When Interest Rates Rise, the Middle Income gets most affected !!!

Without the slightest of doubt we are going in for higher and higher costs of living.

The BLR has increased to something like 6.6%.  What this means is that interest rates will and has already risen.

If you check your housing loan statement, you will find that you are now paying more in terms of instalments on the interest rate.  This directly affects you because you will now have less money on the same salary for otheer things in your life. Your cost of living goes up, your standard of living goes down.

Despite whatever statements the "clever professionals" in the various institutions are saying, we are already experiencing inflationary tendencies. You do not have to be an economist from Harvard to know the price increases in almost all the daily essentials when you just visit your local market.

Ironically, quite a number of employers are complaining that salaries these days are much higher than just say four years ago. This will increase the costs of production and hence, the prices of goods and services will increase further compunding the inflationary tendency. Sounds like an unpleasant chain reaction is starting again right? Well, as long as a small ecoomy like us is still stuck in the current economic system, will continue to suffer the consequences of the system caused by its natural processes.

It also does not help that solutions are put forth by people trained by masters of the system in a faraway place.  The "solutions" are actually future traps for further, bigger problems because the root cause has never been and will never be addressed in the current system which is set to stay for many more decades unless something "out of the ordinary" happens.
 
Now there is talk of having to cut the subsidies and that if that is not done, then the country will suffer in the future. If indeed subsidies are cut, what this means is that prices will increase further.

When prices increase, your every one ringgit can now buy less things. Unless you income increases, you will be able to afford less things than before.

What is not helping is that while prices and costs are going up on one hand, on the other hand, some enforcement authorities are hurting genuine businesses on the "flimsiest of reasons" using discretionary powers given by law. It is a case of the left hand not complementing the right hand.

There seems to be no wholesome coordination of "economic recovery" efforts in this country.  For every one step forward we take, we seem to take pleasure in taking three steps back !

There also seems to be no effort at looking at wastages and leakages. At the same time, the "clever institutions" do not seem to be monitoring the "money economy" where while no goods and services are produced, they create purchasing power or in economic terms, demand. Hence, you end up having or creating a situation where demand is exceeding supply of real goods and services - once again leading to price increases.

It also does not help that the 'mainstream' is so caught up with the non bread and butter issues.

What is so difficult about being in control in a wholesome manner?

In short, brace yourselves for hard, difficult times.

Peace !

More Unpleasant Predictions about Malaysia

I went to a function today and had a chat with a few Malaysian businessmen who are doing businesses abroad.  We were also joined by a Malaysian who has been with the World Bank for years and is now posted to the United Nations. We discussed global economic trends and where Malaysia stands in the larger scheme of things.

The Vatican, the Jewish groups and the China are said to be global  economic firepowers.  Each of these groups are influential globally in their own areas.

Industrial and Commercial Bank of China (ICBC) is said to be the largest bank in the world. in terms of lending and deposits.  China Construction Bank Corporation, Agricultural Bank of China and the Bank of China also rank within the top 30 banks in the world.

China's car industry is also said to be the next major player in the world. Apparently, Japan no longer considers Malaysia's car market of any significance and this may lead to more cars coming from China to Malaysia - that too if the market volume is considered as commerically viable for China. The businessman who has business dealings with China, UK and other parts of the world predicts that the world economy will be completely different in five years from now with China being the major economic player in the world.

As to Malaysia, the consensus reached was that there will continue to be a major brain drain from the country. Malaysia is said to be regressing behind neighbouring countries like Indonesia, Singapore, Thailand and even relatively Vietnam. The recurring theme was the lack of competitive spirit and competence among the Malaysian businessmen and industry players. If this is true, then we have failed all these years to cultivate a competent industrial and business culture.

I have been hearing too many negative things being said about Malayisan business competency and this needs to be addressed. However, our country's politics seems to be too engrossed with sensational, trivial and nonsensical issues and news which have no bearing on the general welfare of the Nation.

I hope Malaysians have not become too full of themselves or "syok sendiri"  until we do not realise that globally, we may be considered as totally insignificant.

Peace!

Bankrupt by 2019???? And hence, we all suffer?

This is absolutely frightening news. Is it for real?

TheStarOnline reported:

“Malaysia will be bankrupt by 2019 if it does not cut subsidies and rein in borrowings, said Minister in the Prime Minister’s Department Datuk Seri Idris Jala on Thursday”.

It appears that at target to prevent the “bankruptcy of the Nation” would be to rationalize the subsidies. It is basic that subsidies are costs to the Nation and like every cost, it has to be evaluated and brought down where possible to reduce the deficit and debts faced by our country.

However, there are a few points that the Government experts should look into and bear in mind:

a)      Subsidies cannot be looked upon as costs in the same manner as we do in the private sector.

Sure, it is equally basic that subsidies distort market mechanisms. In fact, it is precisely due to the fact that market mechanisms do not allow the goods and services to be allocated to target groups that subsidies are introduced in the first place. Hence, free market arguments or so-called efficient allocations of resources cannot be the sole argument for or against subsidies.

Subsidies are costs but unlike the private sector it is not a cost incurred in the process of profit maximization. Private sectors primary motive is to maximize profits and hence they will be geared towards keeping costs at its minimum – even to the extent of retrenching workers (destroying homes) or ‘maximising productivity” of its existing workers (capitalistic oppression).

The purpose of Government is not the maximization of profits but the maximization of the citizen’s general welfare. This is something I pray that the clever advisers of the Government with their corporate background keep uppermost in their minds. It is not a mere question of statistics and economic theories. Corporate thinking and Government thinking should in many instances be different. Let us not get carried away with this new slogan of “corporate values” in the Government while we acknowledge it has its relevance!

While in the private sector, we try to minimize “unproductive costs”, the same costs may actually be social costs that are necessary for the maximization of the citizens’ general welfare.  For example, if Government schools are left to market mechanism, the majority of the people will be priced out of education.  We will become a Nation of illiterates. Hence, we recognize that subsidization of education is something we have to bear and we have to find the funds needed. This is one sector I think any responsible government should not compromise.

While subsidies increase Government expenditure, it also increases the standard of living of the people. Therefore, any reduction is subsidy will have an impact on the living standard. This is a tradeoff which we must carefully consider before getting carried away with numbers and statistics.

b)      Which subsidies to reduce or do away?

