in front of my eyes in the shop where we usually met.

He asked me the reason for having him in mind, and I mentioned briefly that it was in relation to one incident when he pissed in somebody's art exhibition. He clarified.

The artist was going to put on an exhibition which to Salleh was a "load of rubbish" being just bits and pieces of things dumped together. But the artist defended it by saying that it was "zen inspired," which was something close to Salleh's heart and it inflamed him. Salleh said he warned the artist that if he were to proceed with the exhibition, he would "shit on it." Salleh's point was that he could not shit that day, so he pissed on it instead.

This is contained in his compilation "As I Please" and promises to mail a copy to me. I certainly am looking forward to it. That costs me a mug though but with pleasure!

Thursday, January 15, 2009

Bernanke, Paulson, Obama & the US Economy

What's really wrong with the US economy?

A country gets into an asset bubble when it's economy is suffering a structural problem - the structure of its industries are wrong with respect to global demand and/or with respect to its competition. This can happen when the industries do not get the right signals from the market as a result of policy interventions which prop up those industries and which do not allow those industries to die a natural death. These structural problems could also be the result of the persistent use of pump-priming measures. Even persistent loose monetary policies may not be able to help as these industries are unable to use cheap capital and expand their way out of their inability to compete. Because inefficiencies and irrelevance have been allowed to continued for a long time, the only way the errors in policy will show is when the whole system fails and collapses.

With structural problems, throwing money at the problem will increase the aggregate demand in terms of both consumption and investment, but without the necessary the commensurate increase in production such that more and more money is flooding the economy. If sustained, a bubble is built up.

The original US$700 billion Troubled Asset Relief Programme was supposed to remove the toxic assets from banks. Let us say, the banks' NPL (non-performing loans) ratio is 30%, consisting of US$1000 billion bad loans out of a total loan portfolio of US$3000. If the US$700 billion is used to buy up the bad loans, the NPL ratio falls to 13%, as the bad loans fall to US$300 billion but the total loans now fall to US$2300 billion as the assets are removed from the banks (and not to 10% as of US$300 billion over US$3000 billion).

Paulson was said to have used half the US$700 billion to add capital into the banks. The one half (US$305 billion) will be used to remove the bad loans and this will reduce the NPL ratio to 23.6% (US$650 over US$2750). The banks still have to make provisions for the remaining bad loans of US$350 billion - will be competely chew up the injection of new capital a la Paulson. The banks still remain without liquidity and the NPL ratio is higher (at 23.6%, rather than 13% in our example above).

The Obama proposed US$800 billion fiscal stimulus plan which, as I can gather, is about new spending and tax cuts. This will put money into the system and help some businesses. But I agree with Bernanke that this will not help the banks. In any case, the Obama plan was more a supplement on the assumption that the US$700 billion TAR Programme is sufficient.

My view is that Paulson may have weakened the initial US$700 billion plan to provide leverage for the banks to lend by his hasty investment plan for the banks. Bernanke is basically saying in a roundabout way that Obama will still have to revisit the banks because of the Paulson intervention.

I don't see the remark to show the sign of a possible split between the Fed and the White House. Bernanke is just being realistic.

Whether the plans will work or not to get the US economy moving again is, unfortunately, another story.

Sunday, January 11, 2009

How To Destroy the World: War & Money

We usually think of war as the only or the most destructive force in the world. The damage is obvious and our feelings against it intensified by the grief we feel for those who suffer.

But war is waged by those who has the money to build or make weapons and to employ people to obey their orders to kill. The poor do not have the means to defend themselves and they die for it. So, war is waged as a result of a prosperous nation (that wants to defend its wealth or grow richer) - and this must be accompanied by an expansion in the money supply and a rise in the government deficit. Expanding a government deficit or the money supply to fund a war must be thought to be positive economically to destroy and control other nations.

But the same technique is also being used to destroy one's own nation - by expanding the government deficit and the monetary supply.

People are being softened by encouraging them to go into debt in order to engage in mindless consumption. With low interest rates, they have no incentive to save - and therefore depriving them of the opportunity for self-independence. Asking people not to save but to consume so that those with capital invested in wrong projects can continue to stay afloat is an enslaving policy.

Ordinary men and women must always be encouraged to save so that they can have enough capital to venture into their own cherished projects which may contribute to the richness of the society in which they live.

Running a loose monetary policy at low interest rates for years and years is bad for the economy. It keeps commercially unviable businesses alive - which means no improvement in productivity or servicing the needs of society. Low interest rates provide no santuary for those who retire holding cash, as the benefit of the cash is given to investors. Inflation from a loose monetary policy erodes the purchasing power of the people and unduly propping up the profitability of inefficient businessess and the rich asset-owning class.

