Malaysia Debt Crisis

On July 5th, Bank Negara Governor Tan Sri Dr Zeti announced that the central bank had set a maximum period of 10 years for personal loans and 35 years for housing loans for civil servants to curb household debt. This is certainly a response to the national debt 'crisis' - it's not a crisis till it hits!.

Including contingent liabilities (guarantees), our national debt till 2012 could be up to RM1.743 trillion (Thanks to Pak Sako from Centre of Policy Initiatives). That is a TRILLION more than the current published debt. Most of our debt are internal, and approximately RM444 billion can be attributed to construction and housing (according to an official from Bank Negara). The office vacancy rate in Klang Valley is 23% for Q1 2013 according to the NAPIC (National Property Information Centre) Commercial Stock report, or could be up to 40% according to another officer. 

Why does the construction/housing/office debt matters to the average Malaysian?

Here are a few quotes from my favourite Fed Governor Dr Janet Yellen of SF in 2005 expressing concerns over the housing bubble in the US:

" ...there are downside risks to economic growth relating to the housing market. This sector has been a key source of strength in the current expansion, and the concern is that, if house prices fell, the negative impact on household wealth could lead to a pullback in consumer spending. Certainly, analyses do indicate that house prices are abnormally high—that there is a "bubble" element, even accounting for factors that would support high house prices, such as low mortgage interest rates. So a reversal is certainly a possibility. Moreover, even the portion of house prices that is explained by low mortgage rates is at risk."Read more at http://www.calculatedriskblog.com/#p3IJWqTiB9b0pE4t.99 

And in 2006, about "ghost towns" in the West

According to some of our contacts elsewhere in this Federal Reserve District, data like these are actually "behind the curve," and they're willing to bet that things will get worse before they get better. For example, a major home builder has told me that the share of unsold homes has topped 80 percent in some of the new subdivisions around Phoenix and Las Vegas, which he labeled the new "ghost towns" of the West.Read more at http://www.calculatedriskblog.com/#p3IJWqTiB9b0pE4t.99 

The scene certainly appears surreal when we drive by new housing estates around the Klang Valley, Penang, and the Iskandar region. What does this continual trajectory mean to our national economic progress? 

IMF MD Christine Lagarde had denoted the unhealthiness of over our national economy specifying 3 key concerns - FDI, high debt and inequality. She had instructed six remedies:

1) The need to attract more FDIs

2) National policies that are disrupting the free market

3) GLCs that are impeding the competitiveness of the private sector

4) Acknowledging total national debt - including all contingent liabilities

5) Regional cooperation

6) Liberalizing the economy 

APEC will be held at Bali this coming October, and the TPPA is expected to be concluded by then, in time for President Obama visit to Malaysia. Would the internal provisions cover item 2,3, and 4? The content of the negotiations are held in secret. 

My prediction is that these items will be excluded, and the TPPA agreement signed. This would not bode well for our national economy, as a further liberalization of our service sector will phase out our domestic players and increase cost to our already over-taxed consumers. I hope that our government realizes the unintended consequence of this Agreement, and will ensure that measures to protect our economic sovereignty are instilled into the agreement.

Interesting events which happened this week:

1) China had propose to back the yuan with gold.

2) Ex-President Jimmy Carter praises Edward Snowden

3) Detroit filled for bankrupcy

4) Prime Minister Yingluck rice subsidy is costing 8% of the Thai budget, with 17 million tonnes as reserve. 

Each of the above items are worthy of a post!

GEORGE ORWELL: WELLS, HITLER AND THE WORLD STATE

A fabulous essay by Orwell, thanks to Paul Krugman and Brad Delong for bringing this to my attention:

Wells, Hitler and the World State: All sensible men for decades past have been substantially in agreement with what Mr. Wells says; but the sensible men have no power and, in too many cases, no disposition to sacrifice themselves. Hitler is a criminal lunatic, and Hitler has an army of millions of men, aeroplanes in thousands, tanks in tens of thousands. For his sake a great nation has been willing to overwork itself for six years and then to fight for two years more, whereas for the common-sense, essentially hedonistic world-view which Mr. Wells puts forward, hardly a human creature is willing to shed a pint of blood.

Before you can even talk of world reconstruction, or even of peace, you have got to eliminate Hitler, which means bringing into being a dynamic not necessarily the same as that of the Nazis, but probably quite as unacceptable to ‘enlightened’ and hedonistic people. What has kept England on its feet during the past year? In part, no doubt, some vague idea about a better future, but chiefly the atavistic emotion of patriotism, the ingrained feeling of the English-speaking peoples that they are superior to foreigners. For the last twenty years the main object of English left-wing intellectuals has been to break this feeling down, and if they had succeeded, we might be watching the S.S. men patrolling the London streets at this moment.

Similarly, why are the Russians fighting like tigers against the German invasion? In part, perhaps, for some half-remembered ideal of Utopian Socialism, but chiefly in defence of Holy Russia (the ‘sacred soil of the Fatherland’, etc. etc.), which Stalin has revived in an only slightly altered from. The energy that actually shapes the world springs from emotions — racial pride, leader-worship, religious belief, love of war — which liberal intellectuals mechanically write off as anachronisms, and which they have usually destroyed so completely in themselves as to have lost all power of action….

Because he belonged to the nineteenth century and to a non-military nation and class, he could not grasp the tremendous strength of the old world which was symbolised in his mind by fox-hunting Tories. He was, and still is, quite incapable of understanding that nationalism, religious bigotry and feudal loyalty are far more powerful forces than what he himself would describe as sanity. Creatures out of the Dark Ages have come marching into the present, and if they are ghosts they are at any rate ghosts which need a strong magic to lay them. The people who have shown the best understanding of Fascism are either those who have suffered under it or those who have a Fascist streak in themselves. A crude book like The Iron Heel, written nearly thirty years ago, is a truer prophecy of the future than either Brave New World or The Shape of Things to Come.

If one had to choose among Wells's own contemporaries a writer who could stand towards him as a corrective, one might choose Kipling, who was not deaf to the evil voices of power and military ‘glory’. Kipling would have understood the appeal of Hitler, or for that matter of Stalin, whatever his attitude towards them might be. Wells is too sane to understand the modern world. The succession of lower-middle-class novels which are his greatest achievement stopped short at the other war and never really began again, and since 1920 he has squandered his talents in slaying paper dragons. But how much it is, after all, to have any talents to squander.

P.S. This was written in the summer of 1941