Najib Razak’s Baloney Economics


April 22, 2017

Najib  Razak’s Baloney  Economics

by TK Chua

http://www.freemalaysiatoday.com

Since when is inflation not due to bad policies, poor macroeconomics management, inefficiency, massive corruption and loss of confidence? Sorry, are there new economic theories emerging?

Image result for Najib's Baloney Economics

A Political Baloney

Why single out some external factors igniting inflation when these factors are also applicable and affecting other economies?

Malaysia is a net oil exporting country, but global oil prices have now become a major factor accounting for our high inflation. Can we not see the baloney and the irony here? What about countries with no oil to begin with? Would they not be affected by high or low prices of oil as well?

The “Trump phenomenon” is a uniform factor likely to affect most countries. Why should Malaysia suffer more than others if indeed Trump has caused reverse capital flows and currency realignments globally?

The ringgit has depreciated not just against the US dollar, but also against the Singapore dollar, Chinese Renminbi and Thai baht, just to name a few.Malaysia’s inflation is unprecedented in recent months. When global oil prices were more than US$100 per barrel, did Malaysia’s inflation reach 8%?

I hope some of us have heard of this statement before, “Inflation is always and everywhere a monetary phenomenon.” The primary cause is always too much money chasing after too few goods.

The Shrinking Ringgit

We can argue and debate whatever we want, but inflation is invariably caused by the following factors:

First, high taxes and unproductive use of tax money. I have lived in this country long enough to know that the GST is a major culprit of inflation, causing prices to escalate higher than the GST rate due to our half-baked implementation.

 Second, when there is too much fat or unproductivity in the economy. When there are sectors that get the bulk of the income/subsidies/wages for doing nothing, they cause inflation.

Third, when we have too many over-priced projects and contracts. When contractors and promoters get too much profit, the people must pay for it through higher prices. There are no free lunches in this world.

Fourth, when government borrows and spends too much. Fiscal deficit is a given in Malaysia, regardless of the state of the economy. Borrowing to finance deficit from inflationary sources could make the situation worse.

Fifth, when policies favour the cronies. When we have massive distortions and profiteering due to collusion and complicity, prices will escalate. Prices of homes are high because developers have always got what they wanted at the expense of the buyers.

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Najib Razak’s Non-Bumiputra Crony

Sixth, when foreign monies are allowed to pour in indiscriminately. When we have too much foreign money going into our real estate and property sector, it is almost certain the locals, including the middle class, would not be able to compete. Probably, the purchasing power of 5% of rich Chinese is bigger than the whole middle class of this country.

Seventh, we have too much “bad news”. It is almost a daily affair for us, hearing of mega deals going wrong. I must say Malaysia is a strong young man but has subjected himself to constant drugging, drinking and smoking. Sooner than later, something must give.

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International Rogues Gallery

This is the essence of lack of confidence being manifested in our country today. I believe the ringgit is suffering not just because foreigners are pulling out. I think many high net worth Malaysians too are hedging to protect themselves.

We owe ourselves the responsibility to look at issues confronting us honestly and objectively. Even if there are external factors affecting inflation, we must still avail ourselves macroeconomic tools to mitigate them.

Have we resolved issues that are likely to restore confidence? Have we reduced the distortions and inefficiency prevailing in the economy? Some have argued that Pakatan Harapan-controlled states, namely Penang and Selangor, are also suffering from high inflation and hence, it is something to be accepted.

I think this is a “political” argument devoid of economic logic and reality. Penang and Selangor are subjected to the same economic and political environment as the rest of the federation. They are not exempted from the effects of bad policies or the erosion of confidence arising from bad policies.

TK Chua is an FMT reader.

 

Joseph Stiglitz: ‘The EU’s monetary union was the mistake’


September 17, 2016

Joseph Stiglitz: ‘The EU’s monetary union was the mistake’

by Jeremy Warner

I’m on my way to interview Joseph Stiglitz, economic guru of the political left, about his latest book, The Euro and its Threat to The Future of Europe.