Indiscipline in monetary policy is destroying own nations and that of others, loosening our moral fibre and the resolve to build and innovate.

Thursday, January 8, 2009

War & Economy: Accumulation of Power & Value

It is sad to see people suffer as a consequence of the actions of others who try to achieve peace and contentment.

It is times of great strife like this that we come to appreciate the concept of paradise - the idea that we can wake up every morning to retirement for we then do not have to worry about having to work to fill our stomachs or shelter from the elements.

But when human beings are driven from paradise - from food, comfort and security - there arises in the hearts of people the great defensive mechanism called fear.

In normal situations (can any situation be normal outside paradise?), fear is placated by the accumulation of assets of value with which food and comfort may be obtained. People work hard and play hard and forget about their worries.

But even hard physical assets may crumble in value when people suffer a collective panic attack. The whole system shuts down and returns to reality - which is really nothingness.

The prophets and wise men then try to bring things back to "normal" by rebuilding the confidence of people collectively so that they can resume their "business" and work hard in order to forget about their worries.

But if the environment has become harsh - when people's lives are threatened after having witnessed their neighbours die - people take extreme measures to create fear in others so that they themselves can feel safe. They will try to use powers of rhetoric; and if this fails, they will try to use muscular power; and if this fails again, they will use explosive power to intimidate and render the other side powerless. All this while, they all get very hungry and very angry. They will try to regain their confidence by accumulating assets of power for defense, for the lack of opportunity to accumulate assets of future consumption value means there is no confidence in the future. People who rather die than live when the social fabric is torn. It is as if it is the time for the whales to beach.

People will stop fighting when they have lost the power to intimidate - or that wisdom has arisen in them which evaporates their desire to intimidate. This wisdom will arise when they realise the ephemeral nature of life, that what they are trying to do is something that will occur naturally enough and they are merely accelerating it for everyone, which defeats the purpose.

I suppose the descent into hell can be captivating as well and therefore quite engrossing. Hell because a different feeling arises which is different from the placid semi-unconscious state of breathing in and out that we generally get when we are blogging. The heart would probably beat faster and harder and our actions more decision and probably callous when we are in a game of real war. Afterall, the feeling of winning is elation and the price of failure is merely to expire - which may not be a bad way to go.

But it is always better to be a peace with oneself and one's neighbour.

Wednesday, January 7, 2009

Population, Growth, Environment, & Social Security

de minimis a few posts ago wrote on population, aging, growth and the environment in reference to a certain Muslim genius, ibni Khadun, with elaboration by Sakmongkol and the addition of social networking. I wish to add some comments.

1. Population & Food

Population has been dictated by food production. At food production level FP1, population will explode beyond what FP1 can support, and with hunger and starvation, the population will settle to Pop1. Once a new breakthrough is made in food production, to FP2, - such as the discovery of New World crops of maize and potato, the mechanisation of agriculture, the Green Revolution - the population will explode once again and then settle at the new higher level Pop2. In other words, the contention is that the population has been able to explode because of the success in food production.

2. Population, Food & the Environment

Successive improvement to food production leads to the degration of the environment through overfarming or the excess use of chemicals on the soil. There is conceivable a limit to the ability of the environment to produce food, no matter how ingenius human beings may be. At the extreme, there will be a limit to the growth of the population on earth - probably at some point in the distant future. Once this limit is reached, the rich may continue to multiple while the poor will keep on dying from starvation - given the distribution of wealth. This limit may be glimpsed from the situation in Africa.

One way that the environment may be "saved" is to take into accounting the full cost of production - of food and other products and services. With higher costs, less may be produced than otherwise would have been - and that extra cost goes into the maintenance of the environment.

3a. Society & Its Aging

Apart from food, the advancement in healthcare is lengthening the lives of individual human beings - or rather the desire of human beings to reach closer to immortality is giving good business to the healthcare business. As a result, the population ages. Now, there should technically be a certain percentage of the aged, say x% of the population, which will just be able to be supported by the income and wealth of the working population.

3b. Young, Sick, Infirmed & the Handicapped

Strictly, we should include the young, the sick, the infirmed and the handicapped in the x% so that the remaining (1-x%) of the population will represent the able-bodied, if everyone is contributing in the social effort. If y% of the labour force is employed, then (1-x%)*y% will have to support the rest of the population [x%+(1-x%)(1-y%)].