I am actually ashamed that despite the blessings that God has given this Nation, we are still unable to provide completely free education to all Malaysians, irrespective of race or religion. Obviously this is so because of the leakages (corrupt monies hoarded by…) and misallocation of resources towards projects that do not directly affect the people’s general standard of living.

It is critically important that the Government does not cut on subsidies that will further burden the general populace in order to free the resources towards other grand but wasteful projects. This is my real fear having seen the way we have developed Malaysia since Merdeka. I am not denying we have not developed. Yes, we have. But we could have developed in better ways and at less inflated costs. I have never been for the module of giving the people RM10 and the project owner making RM100. Such things are, in my Muslim mind, riba or usury. Government projects, due to its guaranteed payments should be costing much less, actually.

Briefly, it is important to carefully determine which subsidies that will be the target of ratinalisation.

c)      Existence of subsidies may actually encourage economic activity

The existence of subsidies actually keeps the general costs of doing business low in the sense that it keeps the costs of living low. On the contrary, the removal of subsidies will raise costs of production and will make Malaysia unattractive towards investments. This is primarily because, the removal of subsidies will eventually cause a rise in the general price levels, even causing inflationary tendencies in the economy. Imagine if petrol prices are raised, it will certain cause almost all other prices to increase. This in turn will increase the cost of living leading to people seeking higher wages.

Hence, the existence of subsidies actually keep the costs of production low, making investments attractive and thereby providing the opportunity for higher increase in the national income.

Therefore it is misplaced to view subsidies in isolation as if there is no increase in GDP and then conclude that it will bankrupt the Nation.

d)      Have we explored other ways to reduce costs and/or raise funds?

Basically, the idea of removing subsidies is to free resources/funds to other sectors. I believe a lot of resources can be positively channeled and funds “saved” if the Government was to seriously focus on the following:

(a)                Reduce the size of the civil service by 50%. There is too much duplication and wastage of tax payer’s monies in this sector. After the reduction, it may even be worthwhile to increase the remuneration of some of the civil servants.

(b)               Wage an all out war against leakages (corruption, etc)

(c)                The Government should seriously consider passing a law that enables the Government to recoup ill-gotten money by the culprits over the past 30 years or so. This will not be difficult to ascertain. I believe by this exercise alone, we should be able to recoup billions. Maybe a Recovery of People’s Assets Act is in order. However, this will require political will as it will largely involve politicians and their cronies.

(d)               Focus on economic activities that will uplift the living standards of the middle class and raise incomes all around. For the lower middle income, loosen up on licensing requirements to encourage the growth of small businesses or cottage industries.

(e)                I am absolutely certain that the Rakyat is fully aware of certain “sectors” that unnecessarily and unproductively taxing on the Government funds, whether at the Federal or State level.  The Government must have the courage to address these sectors and pull away the funds.

 

Peace !

Statistical cruel magic tricks

Let’s take ten of you. 5 years ago you were earning RM1,000.00 a month. So, per month all 10 of you were earning RM10,000.00 per month or RM120,000.00 per year. Taking this 10 only, the national income (GDI) is RM120,000.00

Then what happened was, 4 of you lost your job and the remaining 6 of you got an income increase to RM2,000.00 each. Since the 6 got a doubled pay increase, therefore the GDI has increased to RM 144,000.00 per year.

Now, the politicians and “experts” will boast that the economy has improved! There has been an increase in income in the country of RM24,000.00. The income levels in the economy has improved by 20% !!!

Everyone "forgets" that there are still 4 persons unemployed!

This is called the statistics trick!

Peace !

Part 3: The Economy is doomed forever? – Boom-Bust Cycles

Boom-Bust Business Cycle – democapitalists lie on the people.

Ancient Chinese warfare discipline has good advice – before you want to chart out the strategy, understand the terrain that you want to conquer. So, let’s try to do that here.

It is accepted in current democratic-capitalistic (hereinafter referred to as “demo-capitalistic system”) thought that the economy will undergo cyclical patterns of “ups and downs” or “booms and bust”.  It has its roots in the classic business cycle theory. According to this theory, booms are initiated by a series of real inventions which in turn lead to real investment (employment of resources). Early periods of “boom” often leads to “jumping on the bandwagon” type of behaviour (economists call this competitive pressures caused by optimism) resulting in further investment than is necessary or profitable. They argue that this inevitably causes collapse or a bust of the economy. 

Business cycle economist actually welcomes this boom-bust phenomenon arguing that the economic forces will play out an equilibrium position thus achieving “efficiency of allocation of resources”! (we will have to come back to analyse this phrase). Their reasoning sounds perfectly logical and indeed up to the date of writing this article, it is accepted as an “economic truth” by none less than the economists of the renowned universities of the world (Harvard, Oxford, etc).

I have always had my apprehensions about “mutated economic theories” masquerading for centuries as premised on Adam Smith’s framework. Today we have various “sects” from the time of Adam Smith – the monetarists, the neo-classical economists, the Keynesians, etc. etc, etc. The world experience since the economic depressions of the 1930s has heightened my skepticism and in fact disbelief in these theories. The fact is, today one cannot really pinpoint what is the philosophical basis of any economic policy other than a concoction of fire-fighting measures with a view to temporarily sustaining the “economy” within the political life span of an elected leader. Other than that, it is clearly business as usual for the vested interest groups discussed earlier despite the impact on the mass citizenry.

The boom-bust theory with its justification of an equilibrium at the end of it seems to have overlooked the critical role of one greedy rascal – the banks and the financial institutions of sorts, that is, the glorified and protected ‘alongs’ (hereinafter referred to as the “gralongs”).