Waiting in the reception of Penguin Books, I notice on display an early, Penguin “classic” edition of George Orwell’s 1984. Orwell is one of those authors who is claimed as their own by both right and left – the left because of his writings on social deprivation, but the right too because of his deep aversion, depicted in Animal Farm and 1984, to totalitarian communism.

I’m not sure Stiglitz, a Nobel prize winning economist who has advised the Scottish government on independence, the Far Left Syriza government in Greece, and very briefly sat on Jeremy Corbyn’s now disbanded economic advisory panel, crosses the boundaries in quite the same way, but there is no doubt that as a critique of the euro, his new book will appeal as much to a right as to the left.

I put this point to Stiglitz at the start of our interview.

It is the absence of any proper economic adjustment mechanism which is the over-riding failure in Europe–Joseph Stiglitz.

“Yes, it’s a fair summary”, he says, “except for one thing. One of the arguments I make for the failure of the euro is that at the time it was being constructed there was a “neo-liberal” ideology which said that all we need to do to make this thing work is to get deficits low, keep inflation low and take down barriers and then everything would be fine.

“That was a very conservative ideology,  that if you did those things the markets would on their own adjust and everything else would come right. Not all right wing conservatives thought that, but a lot of what I call ‘market fundamentalism’ did go into the thinking on the euro.”

 

But most of those in Britain who thought the euro a mad idea were on the political right, I point out.

Stiglitz says that he is not really talking about the issues of national sovereignty raised by the euro. “I was thinking more in terms of the macro-economic adjustment. It is the absence of any proper economic adjustment mechanism which is the over-riding failure in Europe. Where the left and right would agree – and this speaks to the whole Brexit debate – is that Europe needs economic arrangement that work well for a very diverse group of countries.

“This requires a balance between flexibility and harmonisation, and in opting for monetary union they didn’t get that balance right. We see the lack of it particularly in the rigidity that Germany imposes on the eurozone’s crisis hit countries”.

The theme of Stiglitz’s book is that monetary union was basically where it all went wrong for the European Union. A project that was meant to bring countries together has succeeded only in tearing them apart in a manner which now threatens wider European economic and social stability.

“There have been other things that Europe got wrong, but monetary union was the overarching macro economic mistake. We can see this most clearly in the fact that some countries not in the euro but with the same regulatory framework, such as the UK and Sweden, did much better.”

EU flag

So what, fundamentally, is the problem with the euro?

“For the first nine years up until 2008 there were no symptoms, or no obvious ones, of how dysfunctional things really were. But actually the euro was already creating its own problems.

“When the financial crisis hit, it was roundly blamed on the US, but in fact a very large part of Europe’s crisis was created by the euro.

“The single currency gave markets this excessive confidence. They began to confuse the absence of exchange rate risk with the absence of risk per se. Monetary union had taken away the ability of individual governments to curb domestic inflationary pressures, which led to an increase in price levels relative to Germany. Real exchange rates became out of line.

“One of the key points of the book is that it is easy to create these imbalances, made possible by the easy flow of money between countries under  the euro, but with a rigid exchange rate it is very hard to undo them.

“There are only two ways of doing it. Have Germany inflate, or have the others deflate. Germany was unwilling to inflate. But deflation doesn’t work easily either because your debts are still owed, and that means that in forcing countries to deflate you make them even more fragile”.

We move onto the issue that most puzzles Anglo-Saxon commentators such as myself; if the euro is so bad, how come it has lasted so long?

“Well, you have to take account of the eight or nine years before the problem became apparent. Then there was ‘oh it has worked for nine years’ – even though it hadn’t – ‘so the crisis will be over quickly and we can make it work again’. When you have already invested heavily in something, it is very difficult to cut your losses. There is always a tendency to think that with just a little more investment, it can be made to work.

“So the politicians said, just accept a little bit of temporary pain and everything will be OK again. After two years that wasn’t true. And time and again it turns out not to be true. Good money is constantly thrown after bad.

