Najib's Survival Cabinet

Asia Sentinel

Malaysian PM turns to old foe's allies for help

Malaysian Prime Minister Najib Tun Razak has appointed what amounts to a survival cabinet, turning to allies of former foe Abdullah Ahmad Badawi to fend off intra-party challenges in the wake of the May 5 election, in which the opposition actually won the popular vote but was thwarted from taking power by gerrymandered constituencies.

Some of the appointments represent a sharp about-turn by Najib from the policies of former Prime Minister Mahathir Mohamad and the deputy prime minister, Muhyiddin Yassin, whom an outraged Mahathir is said to be attempting to goad into trying to push out Najib immediately as prime minister and head of the United Malays National Organization instead of waiting until the October party Annual General Assembly. Although the opposition has pointed to the appointments of Shahidan Kassim and Umno secretary-general Tengku Adnan Tengku Mansor as indications of Mahathir's clout, the opposite seems to be true.Read more.

What Is Wrong With Us, I Mean The Malaysian Economy ?

Hantu Laut

While Malaysia expect contraction in its economic growth in the second half of 2010 as announced by the Prime Minister our neighbour across the causeway upgraded its growth rate to an explosive 13 to 15 per cent for the year.Singapore's economy in the first quarter was 16.9 per cent and estimated a massive 19.6 per cent in the second quarter.

Singapore's economy will be the strongest growing in Asia and the world in 2010.

Now, if Singapore without any natural resources and a land the size of a needle head can pulled itself out of a recession as fast as a Formula 1 car why are we still in thermal inertia in the paddock.Instead of picking up the pieces and restore it back to normalcy we just throw in the towel and admit defeat because some smart economists say so.

During the US and European financial meltdown where most developed economies predicted an ensuing global recession Malaysia with its bunch of inward looking economic experts which include the second Minister of Finance then and the Governor of Bank Negara were insistence that Malaysia would not be in a recession.

While the government institutions lumbered in making final adjustment to the growth rate my adjusted forecast was strong likelihood of negative growth for 2009. The GDP in 2009 was -1.17 percent. It was a mild downturn but long enough to be called a recession and we are still feeling the side effect.

As anticipated, all export dependent economies in the region showed negative growth except for China and Indonesia.As they say, when America sneezes you catch the flu.

Some economists came up with a silly new theory "decoupling" of major markets meaning you would not catch the flu if that market is sick.Decoupling is farcical as long as there are voluminous cross border transactions in whatever form, financial or commodity, markets contagion would continue to exist.

We seem to be doing thing in reverse order.Can't tell the difference between good and bad times.

Just because of slow recovery in the US and some Western economists predictions of slowing down of the European economy in the second half this year and a potential financial meltdown in Europe, particularly the PIGS (Portugal,Ireland,Greece and Spain) somebody rings the alarm bell.

Even if those EC countries struggling with unproductive economies and fast-mounting deficits go down it doesn't mean we should pull down the flaps and slow down our economic outputs.

A financial meltdown in the European Union is possible as some of the countries continue to weaken and drag down the financial system.Banks in Europe are in precarious position because of their exposure to those countries.Some French and German banks, already weakened by the last crisis, hold some $640 billion in Spanish government bonds.Spain bill of health ain't that good. A default will likely create a domino effect.All said and done even the U.K economy is not on strong foothold yet.

Will Malaysia suffer the contagion?

Not likely.

How much trades and financial papers do we have with Europe?

Our top 10 trading partners in order of volume/value in 2009 were China, Singapore, US, Japan,Thailand, Republic of Korea,Indonesia,Hong Kong,Germany,Taiwan.

The top 5 trading partners for 2009 are shown below.

Country Value(RM Billion) Our Export (RM Billion)

China............ 127.90 ...................67.24 (2)
Singapore..... 125.30 ................... 77.20 (1)
US................. 109.20 ................. 60.58 (3)
Japan............ 108.71 ...................54.42 (4)
Thailand......... 56.16 ...................29.85 (5)

Our largest export was with Singapore followed by China.Singapore re-exported most imports from Malaysia.

If Singapore and China's economy can continue to be robust for the rest of the year why not us? On what basis our economy is slowing down? Can someone tell me?

Somebody in the Ministry of Finance and Bank Negara should explain instead of just telling the Prime Minister to go out and tell the people the economy will be slowing down for the rest of the year.

Malaysia In For Rough Weather

Hantu Laut

The GDP contracted 6.2 percent in the first quarter of this year.With two consecutive quarters in decline the country is positively in recession, a scenario refuted by those in government just two months ago, a chink in the armour of the economic intelligentsia, saying what the leaders wanted them to say. Export plummeted 25 percent and private investment declined 26 percent. A hard biting recession is on the horizon.

Malaysia is in the top 20 trading nations, an enviable position for a small nation but could be a huge problem in bad times. A global recession would seriously affect Malaysia's exports.The picture is going to get worse before it gets better.In my December 2008 article here I predicted 2009 GDP of 2 percent and possibly into negative territory.At that time the government was still insistent on growth of 5.3 percent.

The government stimulus package announced earlier seems not to have kicked in making it appears that it has not been implemented as vigorously as promised.In my article here I predicted export would decline by 20 to 30 percent in the first quarter of this year.

It looks like Malaysia is not going to be spared the hard-hitting recession, wrongly predicted by the Governor of Bank Negara and previous second Finance Minister Nor Mohamed Yakcop who predicted recession will not come our way.

If the economy doesn't pick up during the second half of this year there would be a new gloom on the horizon, the banking system may be in for rough weather.The current good liquidity may evanescent quickly if the economy continued with its downward spiral.