Recapping the boom-bust cycle: with inventions, there is investment leading to optimism and further over-investment.  This over-investment leads to a bust which in turn is said to eventually lead to equilibrium of the economy at which point it is argued that there is efficient employment of resources (hereinafter referred to as “The cycle logic”). I see the following flaws in this “logical argument’:-

1)                  The so-called equilibrium is a self defining concept. The trick is this: it does not solve any economic woes (there is still unemployment of resources) but in the world of demo-capitalistic economic thought, once equilibrium is reached, the situation is defined as efficient. You create the game and the rules, and according to the rules, the problem is solved! What about the unemployed, your ordinary mind may ask. That, in the world of the demo-capitalists is a wrong question. You should be asking: what about the employable but they are unemployed. In the past fifty years or so, it has become “employable and unemployable” and no longer “employed or unemployed”.  This is a very subtle development in the demo-capitalistic system which many are unaware of or choose to remain silent.  The implications and impact is massive – among other thing, it sustains the vested interest groups and ensures that the vast majority of the people remain worker ants in a state of dependency.

2)                  The cycle logic also overlooks the role of the gralongs. Firstly, we have to be very clear about the gralongs – they do not have any noble intentions other than to maximize their profits by creating DEBT.  Let us not get duped or conned into the jargons that have sprung in the last fifty years such as securities, bonds, mortgages, etc (nowadays they are termed in Arabic to appear divine sanctioned). Basically, they are debts.  There is nothing wrong with debt per se.  I still owe one of my staff twenty ringgit which she advanced when I was overseas. 

Back to the cycle logic, this is the missing link: there is no longer a distinction being made between “real” and “monetary”. For example, you produce a pencil and it is priced at RM10. If there are 10 pencils in the economy, the statistics will show that there is RM100 worth of pencils in the economy. Assuming, the price of pencils increase to RM20 each but the number of pencils remain the same. Statistically, your capitalist politician will boast to you that there is now RM200 worth of pencils. Statistically it has doubled! Very few will investigate and find out that in real terms, you actually have the same number of pencils. Now, assuming that your income had remained the same despite the doubling in the price of the pencil, you now may not be able to afford the pencil! Your standard of living in real terms is now worse off.  Unfortunately, we have now entered the era of the statistical dupers.

Now, the cycle logic seems to deliberately or inadvertently omit the role of the gralongs during the period of upswing and downswing. Gralongs often give out debts (investment more polite!), and thus while encouraging greater increase in production and consumption they actually magnify the boom artificially. However, when there is the slightest pessimism in the market, they magnify the bust by their sudden and abrupt withdrawal of facilities - head you lose, tails they win. It is only at the time of default of payment that the banks get its hands on real goods – your property, your cars, etc.  The boom is often characterized by the ‘monetary layer’ which will burst and hurt very innocent hardworking people because the ‘real layer’ has never increased or had increased when it was not necessary. For example, allowing the construction of houses in a particular area because that area is seen profitable even though the real need is elsewhere (this another area where is a complex web of deceit going on).

Since therefore, the gralongs are playing prominent roles in the boom-bust cycle and it is no longer due to demand and supply of real goods and services, the solution seems to be to urgently review the roles of these gralongs. However, as argued earlier, vested interest groups will not allow this. Further, the boom-bust cycle has become a major deceit and a lie couched in very clever and sophisticated language and statistics. This is because, it has ignored the rise and the critical role played by the financial capitalists. 

It may sound complex but the basics are simple. Assuming we play a game of monopoly. You buy houses or hotels as the dice falls. But somewhere through the game, we decide to use (buy/sell) the currency instead to see who can win the game. The currency, which in the beginning was the medium of exchange has now become a good unto itself! At the end of the game, there will be no hotels and houses built but we will all have monopoly money!!! And if there is only one house on the board, all the others will be priced out by the person with the most amount of currency in his hand. Now wonder we are doomed!

3)                  The boom-bust cycle pretends to be a result of free market mechanism and ignores other factors such as the role of the capitalists, the oligopolies and the speculators. ……….to be continued in PART 4 – God willing.

Peace !

The Luckiest Nut In The World !!!

I thought it is good if  I post a few videos (if we can find them!) related to the topic under discussion (economy) before I post the article on "Fundamental approaches to economic reform" . The following video is a well done effort by Emily James on free trade,  liberalization of the economy, loans by world bank, IMF, WTO and in short the "current economic system". Enjoy or be sad ! Either way, hopefully you are enlightened.



Peace!

The Economy Is Doomed Forever? - Part 2

The Fundamental approach verses the current vested interest approach

by Jahaberdeen MOhamed Yunoos.

Prologue:- the vested interest groups.

Allow me to briefly clarify what I mean by the “vested interest group”. They consist of the following groups:

1) The ‘experts’ or the ‘gurus” of the current economic ‘system’. They will argue in sophisticated language and use the favourite mesmerizing trick of charts and statistics to beguile the unsuspecting and ignorant public to sustain or to continue supporting the system. They will also present the case to the public that the world has consistently benefited from the current system and explain away major defects as transient anomalies in the system which will be ironed out. They know that we are too busy “living” and too preoccupied with our respective trivia that we leave critically important things in our lives to the gurus or the experts. Believe it or not, our educational system has been designed to make us uncritical and averse to thinking and to turn us into mere worker ants. We seem to forget however, that we are created as human beings and not ants.

2) The economic/financial advisers/ executives – the fanatical disciples of the gurus or experts who have everything to lose if the entire system was revamped or thrown out. You will notice that only those who are agreeable to the axioms, theorems and processes of the economic system will be hailed as “excellent”, “brilliant” and therefore given positions to safeguard the system. Hence, we must be totally gullible fools to expect these very same people to reform the system that they want to safeguard!

3) The politicians in the “democratic-capitalistic” system of governance. The political structure is based on the basis of “vote-buying” in various forms and it has worked well for sustaining the political elites in power. There has to be major inequality between them and the majority of the citizens to enable them to lord over the citizens. It is not accidental. It is deliberate. This is called ensuring that “the playing field is not level”. The masses are forever kept in the position of dependence on their political lords. If we had landlord-peasant relationship in the past, we still have the same relationship but called differently.

With very few exceptions, all over the democratic-capitalistic world, political power has become the inheritance of select elitist families for decades.

Further more, the current political thought in so-called democratic societies accept that funding and lots of them are necessary for anyone who aspires to serve the country. Can you see the contradiction in terms which we seem to have helplessly and ignorantly accepted? The source of such funding can only come from the current economic system. Is this why capitalism, especially financial capitalism and current form of “democracy” go hand in glove with each other? These politicians have a vested interest for the system not to be reformed fundamentally.