“Imagine yourself in the position of a Greek politician, with 25pc unemployment and an escalating financial commitment as a result of the fight to stay in the euro. As things go more and more wrong, you become ever more committed to the policy that got you there because to admit you are wrong is to say we have suffered all this pain for nothing”.

Joseph Stiglitz

Does this mean Europe is essentially damned, I ask?

“The most likely scenario is a continued muddling through, which is what they have been doing to date. But neither Frankfurt nor Brussels controls events, as the Brexit referendum vote shows, so what you see – and this is not for sure but almost predictable – is growing alienation.

“This is already apparent in electoral outcomes. More than 60pc of people in Spain, Greece and Portugal voted against austerity parties. The same thing with Brexit, which was also a rebellion against the political centre.

“The only thing that saves the centre ground is that the anti-establishment movement is divided between left and right. So you get a stalemate which is also not at all good for anyone, and out of that who knows what happens.

“Getting a political coalition in any country large enough to leave the euro is therefore difficult. What’s so troubling is that it is also proving impossible for Europe to agree on policies to fix the euro, so you have neither one thing or the other. Despite his apparent pessimism, Stiglitz is not short on suggested solutions.

“If you had a group of people sitting around a table rationally discussing the future of Europe, these are the sort of things they might come up with.

“One is to say let’s finish the job. The US shares a common currency among 50 diverse states, so what are the institutions and rules needed to make the single currency work.

“As a bare minimum, you need common deposit insurance, a banking union, Eurobonds, maybe industrial policies to allow those at the bottom to catch up, you need to move away from just inflation targeting, and you need some way of adjusting real exchange rate that doesn’t involve internal devaluation.

“Germany has to perform its role of allowing its economy to inflate relative to others. So those are the minimum to make a euro that works.

“But Germany takes the view that we are not a transfer union and we won’t even take the risk of a banking union or of common deposit insurance. This is like New York saying we don’t want to have federal deposit insurance because there is a bank in Alabama which might go bankrupt.”

If completing the job proves impossible, says Stiglitz, that leaves the alternative of an “amicable divorce”.

“In the book I use the example of marriage councillors. In the past, the job of the marriage councillor was to keep the marriage together, but modern ones sometimes say you should never have got married in the first place.

“Once you have accepted the marriage can’t be made to work, then the only issue is how to make splitting up go as smoothly as possible.

“In the book, I describe some novel ways of doing this. The core of the idea is that you are going to have to allow redenomination of debt, and allow some form of bankruptcy.

“A third way is the flexible euro where you say lets try and consolidate the institutional advances we have made but recognise that we are not anywhere near a single currency yet. And then I describe some mechanisms that would allow the exchange rate to be operated flexibly and allow economic adjustment”.

So what are the chances of any of these “solutions” being adopted, I ask.“I’m hopeful”, Stiglitz says with a grin, which somewhat suggests he’s not.

For America, ‘Brexit’ May Be a Warning of Globalization’s Limits


New York

June 25, 2016

For America, ‘Brexit’ May Be a Warning of Globalization’s Limits

When the mills that birthed the industrial revolution in cities like Manchester and Birmingham still powered the British economy of the mid-20th century, Robert Stevenson was a frequent visitor to the Midlands.

Eastman Machine, the company his family helped start in upstate New York 128 years ago, had a big factory 100 miles north of London, and Britain accounted for roughly a fifth of the firm’s sales.

That was then. While Britain is still an important market for Eastman’s sophisticated cutting tools, its workshop there was shuttered in the 1970s, and British customers are now served by Eastman’s main factory in Buffalo and a smaller one in China.

So when the British electorate stunned the world on Friday with the results of the vote to leave the European Union, it was a shock for Mr. Stevenson, but not because it poses an immediate threat to Eastman’s bottom line or the job security of its heavily blue-collar, 120-strong work force in downtown Buffalo.

What most concerns Mr. Stevenson and owners of businesses big and small is what the so-called Brexit says about the shape of economic things to come.