Saving Malaysia: Najib's Recipe

Hantu Laut

It's RM30 billion, just what I figured it should be. Finally, they agree there is going to be a bad recession in the country.Full text of Najib's recipe here.

Finance Minister and Deputy Prime Minister Najib Tun Razak announced a two-year stimulus package of RM60 billion in a mixed basket of the good, the bad and the ugly.There was no mention of where the money coming from or how the government wish to raise the funds.

I must say overall the package is well thought out and should be able to stimulate the economy but obviously much depend on how it is managed and more importantly the global economy is working in tandem with our effort.Nothing much the government can do if the world economy stays in the doldrums.

Those in government and government linked economists wish to believe that Malaysia is different from countries like Singapore and Hong Kong. In some ways that may be true but in many ways they are the same......they are export-dependent economies, making them at the mercy of the world markets.

A prolonged recession would have dire effect on the people's livelihood.Many low and middle income Malaysians do not have savings to tide them over bad times. Severe and prolonged recession would raise tension against the government and ethnic tension, fan by those desirous of pitting the people against the government, would certainly increase.Although, the government have taken the right step to take care of the economic engines first and shows greater attention to its survival, it must not forget the interest and welfare of the individual. There is nothing worst than having no money to sustain your daily existence.That's why I proposed in my earlier post to allow those who have lost their jobs to draw half of their basic salary from their savings in the EPF for a maximum of 6 months.This would give them the basic necessities to survive before they can secure another job.

The double deduction to be given to companies that employ workers retrenched by other companies can lead to abuse. Unscrupulous employers can sack their existing employees and replace with new ones to take advantage of the double deductions.Unless, the government fine-tune the terms and conditions it will have negative effect.

Too much emphasis was given on the financing of business but very little in cutting the costs of doing business.That's why I proposed incentives,rebate and reduction of taxes and duties in my earlier post.In a period of contraction of the economy the costs of doing business must come down either by market forces, by intervention or both.

Loan guarantees and easy access to the capital market would be most welcome by the business community as long as they are not designed to bail out cronies and friends making it difficult for those not well-connected to have access to the facility.

In time of uncertainty, risky and low-yield investments the issuance of government-backed saving bonds is a welcome sign.Although, it will not increase liquidity in the system it is better than the current interest rate of fixed deposit with banks.There will be major shift to these saving bonds and a mad rush to buy it for those who have spare cash.

Equitable distribution of projects and suspension of the NEP during this period of economic uncertainty should be seriously considered if the BN wish to salvage its sunken popularity.

The drop in export is going to be pretty serious.It's going into a tailspin during the 1st half of this year.The 1st quarter result would be out by next month and I wouldn't be surprised to see a decline of 25-30%. A negative growth for 2009 is not a figment of the imagination. Malaysians should be prepared for more bad news.The stimulus will need at least 3-4 months to kick start and by then we would only have about 6 months left for the year and probably half the job undone.

As usual Anwar Ibrahim is uninspired.

The Long And Winding Road

Hantu Laut

Malaysia, on the other hand has been sending out euphonious messages to its citizens not to worry about the impending economics gloom.The leaders say they have everything under control without spelling out the measures taken or to be taken in the event of a precipitous decline in the economy.The first-half of 2009 would be crucial for Malaysia if the export market continue to shrink and prices of its primary products and manufactured goods declined drastically.

I anticipate export receipts to decline at least by 20 to 30 % in the 1st-quarter of 2009 as demands for electronic products,palm oil,wood-based products and crude oil declined due to poor demand in the importing countries.Falling prices would further contribute to lowering of the GDP.

That's what I wrote in December 2008 in this article.

January exports drop 17pc to RM38b

KUALA LUMPUR, March 6 — The country recorded RM8.83 billion in trade surplus in January, making it the 135th consecutive month of trade surplus since November 1997, but total volume declined by 29.7 per cent from a year ago.

Total trade value for the month was RM67.77 billion.

Exports in January 2009 were valued at RM38.3 billion, a drop of 27.8 per cent from January 2008, the Statistics Department said in a statement today. Full story here.

Total imports fell by 32 per cent to RM29.47 billion from a year ago.

"Month-on-month, exports fell by 16.9 per cent from December 2008, while imports were lower by 14.7 per cent. The performance in January was in tandem with countries that have announced their January trade figures," it said. Full story here.

Even if the government implements the stimulus package there would be little chance of any recovery this year.Recovery is not only dependent on the stimulus package by the government. Malaysia being an exporting nation depends much of its economic well being on the global economy, particularly the Western economies.If the global economy continues to be in the doldrums than it would a long ride before we see the light at the end of the tunnel.

The public and private sector foreign debts would become more expensive to service if the ringgit continue to depreciate against other major currencies. The ringgit may breach the RM4.00 to the US$ during the 2nd half of this year if the economy doesn't pick up.

Holders of private foreign debts in foreign currencies should consider retiring their foreign debts or part of their foreign debts by borrowing ringgit from the domestic market and pay off their foreign debts. The myopic management of Tenaga have incurred foreign exchange loss of RM1.2 billion on their US$ and Yen debts.Obviously, they are confident the ringgit would appreciate against these currencies or at least stay at comfortable level.

They were wrong.

Economic Malaise: Will The Government 'Broke The Buck' ?

Hantu Laut

Reported in The Strait Times

MARCH 4 – The Malaysian ringgit could breach the psychological 3.80 to the greenback mark in the not too distant future, nudged by a deepening global recession and resultant flight to quality, plus a widening budget deficit.