4) Further more, the current political thought in so-called democratic societies accept that funding and lots of them are necessary for anyone who aspires to serve the country. To get into the position where you want to contribute, you must first be wealthy! Can you see the contradiction in terms which we seem to have helplessly and ignorantly accepted? The source of such funding can only come from the current economic system. Is this why capitalism, especially financial capitalism and current form of “democracy” go hand in glove with each other? These politicians have a vested interest for the system not to be reformed fundamentally.

The political system with its need for “political funds” necessarily gives rise to the need for cronyism, nepotism and corruption. As long as the current democratic-capitalistic system and current political thought dominates, these can never be eliminated. All over the “democratic world”, you will find that top politicians have their hand deep in some critical and profitable business either directly or indirectly. They depend on the current economic “system” for their power and maintenance of lifestyles.

Have you not realized that no politician has seriously implemented a policy of complete non involvement in business by anyone who is part of the Government?


5) The capitalist lords themselves. All over the world, industries and sectors are controlled by families or select elitist groups. It is always the same people. With the capital that they have, they exert tremendous power over the shaping of opinions in all aspect of life all over the world. They have in their armoury not only capital but through it so-called experts to endorse what they want, diverse institutions (including and especially institutions of “learning” for the purposes of indoctrination), and such. It is a massive network beyond the reach and understanding of the commoner.

The vested groups will never allow for any fundamental change in the current system or thought even though it may benefit the greater majority of the people in a real sense (not cosmetic as it is now). Hence, do not expect any real change, maybe semblance of change but it is still within the same arena with the same players and hence, the same set of problems for the greater majority.

And for those who are hardcore mentally indolent - imagine you being in politics for 15 years and has never held a permanent job or in any real business, is it possible for you to own a bungalow? If you look around, you will find many such folks who not only own bungalows but are able to live lifestyles which even a hardworking lawyer or architect is unable to afford in relative terms! This is the “miracle” of the capitalistic-democratic system for its diehard disciples and worshippers.

In brief, therefore, the vested interest approach will not be interested to reform the system fundamentally. Whatever “reforms” they present will be peripherals that will not hurt the system and hence, them. Can you imagine a banker agreeing that they will now behave like all other businesses ie take business risks as usual without the mind boggling special protection that they now enjoy?

And the consistent problem with the laid back public is this: what they do not understand, they applaud. Heroes are made not because the person is ‘heroic’ but because the rest are turkeys (no offence to the turkey).

NEXT: THE FUNDAMENTAL APPROACH.

The Economy Is Doomed Forever? - Part 1

by Jahaberdeen Mohamed Yunoos

It is almost a truism to say that there will always be problems in life. I would add “in all aspects of life”. Often times, I do not see what occurs as a problem but a hurdle or an event that needs to be addressed. It only mutates into a problem when the event or thing is not addressed or is addressed but inappropriately.

For example, one may see it as a problem that one has to move from point A to point B. But to me, it is simply a life situation that needs to be addressed with several options – walk, use a bullock cart, bicycle, car, train, plane, etc. The choice of the option is critically important – short term measure or long term, expedient or fundamental and so on. Unfortunately, I have seen that Governments (due largely because of the nature of the citizens themselves) often opt for the short term and expedient option. Since it is short term and expedient, the so called ‘solution’ itself raises a host of diverse other problems. I see this happening particularly in developing countries that refuse to learn from the experiences of the developed countries.

Take the economy, for example. Up to the time of writing this article, Laissez faire or free market enterprise is being taught in the universities as if it is being practiced in any part of the world. Adam Smith’s ideas as expounded in his book “The Wealth of Nations” and the magical ‘invisible hand’ that will equitably distribute resources in the economy is a Shangri La that does not exist in real time. Today, one cannot really describe accurately what the nature of the economy of any country is.

The reality appears to be an arbitrary concoction of free market, state controlled and everything else thrown into the boiling economic pot in the spirit of fire fighting which we have been accustomed to since the depressions of the 1930s. Hence, we are crisis managing the economy all the time. The so-called economic experts justify our inability to confront the truth of our refusal to address fundamentals by inventing jargons like “cyclical phenomenon”, “overheating”, “financial meltdown”, and so on. The fact is: we are in a major world economic crisis and it will recur even if we “recover” in the short term. The crisis started long ago when we imported the capitalistic model and then became worse when it silently mutated into financial capitalism.

Fundamentals are never addressed, largely due to the existing vested interests of the very people who are supposed to be the caretakers of the economy and our paid, appointed thinkers. This will be addressed subsequently in this article. Let me move to an issue which is more easily discussed – living with misconceptions or in simple words – believing the lies that are told to us.

Everyone who wakes up wakes up accepting that we live in a free market capitalistic economy. What this implies is that people believe that, basically, demand and supply proceeds unhindered, there is movement of capital towards the creation of good and services (hence employment) and that competitiveness ensures efficiency and quality. The reality however shows this perception to be largely untrue for several reasons. I will discuss three of them here.

Firstly, there are many aspects of our life where the goods and services are not actually desired but they are just put into the market. Your needs are created for you and you do not really have much choice. Houses are built and if you can afford it (economists call this affordability as “demand’), you buy it. Demand has nothing to do with desire. If you want to buy a car, the economy dictates the process through which you can own the car – get a bank loan and service the interest.

The economy dictates that since you live in a terrace house and therefore own no land to grow your food, you have to find a job to buy your food. And to satisfy your other needs (clothing, education, medical, etc), you have to be gainfully employed.

Effectively, to live or survive in this economy, you must be healthy, and able to work until your dying day. In this economy, you will have been converted into a slave of the economy for the purposes of “sustaining” the economy. We have all, through years of indoctrination accepted this as a reality. We do not think of other available options because they will be presented as unavailable by the vested interest groups which you are blissfully ignorant.

Secondly, and I have argued this even when I was a mere student of economics, the so-called free market will mutate naturally mutate into monopolies and oligopolies. This is the natural progression of human caprice and the power of capital when left unregulated by responsible governments.