“You never know if there will be a domino effect, and we worry about other countries securing their borders,” Mr. Stevenson said. “We were certainly surprised.”

For all the shock and awe on Wall Street and financial markets around the globe on Friday, the imminent danger to the underlying American economy is relatively small. What’s far more worrisome is whether Britain’s decision represents an end to the economic integration and opening markets that have helped propel sales at companies like Eastman over the last few decades.

Since the fall of Berlin Wall in 1989, politics and economics have mostly moved in one direction, with the elites on both sides of the Atlantic favoring policies like the North American Free Trade Agreement with Canada and Mexico, the introduction of the European currency and the entry of China into the World Trade Organization. Business has applauded these moves, but voters are not necessarily on board as they once were.

“I think a lot of the market reaction is less about the financial impact and more about populism and what it means for the liberal economic order,” said Glenn Hubbard, a top economic official to President George W. Bush who now serves as dean of the Columbia Business School.

The Brexit vote, he added, reflects a deep distrust of the benefits of the global economic system among a wide swath of voters in Europe and the United States, and a broadly held view that government institutions — whether in Washington or Brussels — are calcifying and don’t work well.

“Both of those forces have a lot of wind at their back,” he said.“In the near term, you’re seeing markets being roiled, and feedback effects for the Federal Reserve,” Mr. Hubbard said. But for now, at least in the United States, “I don’t think it’s going to raise recession probabilities.”

When it comes to commerce, Britain is not even among the United States’ top five trading partners — it’s currently the seventh largest, according to the United States Census Bureau, which tracks trade data. American exports to Britain last year totaled $56 billion, or just over 0.3 percentage point of gross domestic product.

Partly that’s a reflection of how the United States, despite leading the era of globalization, remains something of an economic island. Exports account for 13.4 percent of American economic output, according to the World Bank, compared with roughly 30 percent for Britain.

The 2015 slowdown in the United States’ biggest trading partner — China — may have blunted domestic growth in the last year, but even that hardly threw the American economy into a tailspin. Nor should Brexit, most experts say.

Jared Bernstein, a liberal economist who most recently served in the Obama administration and is now a senior fellow at the Center on Budget and Policy Priorities, sees minimal pain within American borders. “It won’t be helpful for our economy,” Mr. Bernstein said, but “we won’t take anything like the direct hit that I expect will befall the economy.”

Several economists estimated that the fallout from the vote would probably end up decreasing growth in the American economy by about a quarter of a percentage point or less, while postponing any push by the Federal Reserve to raise interest rates, possibly through the end of 2016.

“The flight to safety means lots of people are flocking to U.S. Treasury bonds, putting downward pressure on interest rates,” Mr. Bernstein said. “One possible outcome is that Fed’s path to higher interest rates may become flatter as these events play out.”

“With the pound dropping 10 or 15 percent, it may strengthen a couple of our competitors in the U.K.,” he said. “I think they could be quite happy about it and gain market share.”

As befits the owner of a company that survived World Wars I and II, outlasted the Great Depression and the Great Recession, and survived the collapse of the American textile industry — all without abandoning Buffalo — Mr. Stevenson has learned to adapt to potential shocks like Brexit.

Increasingly, that’s meant focusing on making high-tech, software-driven equipment to cut composites and carbon-based fabrics for the aerospace industry and automakers, rather than the woolens and cotton Eastman’s equipment was once designed to slice.

Many of Mr. Stevenson’s current customers in Britain are in these sectors, he noted. The dressmakers and hosiers and other clothiers that once populated England’s redbrick towns have long departed.

“Our focus has been to understand where the market is going,” said Mr. Stevenson. Twenty years ago, 70 percent of Eastman’s products were of traditional fabrics; the rest were space-age materials. Now, it is the reverse, which is among the reasons a fifth generation of Stevensons will have a company to take over.

“Our goal has been to maintain the company in Buffalo and as a family business,” Mr. Stevenson said. “My son is 40, and I’m 65, and he is focused on these new materials. This saved our butt.”