Previously, few would have entertained the notion of the local unit tumbling back to 3.80 – the level at which it was fixed in 1998 during the Asian financial crisis before the peg was dismantled in 2005 – but it appears a distinct possibility now.

On the back of weakening exports and a growing budget shortfall, the ringgit climbed to within a 3.62/63 band a month ago.

Yesterday, it opened at 3.727/731 from Monday's close of 3.726/730. Full story here...

Read the one below:

Reduced corporate profits or losses would mean less income taxes going into government coffers, which among other things, would affect the government budget.New sources of funding would have to be found to finance the budget.Unless there is sudden upswing to the current gloomy global conditions the general economy will face serious contraction in the next few months which would affect the value of the ringgit.The ringgit may be traded at 3.80 to 4.00 range by 1st Quarter 2009 if no viable solution is found to stimulate growth. Read the full story here...

Read this one:

KUALA LUMPUR: The property market in Kuala Lumpur could depreciate as much as 10% to 15% going forward, while the prices of high-end condominiums in the Kuala Lumpur City Centre (KLCC) area may fall up to 30% in the next two to three months, said property consultant Rahim & Co. Full story here...

Now read this one:

Presently, there is notable forced sale and marginal decline in the prices of medium and lower scale properties in cities like Kuala Lumpur and Johor Baru.If the economic crisis deepen the next few months and continues into the middle of 2009 the prices of properties for all sectors would take a tumble.Upscale properties would fall between 20 t0 40% mainly in big urban areas.Full story here...

The Straits Times was right only few had the notion how bad things can get when the domino hits us. I was one of the crazy prophets of doom that have had all my forecasts and predictions hitting bulls eye.

Is the government still living in a state of denial?

They are going to announce the second stimulus package on 10 March 2009.Will have to wait and see what kind of package they have in store to rescue the economy.

Anything less than RM30 billion (inclusive the RM7 billion) may not do a good job. The problem is the government do not have the money and would not get enough money from its normal sources of revenue to finance its main budget, let alone finance the stimulus package.Its budget deficit is expected to grow to unhealthy level if the stimulus package could not revive the economy by the 2nd half of 2009. The longer the delay to implement the stimulus package the longer the sickness would stay.The country may be looking at unpleasant negative growth.

Unpleasant, as it may be, the government needs to borrow to finance the budget and the stimulus package. It has a number of options that it can take for its deficit financing.

1.Issuance of Treasury Bonds for domestic and international markets.....unlikely. Response from the international financial community may not be strong enough, which can downgrade the credit rating of the nation.

2.Foreign borrowing in foreign currency..... unlikely.Can become very expensive in the long run.

3.Liquidation of government assets..... not efficient in a downturn and possible diminution in value of assets.

4.Borrow from pension funds and government-controlled trust funds......very likely.The most efficient, cheapest, easiest and quickest way to raise the funds. Most likely candidates would be EPF and savings in ASN and ASB.

When the government announces the stimulus package it would be imperative and responsible on the part of the Prime Minister to tell Malaysians where the money is coming from.

Should the government decides to use money from EPF, the Board of EPF should not agree to a term loan between EPF and the government but demand for the issuance of medium term bonds with reasonable rate of interest.A term loan can be renegotiated and the terms and conditions can be varied from time to time by the lender (EPF) which is controlled by the government but government bonds must be paid in full upon maturity.

EPF funds were already badly managed giving poor return for many years and investments in low-yield government bonds or low interest loans are going to worsen the earnings of the fund.

The Economy:Great Minds Think Alike, Only Fools Differ

Hantu laut

Where are all the economic experts, the second Finance Minister, the governor of Bank Negara and all those in government that try to muddle Malaysians into believing that there will be no recession in the country. Even the trained economists got sucked into this body of lies.

Such presumptuous and vacuous advisory to the people should not be taken lightly. It has serious repercussions on the economic welfare of the people and could stall the engines of recovery.If all Malaysians believed there are no economic problems and no recession sould there be any reason for them to put in extra effort to tend to the cut and bruises of the economy. All those who had intentionally misled the people should do the right thing......... they should resign from their jobs. Saying it once is fine, people accept you probably have made a mistake, but to keep repeating it over and over again is inconceivably stupid.

That was just a month ago when our government witch doctors and bomohs prescribed a good bill of health for the nation.Of late they have woken up to reality and faced with the magnitude of the problems, decided to swallow their pride and came up with a stimulus package.

When I first saw the amount of the package it was a shocking disbelief, the bunch of dead ducks in the Ministry of Finance is worse than what I have imagined. Not only are they bad in making economic forecasts they can't even evaluate the financial needs and optimal amount of the rescue package.As I have said in my earlier posts the stimuli would need another stimuli.....the RM7 billion is a drop in the ocean.The package is just too small to stimulate the ailing economy.The situation will worsen by the middle of this year.

The Malaysian stimulus package is different from that of the US government. Ours is a general rescue package of the economy while the US rescue package are mostly bail-out packages for ailing corporations and specific industries.The incoming Prime Minister should seriously consider revamping the Ministry of Finance.

In my forecast of the economic outlook for 2009 here I have predicted as early as October 2008 that Malaysia's growth rate would be in the region of 2% and below with high possibility of going into negative territory. The situation has changed, the outlook is bleaker, negative growth is no more a mere possibility, it's a reality. Unless the government increases the stimulus package and apply them in the proper sectors the stimulus might end up as stimulated waste.