For example, small banks have systematically been eased out and replaced by a few banks – oligopoly. How much bargaining power do you have with banks? How many contract terms with the banks have you negotiated? You just sign! Everyone seems to have forgotten that commercial banks are businesses like every other business with the aim of maximising profits. However, they enjoy greater advantages and power over the so-called “customers”. Raperas must see that there are increasingly greater oligopolistic tendencies in the financial market and hence greater control over the customers. Those who control the very medium of exchange (money) needed in this economy controls your life. As a reminder, the banks are lending you "credit" - what is that??? (Another area where the public should be educated on)

Raperas should be worried that almost all the essential industries are largely in the hands of oligopolies – food, water, medical, etc. The argument often advanced is that of economies of scale and efficiency but I am certain it is going to and has lead to profiteering and bondage of the ordinary people. This will lead (if it has not already) to the phenomenon of “corporatism” – where corporations controls our lives in every aspect. Almost everyone today is getting caught up with the hype of "food biotechnology" without having thought out the longer term repercussions.

Thirdly, the rise of financial capitalism disguising as free market capitalism. Malaysians have an apt description for this phenomenon – “rise of the alongs and gamblers”. Finance capitalism has nothing to do with developing the real economy. It is characterized by the pursuit of profit from the purchase and sale of financial products such as bonds, stocks, futures and other derivatives.

It also includes the lending of capital at interest and trading in currencies. Financial capitalism destroys the philosophy behind free market. Financial capitalism puts income into the hands of those who do not produce any real goods and services – they have the “demand”. In simple language, these groups can and do price out goods and services beyond the reach of ordinary people. Some economists explain this away as "inflationary tendencies". What I am saying is this: the majority WILL get poorer sooner or later!

NEXT: The Fundamental approach verses the current vested interest approach. God Willing.

Peace.

IS everything that is called SHARIA consistent with the QURAN?

The following is a comment by a reader of this blog:

"Salam, Bro Jay. I visit your blog often and like your postings for they are very thought provoking.

But in this case of demonstration, could it be an instance of people pouring out their pent-up feelings? Why do so many people become so gullible and easily swayed by the puppet masters? I think it is because deep down inside they have personal grievances and hence become easy preys.

Let me relate my personal experience....my wife and I signed a BBA (Bai Bitamin Ajal) Sale and Purchase Agreement with Bank Islam Malaysia in 1997. The Bank released partially the second 10% amounting to a net of about RM9,000 to the developer. Immediately after that the project was abandoned by the developer. I lost my personal savings of about RM80,000 in this scam. I offered to pay the bank the RM9K that they had released to the developer, but they turned it down and asked me to continue paying my installments! Bank Islam sued my wife and I for RM505,368.54 in 2005 in the High Court (I repeat for emphasis - the bank only released about RM9K to the developer). I engaged a lawyer to respond on our behalf and in April 2009 they withdrew the case in front of the judge. In the process I incurred a lot of legal costs. Now that they have withdrawn the case, they still haven't cleared our names in the CCRIS record, therefore making it difficult for us to get new loans or where it is approved we have to pay a higher interest rate, since we're deemed as "high risk". I have endured this tyranny for the last 12 years. The latest letter from them is asking us to pay RM22,332 to clear my name in CCRIS or they will sue me again. This is an extreme case of bullying, extortion and in contempt of court ruling (I think). But the SYSTEM allows this to happen and happen it did under the label of "Islam". The real culprit here is the developer, but they got away scott-free. Bank Islam should actually be suing the errant developer and its directors for they are the ones who would probably have a half million ringgit to spare. We are just mere wage earners, working hard to put three children through proper education and provide a semblance of a good life for them.

Now put the demonstrators in this context and you'll understand them better".

Askin.
------------------------------------------------------------------------

This is what I have to share on the above:

AND THIS IS WHAT THE QURAN SAYS:

"Maintain just measure in your business and do not cause loss to others" [Quran 26:181]

"We sent to the people of Midian their brother Shu'ayb who also told his people to worship God their only Lord. He said, "A guidance has come to you from your Lord. Maintain proper measures and weights in trade. Do not cause any deficiency in people's property or destroy the land after it has been reformed. This is for your own good, if you have any faith". [Quran: 7:85]

"And of their taking usury when they were forbidden it, and of their devouring people's wealth by false pretences, We have prepared for those of them who disbelieve a painful doom". [Quran: 4:161]

[My comment: The "Islamic Banks" can call it administrative fee and go through the rigmarole of "buy and sell" but if the transaction is oppressive (eg market price is RM100,000.00 and the the bank resells at RM500,000.00, what do you call this????), then my understanding this is riba/oppression. We are fooling Allah with so-called shariah compliant instruments?]

Peace !

PS: Please verify the translations on your own and I stand to be corrected, of course.

Why throw sand into People’s Rice Bowl???

People are already having a tough time earning a living in these tough times.

The whole day yesterday was a loss of business day for all those businesses in Jalan Tunku Abdul Rahman, Jalan Tun Perak, Jalan Masjid India and roads adjoining them. All these because people who do not have businesses there decided to have a senseless street demonstration.

Of course many Malay businesses lost their chance to earn a decent day’s wages because Jalan Masjid India and surrounding areas are mainly Malay business enterprises. I cannot imagine PAS would condone this act of disrupting other people’s businesses as “Islamic”. Rujuk kitab mana bang???

Many I spoke to cannot understand what that demo-crazy was all about. Neither do I. What were they REALLY demonstrating about and why do it the way it was done? I thought the Government was reviewing the ISA and that feedbacks from responsible quarters of the public are sought.

This time around, many do not believe that the demonstration was about the ISA. ISA was just the convenient platform, the expedient issue.

Really, if you have to demonstrate on matters such as these, could not that be done in a confined area like a stadium? I really think we have to designate a stadium and a day especially for “public demonstrations”. We have to cease unnecessarily disturbing the peace and order of other people. They have work to do. They have employees and families to support.

Try not to let your “right to demonstrate” affect other people’s “right to earn a livelihood and peaceful living”.

We cannot keep tolerating politicians who practice manipulocracy keep on troubling the People in the name of democracy. It is sad how these people manipulate the sincere (and some, ignorant) masses to achieve their hidden agenda, even if it harmful to the people.

The cunning and cruel thing about the practice of manipulocracy is this: the real organizers hide behind thick walls while the small participants get arrested.