For those exporters that have managed to hang on in the industrial heartland of Britain, the Brexit could actually be good news, simply because the pound’s plunge against currencies like the euro and the dollar makes their goods more competitive.

British exports like Rolls-Royce jet engines, high-end Jaguar automobiles and certain food products could get a lift. Last month, for example, Britain exported the largest cargo of wheat to the United States in more than two decades.

So would British hotels and restaurants, eager to host American visitors looking for what could amount to a 10 to 20 percent-off sale.

“If you wanted to buy a nice little house in Scotland, today’s the day,” said Kevin A. Hassett, an economist at the conservative American Enterprise Institute.

Chief executives of major American companies are paid well to see around corners, and must adapt their businesses even to trends they oppose, or face the consequences in the form of falling stock prices and angry shareholders.

That’s among the reasons General Electric, which relies on foreign markets for more than half its revenue, has been preparing for the kind of political retreat from open markets that the British vote to leave the European Union represents.

“Companies must navigate the world on their own,” G.E.’s chief executive, Jeffrey R. Immelt, said in the commencement speech last month at the N.Y.U. Stern School of Business.

For G.E., he said that meant seeking to achieve “a local capability inside a global footprint.” Today, its 420 factories spread across the world give G.E. “tremendous flexibility,” Mr. Immelt said, with jet engines, power generators and rail locomotives increasingly manufactured at several sites to ensure market access.

“A localization strategy,” Mr. Immelt said, “can’t be shut down by protectionist politics.”

G.E. had prepared for the risk that Britain might vote to leave the E.U. by hedging in foreign currency markets. But beyond that immediate step, a G.E. spokeswoman said on Friday it was too early to discuss longer-term moves the company might make.

Mr. Immelt, in a statement, said that G.E., America’s largest manufacturer, which employs 22,000 people in Britain and 100,000 in Europe over all, remains “firmly committed” to both Britain and Europe.

While Brexit’s impact on Britain’s overall economy may be mixed, its London-based financial sector is likely to feel the full force of the coming storm. The City, as London’s equivalent of Wall Street is known, has boomed in the last 20 years as a global financial capital, especially for Continental banks seeking a more market-friendly home than Frankfurt or Paris.

With a recession in Britain now a distinct possibility, some experts worry that a government desperate to create and maintain jobs could seek to save the financial sector by making the City more attractive as an offshore haven.

“This could lead to London becoming even more like the Cayman Islands and other British territories, skirting around regulations, in a race to the bottom for the financial sector,” said Adam S. Posen, a former member of the rate-setting committee at the Bank of England and now president of the Peterson Institute for International Economics in Washington. “This potentially could leave pretty big holes in the financial safety net.”

He pointed to the 2008 crisis involving the insurance giant American International Group, where a hedge-fund-like subsidiary operating in London and under less stringent rules nearly brought down the company and contributed to the financial crash.

“They could get away with things in London that they couldn’t get away with in New York,” Mr. Posen said, “So imagine repeating that on a larger scale or a more frequent scale.”

Of course, dangers like those are the hardest to anticipate. “Right now we’re in one of those points in history,” Mr. Hassett of the American Enterprise Institute said, “where there are lot of ‘unknown unknowns,’” referring to the infamous comment by former Defense Secretary Donald Rumsfeld on the Iraq war.

Consider two very different types of uncertainty, Mr. Hassett explained, citing a well-known economic metaphor. If you bet on a roulette wheel, you know all the possible outcomes and the attendant risks. But now imagine a game where you don’t know all the places the roulette ball might land, or the chances of it falling into different slots or even the prizes if you are fortunate enough to bet correctly.

“In those types of situations,” he said, “anything can happen. And if you don’t know what will happen, the optimal strategy might be to assume the worst.”

Steve Lohr contributed reporting.

A version of this article appears in print on June 26, 2016, on page BU1 of the New York edition with the headline: ‘Brexit’ in America.