Funding the wrong sector may cause more damage than good. The government should limit its exposure in propping up stock market and currency speculation to defend the ringgit.It has to face the fact that its foreign exchange reserve would dwindle in value if the ringgit depreciated against the USD.In the same posting I predicted export would decline by at least 20% during the 1st quarter of this year. The decline will affect all sectors particularly the major contributors like electronic, palm oil and crude oil.

There are two sides to a coin.The depreciation of the ringgit may not be as bad as some people imagined it to be.It is good for export. The depreciation can help compensate the diminution in value of export commodities. It's also a deterrent for huge capital outflow.Malaysians should be contented to keeping their money at home. The weak ringgit would make overseas travel more expensive and domestic tourism as cheaper alternative.

Whilst the government inject more money to boost the GDP and thereby increasing export, it must also not ignore to control import of certain commodities that are considered non-essentials.Imports of this nature should be reduced, suspended or imposed with higher tariff as deterrent. The tariffs and duties on luxuries (something pleasant to have but not necessary) like cigarettes, alcoholic beverages and other luxury items should be increased. The issue of APs for high end luxury cars should be suspended and the overall AP volume to be reduced.Increase road taxes for high end luxury cars. Incentive to be given in the form of tax rebate for manufactured products with high local components/contents. Promote and encourage 'Buy Malaysia First' to reduce incidents of unnecessary imports.

To overcome the unemployment problem the government must create incentives for Malaysians to take over jobs of migrant workers.Malaysians shy away from such jobs because of low wages and zero benefits.There must be re-education, minimum wage and better benefits to attract them to this sector.From my experience as businessman with offices and factories in many locations in the country, locals, especially bumiputras, throughout the country have the notion that blue collar work is menial and degrading and many would prefer to be drivers or office boys even if the dirty job offers 3 times more salary.I remember a case where I offered a bumiputra boy a job as a storekeeper in the company's logging camp with a starting salary of RM950.00 which he refused and wanted an office boy job which only pays RM300.00.His only other benefits of being an office boy is he sits in an air-conditioned office and gets a company's motorcycle.The job of storekeeper was eventually taken by a new school leaver, a Chinese boy. That's why re-education and revamping of wages and employment benefits are imperative to bring about the change of attitude.

Those are just few of what the government can do, there are many more.I have not touch on how the stimulus package should be spent.I'll keep that for another day.

Although, I hate it as much as any of you, all my predictions of the economy have manifested and the government was wrong......there is going to be a recession in the country. In fact it is already here.

No Recession !, No Recession !, No Recession !

Hantu Laut

No recession! No recession! No recession!.Is what we hear from our leaders every time and all the times.Our finances are good, our banking system is very liquid, our foreign exchange reserves are healthy, our currency is stable and our stock market is a 'OK'.We certainly have no problems.

Are those the correct barometers used to predict whether a storm is coming or not.Should we only look at the present positives and negate the present and future negatives and external forces.What about falling exports, falling commodity prices,rising unemployment and declining consumer's spending.Wouldn't a prolonged period of decline and lower economic outputs spelled "RECESSION".

What's the use of all those money in the banks if they can't regenerate? What's the use of a looking good stocks exchange index when the volume traded is miserably low? What's the use of a healthy foreign exchange reserve when it is eroding in value due to weakening of the currency? Are there still people out there in government that still have their heads screwed on to their bodies.

It is certainly good to show positive thinking but it can be dangerous if one is unable to separate the fact and the fiction.While other countries like Singapore, Hong Kong,Taiwan and South Korea have warned their citizens of hard times to come, our smart leaders keep telling us not to worry, we will never be in a recession, because they are so good in managing the economy.

Our politicians are out of touch with reality, incapable of telling the truth and are convinced by their own lies.Of course, if you keep giving yourself and your cronies big fat contracts surely there is no recession for you.It is the man in the street that will feel the pinch, the most.

The comments made by various ministers and those in government on the state of the economy are at odds with the increasingly gloomy picture.The falling export trades and decline in GDP in the fourth-quarter of 2008 was an indication that all is not well with the economy. Other than saying Malaysia will not be in a recession they have not provided concrete proof and detailed explanation why they have concluded so and how we are insulated and spared from the economic crisis.Is Malaysia really that insular?

This government gives the impression of being in office but not in control of the economy.It has probably fallen for the theory of some smart economists that the Asian economies have 'decoupled' from the United States and would not be affected by any downturn in the US.This kind of generalisation is not only untrue but can have dangerous consequence to those who believe in it.Our leaders appeared to be victims of this theory. 

Rating Agency Malaysia (RAM) Chief Economist Dr Yeah Kim Ling says that domestic demand could help offset the decrease in exports.This is the kind of economists that never do their home work and would certainly make the government very happy with their paintings of rosy picture.It also tells a lot about our very own credit rating agencies and so-called experts, can only open their mouth after other foreign credit rating agencies revised their figures.

What would Malaysian consumers do with billion dollars worth of electronics items like semi-conductors, computer chips and other high-technology products, they certainly can't eat them.

With recession in the US, the first industry to be hit would be the electronic industry which export substantially to the US markets. Most are owned by American-based companies that set up manufacturing facilities here.They would certainly cut down production and in some cases shut down completely if the economic crisis in the US is severe and dragged on longer than expected.

In 2006 Malaysia exported MR170.80 billion to the US out of a total export of RM589 billion.Majority were electronic items.In fact the export figure should be more if those going through Singapore for re-export to the US were taken into consideration.What domestic demand that Dr Yeah can think of that can fulfill the shortfalls in exports?