I just saw TV3. Apparently, some leader of a business society in Jalan Masjid India is giving a memorandum against demonstrations around Jalan Masjid to the Prime Minister. A friend suggested to me that it is more appropriate to give it to the Opposition Leader. Well.

Peace!

PS: This article has nothing to with my stand on the ISA. It is something that has to go in its current form.

Bank Negara: Ensuring Access To Financing

I think the Governor of Negara, Tan Sri Dr Zeti Akhtar Aziz got it right when she said that the main issue now (in the face of the global economic crisis) is NOT the cost of borrowing but the issue of access to financing.

The various moves by Bank Negara lately are to be applauded and I believe will have a great impact on cushioning the effect of the crisis on our economy and possibly even help early recovery. One noticeable move by Bank Negara was the lowering of the BLR, at a historic low. This has greatly assisted consumers in paying lower interest rates on things such as housing loan. With this savings in interest rate, the ordinary citizen now has more disposal income. Apart from reducing his burden, he may now divert his extra income to other services and products, thereby increasing demand which is good for economic recovery. I notice that Banks like Standard Chartered are among the early ones to automatically respond to the reduced BLR by reducing the interest rates in their housing loan statements.

Good start Zeti! I do hope however the private banks understand Zeti's desire to ensure greater access to financing by actually ensuring greater access to financing. The private Banks need to revise their so-called check lists (which has never served them well anyway, judging from the kind of "losses" they seem to be reporting") and actually learn to understand the business of their respective potential clients.

I have seen potential businesses never getting off the ground because the initial "clever" young assessing officer does not understand the business of the respective client and does not support the loan application. Even some board members, who supposedly sit in to decide on a loan application are not well versed with the business that is applying for the loan. This is counter productive to the creation of a productive and vibrant economy. Private Banks have to learn to evaluate businesses on a case by case basis and not use one standard operating procedure for all.

Private Banks also have to play a major active role in strengthening the economy and not be merely profit driven as they conventionally are. After all, they are an oligopoly and the consumer really does not have much choice in the terms and conditions of the loan they offer.

Private Banks must learn to balance their profit motive with the more important objective of nation building. Creativity and wise courage is needed.

SMEs are important as fundamental bases of the economy and this is one sector that the Banks must help develop. Surely the "qualifications" of clients of this nature should be different from the multi-biilion dollar borrowers. I really wish Banks will wake up and form new relationships with SME borrowers instead of merely the conventional lender-borrower relationship. However, I often find many textbook bankers who lack total creativity and common sense and consequently, many SMEs are unable to take off.

Time taken in the approval and assessment of a loan application is of the essence. This means Banks should not take too long to assess a loan.

Credit cards should follow suit with interest rate adjustments so that they remain not only market sensitive but act in the national interest in helping out the economy. Credit card companies should reassess their relationship and approach with their customers more positively and creatively. We should all have learnt something from the financial crisis.

I cannot help noticing how a political leadership change seem to bring out the best in institutions and professionals within the GOvernment. I hope this "new found attitude" will eventually spread to the civil service and other sectors of the Government.

PEACE !

AGAINST NATIONAL INTEREST!

The true test of citizenship is when the country is facing a crisis. I believe that the country is now facing an economic crisis.

At this time of crisis, national interest takes precedence over selfish interests. Hence this is the time to be Raperas and this is the time to “pay back to the country” for all the good times we have enjoyed.

AT time of crisis, there are only two groups – those who worsen it OR those who make it easier to recover. This is the time that leadership that entrusted to safeguard the nation must take RADICAL measures, not the worn out solutions given by the failed Oxbridge and Harvard graduates (who do you think got us in this mess in the first place?).

We have to customize our economic defence and our economic strategies.

In this regard, I submit that the following are anti-national interests:-

1) Banks and financial institutions who refuse to “restructure” debts during these times- by restructure I do not mean another “financial trap” to enslave the borrower.
2) Credit card companies who would rather bankrupt the credit card user instead of giving him a chance to pay according to his means.
3) Civil servants who make it difficult for small and medium industries to earn a living.
4) Civil servants who do not carry out economic recovery plans diligently;
5) Companies that make profits and yet retrench worker without exhausting other methods of cost reduction, including renegotiating pay with the workers;
6) Workers who cause economic disruption by picketing in the face of fair and benevolent temporary pay cuts;
7) Politicians who insist on using these difficult times against each other;
8) Any group who maliciously distract economic recovery efforts by the Government and the people;
9) Any person or persons who diverts economic recovery funds for corrupt purposes;

If you have any more, please add on to the list. The point is – we NEED RADICAL action. It can be done, if there is a WILL.

PEACE !

RETHINKING OIL POLICY?

The Journey Towards Crude Oil Independence
By AMIR FAIZAL NAIDU BIN ABDUL MANAN

This was an article i submitted to NST last year, but didnt get published for reasons unknown. So facts may have changed since.
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The Government lately announced that due to the drastic increase in crude oil prices of the recent past, a major revamping of the fuel subsidy structure had to be done in order to reduce the financial burden the country would otherwise have to shoulder. No doubt, there were lots of hues and cries from the public, myself including despite the fact that I positively understand and agree that there is a need for the Government to review the subsidy structure. However, I also understand that this necessary adjustment will not protect us from future oil-price volatility. What will happen when the price is unbearably high and the Government decides that they have to revoke the subsidy completely? Will that then mean that we, the public, would continue to be susceptible to the volatility of petrol prices?

The Government should realize that the restructured fuel subsidy will merely offer a temporary and short-term relieve on Malaysia’s financial stresses. It is not a solution but rather a way of passing the problem from the Government to the public. We need to address the main problem head on and not make it another elephant in the room!

Fact one: global energy demand will continue to rise in the future to come, in fact it is globally agreed that world energy demand will double in the next few decades, particularly in light of the fact that China and India are gradually moving into an energy-intensive industrialization phase.

Fact two: supply of conventional oil and gas will struggle to keep pace with the growing energy demand. Supply of easy oil is no longer easy. Oil companies will surely attest to this, and I believe that the CEO of Petronas (Tan Sri Hassan Marican) confirmed this (NSTP- 6th June) when he revealed that much bigger investment is required to extract less oil.

