Global Economic Structural Change

Sorry for the big title. The purpose is to give an alert that what has been festering is likely to happen later this year or early next year. The US has decided to stop printing money - thank God!, the inflation and the arms rampage.

The next thing that is going to happen is that interest rates in the US and the UK are going to rise. This is a major structural change for the world which had been enjoying low interest rates and an abundant supply of money and bank loans.

That is why the US dollar and the British pound are strengthening steadily. Is this high already? Will it reverse soon? Because we think that this is a major structural change for the world, therefore, we expect the strengthening to go on further.

How long will it go on for? Do not think of small incremental changes. Small incremental changes are changes in the margin when there is no structural change. Structural changes bring along big sizeable changes.

Have we seen big sizeable changes in the world lately? Yes. The massive inflation around the world. The awakening of the China economy. The cooling of the China economy. The asset bubble in China. The burst of the asset bubble in China. The war in the Middle East, funded by the quantitative easing and the buoyancy of the arms industry. The coming onstream of shale gas, a major strategic and structural change by the US to shore up its economy. The sharp drop in the price of oil. The sharp drop in the price of gold. The economic disaster of fringe EU countries. The coming of 3D printing. The bowing down of Windows in Windows 10.

The debate now is whether the US and UK economies have recovered strong enough for interest rates to  go up. Of course, from near zero, everything else would look big. But it is very important that money has a positive value, and we can start with savings deposit rates of at least 3% pa going all the way up to 6% pa. The mark-up should be small because banks are now transacting in massive volumes, which means that base lending rates should be about 4.5% pa to 7.5% pa. I think depositors and borrowers are tired of paying for the incompetence of banks and their reckless lending. This are restraints that central banks can stipulate for those institutions they take care of - what we used to call "prudence" in the old days.

I will brace for the sustained strengthening of the US dollar and the British pound against the ringgit, firstly, because I think the local central bank will not follow those interest rate increase when they come for fear of upsetting the performance of the vulnerable local economy and, secondly, because there is nothing to invest the money kept at home apart from buying another apartment.

The local politicians have to get their act together, whoever is going to be in government. There is no point shaking the confidence of the entire society and economy just for the sack of being in power. There is no glory in that power when we have laid the whole environment in waste. This country is built on hard work, sweat and tears in hope of a better future. Without this hope and commitment, there is no investment and hence no economic prosperity, no matter how much investments the government is going to pour in. The government is only a small group in the entire society.