How could an economy like Malaysia with the US as its largest trading partner in export trades can be 'decoupled' from the effect of a recession in the US? With less economic activities in the US the demands for goods would decline resulting in drastic drop in our exports which would trigger a decline in GDP growth, higher unemployment and reduced consumer's spending. The prices of other commodities like palm oil,rubber and crude oil had spiralled downward with huge reduction in prices.The price of crude is currently around $36 per barrel and may even go below the next threshold level of $30 per barrel within the 1st and 2nd Qtr.Palm oil is currently selling around MR1500 per ton.

Just because we were not affected by the financial meltdown in the US doesn't mean we will be spared from the effect of the recession.These are separate issues altogether.

The financial meltdown in the US did not affect our banking system because there were very little transactions between Malaysian banks and  US banks/financial institutions. Malaysian banks did not buy substantial amount of financial papers from US banks and investment houses.

The economic recession is a different ball game.As long as we have substantial exports to the US, if they sneezed, we sure to catch the flu.

I have in my article 'Recession Scenarios For Malaysia' predicted real GDP growth rate ranging from 2% down to negative territory, while the government gave an over-ambitious rate of 3.5% and the EIU (Economist Intelligence Unit) gave 3.1%, the same as Citigroup Global Market.

Of late EIU has revised its figure down to 1.5% and Citigroup down to 0.5%.

The Malaysian government haven't come up with any revision yet and probably wouldn't because they have drowned in their own intelligence.

A Bleak Economic Outlook

Hantu Laut

Making economic forecasts and predictions can be a daunting task.It becomes even more difficult when the global market is chaotic and when there are too many uncertainties.Although, no economic forecast, not expected to, anyway, had come close to be hundred percent accurate, it would be easier to predict future trends on a stable environment rather than predicting the outcome in a volatile environment.

The Economist Intelligence Unit (EIU) had revised its forecast for 2009 for the third time now.It has finally come to the same forecast I did on Malaysia in December 2008, growth of 2 per cent possibly down to negative territory.The EIU had revised its forecast from 3.1 to 1.5 per cent, which is within the range of my forecast.

Due to its fairly diversified resources, Malaysia's economic contraction would be less severe than countries like Singapore, South Korea and Taiwan.

On 14th December 2008 I wrote "I believe the forecast by EIU of real GDP of 3.1% is a bit on the high side.My forecast is from 2% and possibly into negative territory if the government do not increase the stimulus package of RM7 billion and if the global economy shows no sign of improvement during the 1st half of 2009.

The true picture of what to come will only be known by the 1st Quarter of 2009 when the slowdown bites in"

The full impact of the recession has not arrived yet making those in government taking it easy and less guarded against the possible negative outcome.

With the slowing down of exports beginning November 2008 and expected to worsen in the 1st Quarter of 2009, the full impact of the recession would only be felt in the 2nd Quarter 2009.

The electronic industry is expected to suffer the most with serious decline in production and export.The downturn will see significant retrenchments resulting in high unemployment in this sector.

The notion of some economists of the 'decoupling' of Asian economies from that of the West is just that, notional.

We are just later recipients of what happened earlier in the West.

Recession Scenarios For Malaysia

Hantu Laut

The global economic downturn has claimed yet another victim and this time in the entertainment sport business.Honda announced it's pulling out of the F1 race citing high costs as the reason.A big blow to F1 racing but a wise decision nonetheless.

The whole world, except Malaysia, is still struggling with one of the worst economic downturn not seen in decades.Bail-outs and financial re-structuring in the US have not shown any sign of lifting the economic gloom.

Singapore, one of the more successful economies in the world projected serious decline of its economic growth in 2009.A projected growth rate of as low as 1.5% with high possibility of going into negative territory. The global downturn in demand will pull down its export earnings and hence decline in its GDP (Gross Domestic Product)

Malaysia, on the other hand has been sending out euphonious messages to its citizens not to worry about the impending economics gloom.The leaders say they have everything under control without spelling out the measures taken or to be taken in the event of a precipitous decline in the economy.The first-half of 2009 would be crucial for Malaysia if the export market continue to shrink and prices of its primary products and manufactured goods declined drastically.

I anticipate export receipts to decline at least by 20% in the 1st-quarter of 2009 as demands for electronic products,palm oil,wood-based products and crude oil declined due to poor demand in the importing countries.Falling prices would further contribute to lowering of the GDP.

Palm oil, one of the major export earner has seen price plummeted from a high of RM4500 to RM1500 currently.If price stays static or drop further in the next three months there would be massive unemployment as plantations retrench workers to keep their losses low and manageable.

Year	GDP - real growth rate (%)
2000	5
2001	8.6
2002	0.3
2003	4.2
2004	5.2
2005	7.1
2006	5.2
2007	5.9
2008	5.7

With massive lay-offs there would be social problems such as rise in crime rate when those unemployed lost their source of income especially foreign workers who decided not to go back to their home countries and stayed on illegally. Likewise, Singapore would be retrenching many of its workers.

Almost 300,000 Malaysians are employed in various industries on the island nation and most of those retrenched would have to return to Malaysia adding to an already grim outlook.

Unless the government can boost consumer's spending there would be substantial decline in the CPI (Consumer Price Index) as the population tighten its belt to keep expenses to a minimum.Sale of consumer's items from automobile to daily necessities would decline to a worrying level.

Presently, there is notable forced sale and marginal decline in the prices of medium and lower scale properties in cities like Kuala Lumpur and Johor Baru.If the economic crisis deepen the next few months and continues into the middle of 2009 the prices of properties for all sectors would take a tumble.Upscale properties would fall between 20 t0 40% mainly in big urban areas.

The Japanese government has just announced that they underestimated the depth of the recession, it was worse than what they thought it would be.