Fact three: Because of the fact that we will struggle to meet demand with supply in the years to come, the price of oil is subjected to greater uncertainties, and looking at the volatility of oil prices the way it is right now, I seriously doubt that it will get any better. I doubt it will drop below 100USD per barrel, and I doubt that the burden we carry around for being heavily dependent on conventional oil and gas will ease on the public’s wallet and also on the Government’s wallet. But even if does drop below 100USD, I don’t think it will be long before OPEC decides to cut production with hope of driving the prices back to its glorious days (i.e. profitable for OPEC).

The Government needs to start looking into biofuels, which could serve as an alternative for gasoline. I applaud the Government’s effort in developing and promoting the use of Palm Oil for biodiesel. Indeed this is a brilliant step towards the right direction. However, we strongly need something similar for gasoline. We should not be contented and overly focused on the development of alternatives for diesel only, particularly when diesel only represents a smaller percentage of our total transport energy consumption. There are many alternatives that we could look into. Currently, bio-ethanol is assuming a bigger role as a replacement for gasoline worldwide. Brazil is the leader, and is closely followed behind by the US. The EU too is mandating the use of ethanol as a blending component for gasoline, and even in the East, the use of ethanol is gaining popularity. For example Thailand is already currently supplying E10 (10% ethanol blend) and E20 (20% ethanol blend) at its retail stations nationwide. In the news recently, the Thai government announced their plans of introducing E85 into the market by the end of the year, despite the many objections. Philippines on the other hand, too have been offering E10 for the last few years in some of its stations. The Philippines Biofuels Act of 2006, has stipulated that 5% of their total gasoline volume in 2009 will be substituted with ethanol. In fact, many other countries in the East (Australia, India, China etc) are gradually blending ethanol into their gasoline pool. I struggle to understand why we are not jumping into the bandwagon when this is clearly beneficial for the nation. I am not suggesting that we need to have the herd mentality, but bio-ethanol is already accepted worldwide, and car manufacturers are already in the race to develop and promote their versions of ethanol-compatible vehicles. If it is already coming to us, why wait till the very last minute and only follow pace after being left a few generations behind?
Many may feel that there would be compatibility issues surrounding the use of ethanol in our conventional gasoline car parc. However, many also fail to realize that in other markets in the world where bio-ethanol is mandated, typically car manufacturers (OEMs) endorse (and extend the warranty) the use of ethanol in gasoline of up to 10% (E10) in modern (without the use of carburetor) vehicles. Western countries that are big on using bio-ethanol, particularly Brazil, have been aggressively and actively promoting the use of ethanol in their own country in order to reduce their dependence on imported oil and their vulnerability to price volatility. The gradual implementation of ethanol-blended fuel together with the radical measures taken to motivate OEMs to develop and market ethanol-compatible cars (FFVs- flexible fuel vehicles) in Brazil, as well as offering incentives to the public for the use of bio-ethanol, Brazil is now the biggest consumer and exporter of bioethanol in the world. At present, FFVs represent the biggest passenger car market share in Brazil, and they offer gasoline laced with ethanol as high as 85% (E85).

There are lots of OEMs currently producing FFVs and in fact, if my memory serves me right, Ford, not too long ago, established a plant in the Philippine specializing in the production of FFVs for the Asean market. As a matter of fact, Volvo is already offering FFVs in the Thai market.
Ethanol could generally be produced via many ways, using various feedstocks, such as sugar cane, cassava, sorghum potato, wheat, rice, molasses and many more. To avoid competition with food crops, there are technologies out there where bio-ethanol could be produced from waste agricultural products. This will indeed tie in very well with the Prime Minister’s suggestion of developing many more agricultural lands, and would also be a plus side for the environment.
Therefore, why not emulate the same initiatives taken by the Brazilians (and other countries worldwide) and maybe hopefully at some point we could be 85% less vulnerable to the volatility of oil prices ?

Detoxing the Economic Crisis4 - MANAGE PERCEPTIONS

PERCEPTIONS as any economist will tell you can be lethal causes that unleash behaviors that will adversely affect the economy. If the businessmen perceive that the economy will slow down, he will already take steps to cut down costs - cut production, meaning retrenchment of resources.

Likewise, if a consumer perceives that the economy is slowing down, he may cut down on consumption expenditure will lead to a decline in demand for goods and services which in turn will affect the productive sector which in turn may lead to rising unemployment.

I think by now you can see the point - negative perceptions about the state of the economy can bring forth chain reactions which actually brings the economy into a bad shape! So perceptions must be managed.

Political instability only fuels negative perceptions.

Average leaders who are totally unimaginative in their economic solutions will only fuel negative perceptions.

Financial leaders who speak negatively of the economic future and/or speak completely unintelligently will only fuel negative perceptions.

Leadership that is unable to provide economic direction and move the public (both on the consumer and the producer side) will only fuel negative perceptions.

Negative perceptions leads to speculative behaviour which will injure the national economy.

These MUST be managed.

There must be firm, intelligent leadership. Rhetoric and mere politics will only drown the country with the economic tsunami which may largely be a result of speculative behaviors due to lack of economic perception management.

Peace!

Detoxing the Economic Crisis3: - Increase Spending

There is enough news already to create an economic slowdown even if there was none impending in the first place - news of 40.000 layoffs, news of factories closing down, etc. Negative economic perceptions often become self-fulfilling prophesies. Perceptions have to be managed because speculative behaviors impact economic realities.

Clearly, spending is necessary to stimulate the economy. However, under circumstances where unemployment is rising and where the private sector foresees dark horizons in the future, they will cut back on investment expenditure (meaning: no new employment) and on costs (meaning unemployment increases). This as we saw earlier will only start the vicious cycle of further decline in income levels and increase unemployment.

But the economy needs investment. There has to be injection of capital into the economy which will allow resources to be employed and generate income so that the economy can grow by the multiplier effect. This expenditure must come initially from the Government. It is a start to counter falling incomes and rising unemployment. The spending however must be in the sectors that can stimulate employment.