4. Social Safety Net

An individual, after an infancy and youth taken care of by parents or society, starts working life in fear and earnest and will work and save enough for sickness and old age.

When we think of waves and waves of individuals of varying ages needing help at infancy and youth, then working, then getting sick and becoming old, we can collapse the whole past, present and future of the society into the present - with its colourful array of varying ages and conditions.

Collectively, the savings of all able-bodied people must be sufficient for investment to provide the necessarily care for the young, the aged, the sick, the infirmed and the handicapped.

The necessarily care must include food, housing and healthcare - and this depends on how the whole society is organised. For these basic needs of society are to be provided properly, we must have a caring society that is organised as non-profit organisations where earnings go back into improving the services and facilities - which is real only with proper training and expertise.


With the development of a caring society, we would eliminate fear and require people not to be greedy, and at the end of it, we will all feel comfort with the world and hence be happy and content in little ways.

At present, in Malaysia, I feel there is excessive fear over the future because we do not trust the government to have the competence to take care of society, and in the process of each looking after himself or herself, greed is stroke and wealth will be distributed in accordance to the power to abuse and corrupt. Najib talked of "balanced development" and I think he needs to elaborate and provide the details of a comprehensive social development plan, inter alia.

Reboot VII: Rebuilding Our Society

We need to be clear about the nature of the society that we want - in order to use government deficit spending to rebuild a new society from the rubble of the old broken one what we have destroyed.

At the risk of repeating myself, here we go.

How can we rebuild our society?

1. Education, education, education. Invest in our people. We have to train our people well - train them to think for themselves. This may be risky for politicians but if politicians are to be truly serving the people, they must allow the people to take care of themselves. (Are our politicians deliberately ruining our education system so that they can control the people?) When the people are well trained, they do not need government subsidy to survive. Pay teachers well. Draw in versatile people to teach - teachers who can trigger the minds of young people to greater heights. We can improve our education system by building on top what we have. Language is a secondary factor. Creativity and innovation and the ability to think can be taught in any lanuage.

2. Private investment, private investment, private investment. If the government can try to bring assurance to foreign investors about fairness and justice for them, cannot the government do the same for local private investors? The precondition for private investment to be forthcoming is confidence in the environment that people are investing in - that the investors can enjoy the fruits of their own labour, rather than having their efforts sabotaged. The need to build and solidify confidence need to emphasised again and again. Fair policy. Security. Law and order. Let the people decide where and how much to invest - do not micromanage them. They assume their own risks.

3. Government deficit spending. For a developing economy like Malaysia, there is still a need to design and build an efficient and productive operating environment. Once the preconditions for private investment is there, a whole comprehensive supply chain needs to be build. We have done enough for ports and sea ports and roads in major cities. We now need to stimulate growth in the outlying areas where the potential for agriculture is great. We need to link these outliers to the outside world. We need to develop a system of efficient service, especially transport and communications, from the ground up. We really need the people on the ground to work - rather than taking tea breaks and annual leave and doing personal errands. There is a need for the government to spend in excess of non-oil revenue to increase the the human resource and capacity and increase the annual economic flow to a critical level whereby the basic physical infrastructure can will be optimally used.

4. Produce, produce, produce. We must get our people to produce goods and services, instead of encouraging people to consume. People empower themselves when they are in a position to contribute to society by doing something that is beneficial to society. People must continue to work hard, produce, save and invest. It is an utterly misguided policy to encourage people to consume until they are heavily indebted.

Produce, produce, produce. Save, save, save. Invest, invest, invest.

My only appeal to policymakers is to go and get some proper economic expertise - rather than relying on econ 101 students to save our society.

The reason why we need to consume less and save is so that we always have the capacity to undergo structural changes which is very necessary for a developing and therefore the need for a rapidly growing society.

We have benefited from tin miners, and they have died. We have benefited from coconut growers, and they have died. We have benefited from coastal fishing, and they have died. We have benefited from mega builders, and they have died. We have benefited from the stock market, and it has died. We have benefited from property developers, and they have died. We could have benefited from the iron and steel industry, and it has died. We could not benefited from the national car project, and it has died.

So, we need more and more savings to invest in new sectors, new sub-sectors, so that our society can keep on re-engineering itself. We cannot afford to keep supporting industries in which we do not comparative advantage.

We have not really developed our arts and entertainment sector. We have not really allowed our talents to be themselves. Big Brother too strong.

The government should spend and go further into deficit - which can only be justified by increasing the potential for future growth of the economy. For that to happen, the country must unleash its people to greatness.