It is,therefore, not in the interest of this nation and the Malaysian people for the government to continue living in a state of denial.We have a serious problem and we should deal with it openly.

We are just entering the recession and it's going to get worse before it gets better and below are the likely scenarios of the recession:

*Decline in GDP growth for the whole of 2009 ...... down to 2% or negative.
*Decline in CPI.A 10% decline is not unthinkable.
*Massive unemployment mostly in middle and lower income group.
*Crash of property prices in urban areas with KL taking the biggest slice of the cake.
*Increase in NPL (Non-Performing Loan) with banks and other financial institutions.
*Increase in the number of bankruptcies.
*Increase in crime rate.
*Increase in the government's budget deficit due to reduction in government revenues.

Those are possible scenarios that could happen and the degree of its seriousness is dependent on the government fundamental rescue package and programme to boost public confidence and spending.Emphasis should be given to vital industries that generate the highest economic outputs.Spending money to prop up stocks market and the currency may not work to our benefits.More often than not fighting against market forces does not bring benefical results but more losses.

The members of OPEC are learning that bitter lesson right now.In spite of massive production cuts taken to stabilise price of crude, it continues to fall.

It's time the government swallow the bitter pills and be honest to its citizens.

Great Minds Think Alike Only Fools Differ

Hantu Laut

Good luck to Malaysia.Time and again we hear this beautiful sound of music on the state of the economy.

Now, RM7 billion is going save us from going into a recession.How much is RM7 billion and how far can it stretch, which part of the industry and service sector will get the boost from the allocation?

Second Finance Minister Nor Mohamed Yakcop is confident Malaysia will not be in a recession.I sincerely hope so but don't think so.

The Americans have used many economic medicines yet they have not seen their effort bearing fruits yet.Malaysia must have many excellent economic planners better than those in the West to be able for certain provide an instant formula to avert the global recession.

You can read the bullshit story here and Anwar Ibrahim talked sense here

Read the beginning of our trouble here and here and here

World War III ?

Hantu Laut

Would you believe me if I say the KLCI is headed for a fall below 800 anytime before Christmas? I am sure many of you wouldn't. Just like the price of crude oil my guts feeling is telling me it would in spite of the huge three-day rally on Wall Street.Most Asian markets rose in tandem with Wall Street.They will, likewise, fall together with it.Wall Street is the doyen and barometer of the world of equity trading.

There is absolutely no reason even for Wall Street to rear its bullish head other than on false sentiments of make-believe.There is not a drop of good news to usher a steady pattern of positive long term improvement of the markets.The only good news is the forthcoming departure of that mad man in the White House by January 2009 before he could screw up the US economy any further.The euphoria on Wall Street is a flash in the pan.More bad news will come.

No news is good news, bad news is now no news. Nothing new had come out of the US economy except troubling economic figures.The US gross domestic products contracted by 0.5% annual rate for the 3rd quarter (July-Sept).Twenty-two banks have failed so far this year and more are expected.Citibank, one of the largest in the US is in the doghouse and needed huge dose of heart worm injection to stop its demise.It was given $300 billion bail-out, giving respite to the decline on Wall Street.The three giants in Detroit, GM,Ford and Chrysler are still stuck in the muck awaiting lifelines.

American views of the economy remain the gloomiest for decades as they grapple with massive layoffs, dwindling retirement funds and slumping house prices.American consumers, the lifeblood of the economy --- spending continues to slide down.The unemployment rate is 6.5% and expected to rise.The $700 billion financial bail-outs have not been able to restore stability to the financial markets and help the sinking economy.

With a massive $7 trillion in bail-out money and a huge budget and trade deficit where the hell are the Yanks going to get the money from? Issue more Treasury Bonds, print more dollars or starts World War III?.

It can start by bombing Iran first, than North Korea, than all Muslims nations and than last China and Russia will join the war to stop the Ugly Americans.Isn't that a good recipe for a world war and an excuse not to pay your debts.

In Malaysia the government has not released any economic figures to show how much the economy had shrunk.Even if they do, I suspect it would be slightly sugar-coated to make those gullible enough to believe that our economy is fine.

Looking at all the bad news the probability of the global economy shrinking further for the rest of this year and into early next year isn't pure fantasy.

Most Asian markets rise after US extends gains

HONG KONG, Nov 26 - Most Asian stock markets rose today after Wall Street extended its gains, but Japanese shares lagged the region as leading automaker Toyota Motor Corp. saw...

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It's The Economists, Stupid !

Hantu Laut

Hooray! The price of crude had fallen below $50 a barrel.The price slid to as low as $48.64 today.Who was right those mumble-jumble sycophantic economists or .........? Than you have those who made foreccasts and predictions but didn't have the balls to put their names on it.

Employing academicians who spent more time trying to please their bosses to listen to what is pleasant to their bosses' ears rather than doing some serious research to predict short and long term economic trends is as good as not having any of those blighters on board.They are not worth their salt.

It is even more disheartening to hear that almost every leader in our government are sold on the idea of the nation's immunity to the global economic meltdown purportedly due to our strong banking/financial system and strong fundamentals whatever that might mean.

Strong finances and healthy foreign reserves are just some of the many components that make up the whole economic pie.There is an array of other things that influence the workings of the economy which eventually boils down to one single objective, the making of money.The more money a nation has the more prosperous the people are .There are only two things money can't buy in this world, the air we breathe and immortality, everything else costs money.

