US President Barrack Hussein Obama announced a US$ 1 trillion (RM 3,620,000,000,000) rescue plan to move the country out of its worst economic crisis in 70 years. That's almost 7% of the country's GDP.
We will not ask where the US government will find that kind of money, short of printing them. Even if the Congress approves the plan, economists are already arguing that the US$ 1 trillion is not enough. Some are proposing as much as US$ 20 trillion. Yes, you read that right.
Nearer to home, China announced a stimulus plan of about US$ 600 billion or about 8% of its GDP (not 16% as some mainstream newspapers erroneously reported).
In Malaysia, Finance Minister Dato' Sri Najib Tun Razak announced RM 7 billion in a stimulus package last December. He's scheduled to announce a second stimulus package of about RM 11 billion anytime now. I've said recently in this blog and on Radio 24, that RM 18 billion is a little over 1% of our GDP, and is clearly far from enough. What we are facing is not just a currency crisis like in the '97 - '98. What we have now is a global recession and severe credit crunch. And unlike the US and Europe (or even China), we are relatively resilient and distanced from the source of the crisis. Perhaps this has lulled the government into believing that the stimulus packages are sufficient. It is not.
Because our banking sector is still relatively liquid and our fundamentals are still strong, we need measures that differ from that of the US and Europe. The keyword is confidence building.
People has begun to panic, due to lack of clear communications from the government. People, like you and I, has been hearing bad, scary economic news through the internet, blogs, etc. As a result, businesses stop their plans to expand and freeze all capital expenditure. Consumers opt for cheaper items and delay buying houses and cars. Employees worry about their jobs and start searching for new ones. The end result is a complete breakdown of confidence. If this continue, the economy will grind to a halt, and true enough, we will be in a recession deeper than any. It's self fulfilling prophecy.
What we really need is a huge and bold (or shock and awe, yes - goodbye Bush) stimulus package to the tune of 30 - 50 billion ringgit. We need sustained government spending on a scale so large that people forget there’s a recession. We should bring the 10th Malaysian Plan projects forward. We cannot worry about a budget deficit or inflation from pumping more money into the markets. This is no time for fiscal prudence. We need bold, unconventional measures like we did during the Asian financial crisis. And the funds should be spread across as many industries as possible, not just the infrastructure / construction industry - hoping that it will trigger recovery in other sectors.
More importantly, there must be MERITOCRACY AND TRANSPARENCY in how these funds are disbursed. Without that, please, don't waste our money and time.
Showing posts with label financial. Show all posts
Showing posts with label financial. Show all posts
Tuesday, February 10, 2009
Friday, December 19, 2008
The current financial turmoil
If you have difficulty understanding the current world financial situation, the following should help...
Once upon a time in a village in India , a man announced to the villagers that he would buy monkeys for $10.
The villagers seeing there were many monkeys around, went out to the forest and started catching them.
The man bought thousands at $10, but, as the supply started to diminish, the villagers stopped their efforts. The man further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.
Soon the supply diminished even further and people started going back to their arms. The offer rate increased to $25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now act as buyer, on his behalf.
In the absence of the man, the assistant told the villagers: ' Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when he returns from the city, you can sell them back to him for $50. '
The villagers squeezed together their savings and bought all the monkeys.
Then they never saw the man or his assistant again, only monkeys everywhere!
Once upon a time in a village in India , a man announced to the villagers that he would buy monkeys for $10.
The villagers seeing there were many monkeys around, went out to the forest and started catching them.
The man bought thousands at $10, but, as the supply started to diminish, the villagers stopped their efforts. The man further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.
Soon the supply diminished even further and people started going back to their arms. The offer rate increased to $25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now act as buyer, on his behalf.
In the absence of the man, the assistant told the villagers: ' Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when he returns from the city, you can sell them back to him for $50. '
The villagers squeezed together their savings and bought all the monkeys.
Then they never saw the man or his assistant again, only monkeys everywhere!
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