The Panama Papers– Watch Video


 

May 11, 2016

The Panana Papers– Watch Video

Staggering  amounts of dubious/illicit money are involved. No small wonder the rich are getting richer and the gap between the filthy rich and the miserable poor is widening. The rest of us in between are suffering suckers who are made to bear the burden of heavy taxes.

It makes me wonder what central bankers and monetary and fiscal authorities around the world are doing to keep the financial system honest.–Din Merican

Thank You, Zeti, says Prime Minister Najib Razak


May 1, 2016

Prime Minister  Najib thanks Ex-Bank Negara Governor Zeti

by Bernama

Prime Minister Najib Razak today expressed his appreciation to Zeti Akhtar Aziz, whom he described as having served the nation in the most outstanding manner as the Governor of Bank Negara Malaysia (BNM).

Najib said Zeti had led and implemented initiatives to ensure the stability of the country’s banking and financial sectors, besides placing Malaysia’s economy on a strong footing.“Malaysia takes pride in the contribution and achievements of Dr Zeti, a woman who also received international recognition and awards, all this while.

“Thank you Dr Zeti and I wish you success and the best of luck,” said the Prime Minister in his Facebook entry, today.Zeti, who retired on April 30, was chosen as one of the best central bank heads in the world by the magazine, Global Finance in 2009.

The daughter of Royal Professor Ungku Aziz Ungku Abdul Hamid and a noted cultural figure, Allahyarhamah Sharifah Azah Mohamed Alsagoff, Zeti joined BNM in 1985 as Deputy Manager in the Economics Research Department. Dato’Muhammad Ibrahim succeeds her as the new BNM Governor.

Malaysia is lucky this guy is not Bank Negara Governor


Malaysia is lucky this guy is not Bank Negara Governor

Tan Sri Irwan Serigar Abdullah today accused Wall Street Journal of falsely claiming that he was offered the post of Bank Negara Malaysia Governor. — Picture by Yusof Mat Isa

Enough of Mamaks with top jobs in Malaysia

http://www.malaymailoneline.com

Tan Sri Irwan Serigar Abdullah today denied he was offered the post of Bank Negara Malaysia Governor, accusing US-based Wall Street Journal of falsely claiming he would head the central bank.

The Treasury Secretary-General’s remarks came after the Prime Minister’s press secretary Datuk Seri Tengku Sariffuddin Tengku Ahmad similarly accused the newspaper of “lying” in its reports that claimed Irwan had been chosen to succeed Tan Sri Zeti Akhtar Aziz.

“I was never offered the post of Governor of Bank Negara Malaysia, as the Wall Street Journal and Sarawak Report have repeatedly claimed. His Majesty the Yang di-Pertuan Agong never signed my appointment as Governor, as is alleged.

“These are outright lies with absolutely no basis. These foreign media should stop their attacks on Malaysia,” Irwan said in a statement today. Datuk Muhammad Ibrahim was yesterday named as the replacement for the retiring Zeti, who is leaving after 16 years at the head of BNM.

He was the Deputy Governor up until his appointment, and his selection was consistent with Zeti’s call for her successor to be someone with a financial and banking background instead of a politician.

WSJ previously reported based on anonymous sources that Irwan, who is Treasury Secretary-General, would be made the next BNM governor.

The newspaper today responded to allegations that its reporting was based on uncorroborated details from anonymous sources and Tengku Sarifuddin’s claim that it was being used as tool to depose Prime Minister Datuk Seri Najib Razak.

“We stand behind our fair and accurate reporting of this evolving story which has in no way been undermined by recent events, and remain committed to providing robust coverage of events in Malaysia,” a Dow Jones spokesman told Malay Mail Online.

Dow Jones is the publisher of the WSJ. The US paper has reported extensively on 1Malaysia Development Bhd (1MDB) since last year and was the first to reveal the RM2.6 billion deposited in Najib’s accounts prior to Election 2013.

http://www.themalaymailonline.com/malaysia/article/treasury-sec-gen-next-to-denounce-wsj-over-bnm-reports#sthash.FtJphU2F.dpuf