In economics, one must not forget the law of supply and demand, the very essence of market forces.Dearth of supply will increase prices, abundance of supply will depress prices.Than there is a new element, not found in the old economic theory, that have been added to the new scheme of things to influence market and market prices, it is called speculation.Speculation can be a powerful tool in setting market prices.These are the wonderful inventions of the economic gangsters.These are bands of white collar criminals loaded with other people's money to raid the world markets in search of anything they can get their hands on and steal your whole life saving away from you. Would you in your wildest dream ever imagined that the price of palm oil can touch RM4,500 per ton ? Do you honestly think that's the real value of the commodity? Do you think price of crude oil at US$147 a barrel is a reasonable level for optimum economic consumption? Just like a balloon if over inflated it would burst and burst it had.

Over the past two decades the world has been teetering on the verge of an economic disaster never seen before due to over-speculative indulgences in every aspect of its commercial activities.The bubble had burst and would take a while to recover.

If the Malaysian government think they have consummated defences against catching the bug that most other more developed countries are caught in and are presently in the throes of recession than there must be something wrong with the yardstick we used to measure our economic activities.The sooner we wake up to the reality that the honeymoon and the good time will be taking a break soon the better it would be, at least to have a contingency plan in case the situation turned bad.

In the United States (US) the three big car makers in Detroit have recently declared they are in serious financial trouble.General Motors(GM) the leading car makers have cash reserve of US$30 billion and have declared they would be running out of cash in 2 to 3 months time.With the dramatic decline in sales of its cars the company have to use its cash reserve to pay for its recurring expenditure at the rate of US$5 billion a month which means the total reserve would be completely exhausted in 6 months.So, even if you have money when things go bad, that money will be gone in no time.As at September 2008 Malaysia's foreign reserve stood at US$32.3 billion, not much bigger than the GM's reserve.

The three big car makers GM,Ford and Chrysler were not on the original list of patients for bail-outs when the US Congress approved the bail-out package.They are now seeking government bail-out which they probably will not get.Their troubles are of their own making, incompetent management and products quality problem.The same problem faced by Proton here.

I believe the US Government will not bail them out but would ask them to file for Chapter 11, a bankruptcy protection from creditors that allow the company to reorganise without threat of foreclosure from creditors.Some creditors may end up as shareholders of the company under a reorganised scheme.

I have said in my earlier posts there is usually a time lapse before we feel the effect of the global recession.At the moment everything seems fine but it may not be so by the end of the 1st quarter of next year when the recession bites in,unless something dramatically good happened along the way that changed the whole global economic scenario.

Precaution is better than cure.

I Shall Be Damned.

Hantu Laut

I must be the only mad person in the whole country when it comes to predicting the state of the economy and the coming of recession to Malaysia.Almost every one, from the Prime Minister,Deputy Prime Minister and now to the very person who is the central figure of the economic apparatus and one that advises the government on its financial and monetary policies have said there will be no recession in the country.

The Governor of Bank Negara Zeti Akthar Aziz said “Half the world will likely be in a recession. We are not in a recession and we don’t expect to be in one,’’ Read the story here.

A very reassuring statement indeed and completely opposed to what the rest of the world are grappling with, the fear of a deep recession, and one that can lead to an economic nightmare that the world have not seen since the depressions of the 1930s.

Where did we get the immunity that makes us so recession proof ?What are the fundamentals that make us so different from the rest of the world and one that can shield us from the contagion of this global epidemic.Almost every developed country have declared that they are already in recessions.

A few months before the US financial meltdown some optimistic economists predicted only slower growth and mild or no recession in the US.They are proven wrong. The problem is bigger than one would like to imagine.Now, fear of deep and prolonged recession is on every world leaders mind except Malaysian leaders who keep telling us not to worry as there won't be any recession in Malaysia, we are insulated and isolated from such nonsense.Only the rest of the world will suffer.Malaysians have natural antibodies against recessions.

The problem is, only the bad news has arrived, the deepest cut is yet to come.The Malaysian economy has not slowed down yet.There is always time lapse of at least six months between what happened in the West and us, before we feel the blow.This lapse of time should not be taken as an indication that all is well.

How can Malaysia be insulated when it is one of the top twenty trading nations in the world and a GDP highly dependant on selling to the world markets particularly Western nations. Won't it make sense that if there were recessions in the West there would be less money,less buying and,therefore,less exports from Malaysia to these markets.Than there would be the domino effect, sales gone down,profit down and liquidity tight.Those directly or indirectly involved in export business would start to lose money and face with cash flow problems and, therefore, unable to service their debts.Bad liquidity would bring about increase in the NPL(non-performing loan) with banks and other financial institutions.

If the recessions in the West stretch for more than six months the likelihood of Malaysia seeing bad times is extremely high, whatever rosy picture the government may wish to paint, catching the flu may be slow but sure.

I shall be damned if I am wrong.

Malaysian Economy:A Gloom On The Horizon

Hantu Laut

The Prime Minister or Finance Minister should have tabled it in Parliament and seek the approval of majority of the house.Government should act more responsibly and not used taxpayers money,foreign exchange reserves and pension funds for bailout purposes without getting the approval of Parliament.Opposition leader Anwar Ibrahim had asked for it to be debated in Parliament.

The American Administration is an example of transparency and responsible behaviour.It goes to Congress to get approval for the bailout.The President could not simply decide on his own without Congress approval as the bailout involved public funds.

Using the fund to prop up shares of certain companies on the KLSE may not be a good idea under the current market conditions.The market have not hit rock bottom yet.Further declines are expected.A free fall should not be ruled out as and when companies start to announce their year end financial results.