The other approach will be to boost private sector confidence and by giving them the access to capital so that investments can increase. The capacity of the private sector to expand and to produce goods and services must be increased. One good move recently by Bank Negara was the reduction of the BLR. Whether the banks will now renegotiate interests with the business sector and consumers is important for the BLR reduction to be of any real effect.

The consumers (people) must also be given the ability to spend by reducing the various taxes levied that largely reduces the real income of the consumers. The capacity of the people to spend must be increased. I am totally amazed that to date the "brains" in the government have not come up with tax proposals that will confront the economic slowdown.

Increase in government expenditure that does not relate to increase in employment of resources may only cause inflationary pressures for example, if 30% of of the government expenditure goes to "commission" or "corruption", then these money increase will not stimulate the economy.

SMEs need stimulus and assistance because they are important agents of stimulating the economy. They have the ability of becoming "shock absorbers" for economic slowdowns.

Mega projects that does not contribute to a substantial increase in the employment of local resources are useless for the purposes of sheltering or reducing the impact of economic slowdown on locals.

So, increase both spending and the capacity to spend.

Peace.

Detoxing the Economic Crisis2: Understanding basics

It is important for Raperas to understand some basic facts about how the economy works. In a free market (which ours is to a large extent), two important forces that move the economy is "demand" and "supply". These are collectively called market forces and the interplay between demand and supply not only affect prices and costs but also determine the distribution of goods, services and resources.

An economic slowdown may be due to factors on the demand side, or supply side or both. In this current crisis, it appears to have been caused by demand side factors when the financial crisis suddenly left many with no "money" (in lay person terms). It will be interesting to note that it was not caused by the supply side factors such as over-production, rising costs of production (and the accompanying consequences), etc.

When we say "demand", in economic terms we mean the desire to purchase something ie desire backed by the ability to pay. In other words, need or desire without the ability to pay is not "demand". Only when there is demand will there be supply of goods and services. Any supply of goods and services without demand will also slow down the economy and result in wastage of resources (meaning unemployment).

Demand, however can happen both on the consumer side and the producer side. Consumers demand for consumer goods and services while the producers demand for resources or the factors of production - land, labour, capital and enterprise.

If for example, the demand for houses increases, this will encourage entrepreneurs to venture into the housing construction industry. This means more resources in the country will now be diverted towards this industry. Engineers, architects, surveyors, construction workers, owners of land, "owners of capital" (banks), etc, etc will now be "employed" by this industry - meaning everyone here earns income. Income represents ability to pay which in turn means demand which in turn will lead to further production of goods and services to satisfy this demand. You can see that one act of employment leads to a multiplier effect in the economy.

Simple explanation of the multiplier effect: If you spend RM1, it is likely that you may spend 70 sen and save the 30 sen. B who gets your 60 sen may spend 40 sen, C in turn may spend 30 sen and so on. In this example, an investment of RM1 has created an income of 70 + 40 + 30 = RM1.40 sen. Imagine if 20 million people spend RM1...how much income will have been generated in the country? This is why spending is important to spur the economy. What you spend becomes someone's income which then becomes someone else's income and so on.

The reverse is also true. If you DO NOT spend RM1, the economy shrinks by a "demultiplier" effect. Th economy shrinks rapidly. Resources become unemployed, businesses become pessimistic and cut costs, income levels drop unleashing a vicious cycle that will bring the economy to a recession.

The above is of course a very simple explanation. However, it is clear that spending is important when economy slows down and the AREAS in which spending is done is equally important if the main purpose is to create employment.

Peace.

Detoxing the Economic Crisis1: THE BANKS - PRODUCTIVE LOANS

A major player in our economic system are the banks. Obviously because they ensure liquidity (meaning money)in the economy - both on the productive side (meaning businesses) and the consumptive side (meaning consumers).

Let us look at the productive side and see how the Banks can play a role in detoxing the slowdown or worsening it. Very often we hear of Government leaders making announcements of funds that have been allocated to banks to ease the economic slowdown and to spur the economy. The reality on the ground is: no money is moving out of the Banks.

I have clients who have major difficulty in obtaining loans nowadays. The answer they receive is that: "The business is viable but let us wait and see after March". This wait-and-see attitude of banks when faced with funding businesses or projects that are viable is hurting not only the business but the economy in general. The longer the waiting period to get the loan approved, the longer the delay of any recovery of the economy. This means resources (meaning generating income) cannot be employed quickly.

The longer the waiting period for the loan, the entire project or the business itself may be called off due to various factors. The cost of waiting can be extremely high and the loan applicant may run of financial stamina.

So, it is about time Banks learn to be nationalistic in their quest to earn the interest and to safeguard their profits. They should not kill off the economy because of their alternative "safer" mode of earning interest from the use of short=term funds.

Small and medium industries, which are so essential for the generation of incomes and creation of employment during crisis periods, should be supported by Banks. Again, I notice from the complaints I have received that such support is not coming or extremely slow. I know banks have "checklist" being used by the banking technocrats.....but it will be useful also if you get the views of someone knowledgeable about the business that is applying for the loans. It is extremely dangerous when all that the bank relies on is the armchair evaluation of a Harvard graduate who doesn't have the slightest inkling about the business that he is supposed to evaluate! Of course it is worse when the evaluator is some young officer fromm some local study place who does not know where he himself is coming or going in the bank. No offence but this is the impression I get and it worries me. During the "good times", every one seemed lax, no everyone seems lost and scared.

I will go so far to say that banks that do not approve loans to viable businesses due to dubious reasons or do not assist in overcoming the "lack of qualifications" that the applicant may have are actually working against national interests.

The Government, the businesses and the Banks have to work together to detox the economy. We have to ensure that there is liquidity in the productive sectors so that this will translate into demand for resources and hence income and employment generation.

On the consumption side, the local Banks must try something that they have never tried before - do not push those who are genuinely out of jobs into bankruptcy. Approach loan and credit cards defaulting with sober approaches that will not worsen the economy and cause further socio-politico-economic problems. Barclays card is a good teacher that knows how to handle defaulting credit card holders in a way that does not destroy the credit card user. Likewise, I understand, Citibank is good at handling those who may have difficulty in settling their credit card repayments.

Moments of crisis requires one to approach matters creatively and not just sticking to set procedures and textbook solutions.

Peace!