Click to enlarge










The Composite Index has shedded over 40% of its value from its peak in January this year and the bottom is not yet in sight.The fear of global recession will drive stocks all over the globe further down and Malaysia will not be isolated from the movement on Wall Street and other markets.To say we are insulated from the effect of the global recession is misleading and totally irresponsible.Most sensible governments would brace themselves for the worst and inform its citizens of the bad times to come.

The situation is actually much more serious than what the government made it out to be and saving some selected companies on the KLSE should not be a priority.Foreign investors and funds managers are not stupid to place money in our stocks if they see weak fundamentals and an economy heading for a tailspin.

With substantial loss of revenue from falling prices of crude oil the bottom line for Petronas is likely to move into the red zone if the price of crude falls below US$50 per barrel.Its cost of production would be around that region.

OPEC has seldom been effective at controlling prices, often referred to as a cartel, it does not justify the definition.There is no cohesiveness among members to adhere strictly to production quotas.The cut in production of 1.5 barrel per day starting in November seems to have no effect in stabilising prices.Nigeria has objected to production cut citing heavy reliance on crude oil for the country's budget.


OPEC Production 1990-2007

In the event Petronas have to sell its crude at a loss than it should consider trimming its domestic production and keep the oil in the ground and concentrates on those of its overseas operations that have lower costs of production.

The other equally serious erosion of source of income is the oil palm industry.Price has nosedived to a low of RM1390 on the futures market with the short and long term prospect looking rather bearish.


Another bad news for the palm oil industry is China expected bumper harvest of its soybean.Some Chinese buyers have defaulted on their contracts with Malaysian companies and some are re-negotiating prices downward on their outstanding contracts.Prices are expected to slide further down.Some plantations may have to shut down production if prices fall below their costs of production. There would be major unemployment coming out of this industry if prices continue to fall.The government should remove all cess or duties on palm oil and palm oil products immediately to ease the burden.

With the big drop in export due to falling prices and declining demands overseas the forecasted growth rate next year would have to be revised to a more sensible level to keep in line with prevailing economic situation.The projected rate of 5.4% may not be achievable.

There would be significant increase in non-performing loans(NPL) and business failures.










Reduced corporate profits or losses would mean less income taxes going into government coffers, which among other things, would affect the government budget.New sources of funding would have to be found to finance the budget.Unless there is sudden upswing to the current gloomy global conditions the general economy will face serious contraction in the next few months which would affect the value of the ringgit.The ringgit may be traded at 3.80 to 4.00 range by 1st Quarter 2009 if no viable solution is found to stimulate growth.

Now that oil price has gone down substantially the prices of consumers goods have not come down and would not go down if there were no interference from the government to stop traders from profiteering.The only fast solution to bring down those prices is to bring down the price of petrol and diesel as quickly as possible.

By now the government should have a plan on how to combat the adverse effects of the global recession, somehow, there seems to be none so far.

It would be advisable to abandon the plan to prop up the shares market and set aside the money as contingency for other emergency uses should the need arises.

The next few months will see how precarious the problems would be.

Below is an extract from an article in Bernama on 25th October:
The situation has clearly made all countries vulnerable including Malaysia, an analyst said. "Eventhough the domestic economy is still strong and not expected to go into recession, foreign portfolio funds have continued to flow out to meet redemption by the investors in their respective home base.
It is economist and analyst like this that the government like to listen to.

It appears the leaders are more concerned with the UMNO Elections and spent more time jockeying for positions in the party rather than spending time to call for emergency sessions to find ways and means to shelter the nation from what would probably be the worst recessions in many decades.

The solution would be to bring the UMNO party elections back to December and be done with it so those taking the helm can get down to business of running a nation.

Note:I have earlier written this article under inappropriate title.I have added new features and updated some of the contents.I would call it re-branding and is what exactly our government need to do to get back the people's trust.They need to re-invent and re-branding.

The Ugly Extortionists

Hantu Laut

Got back my Streamyx yesterday after one week of screaming obscenities at TmNet's talking machines.They have gone completely futuristic, you talk to a machine that talk endlessly about the company but can't understand your plea for help.This company is helmed by a bunch of jackasses.A typical trademark of government-linked companies.

On 11 October I wrote on the expected price decline of crude oil due to declining demand in global consumption brought about by the global recession.

In my article "Where Crude Oil Heading For" I predicted that price would fall below the US$50 per barrel before the end of the year.OPEC is now taking steps to cut down production to stabilise prices.

Many OPEC members were over-spending their windfall for the past 18 months on the assumption that oil price would stay at high level.The spending spree in some OPEC countries have been unashamedly financed by other consuming countries forced to pay ridiculously high price for one of the most essential commodities in the modern world without which it can bring untold human miseries and paralyse the world's industry.The high price have to certain degree played an important part in the global economic chaos.

OPEC accounts for 40% of global oil supply and can influence or control prices in a stable economic situation by cutting or increasing production output.In a severe economic downturn the law of supply and demand would decide the idle price the global market should pay.The picture is increasingly moving in that direction and OPEC are now trying to stop the price free fall with cut in production, which they will find increasingly difficult to control as the recession moves into high gear in other industrialised countries.There would be major decline in industrial output in India and China starting in the 1st quarter of 2009.

OPEC countries have benefited and compensated by the strengthening of the US Dollars the past few weeks.Price is now steadying at US$67 a barrel and would dip further as more bad news come out of the global economy.

Below is what I wrote in my earlier article:

"With increasingly high unemployment in the developed economies, industrial outputs are going to plummet to a low level and consumption of energy would likewise follow.

As more people lose their jobs, businesses going into bankruptcies and reduction in global industrial outputs the demand for oil would show a sharp decline.Consumption would continue to decline as long as the global economy continue to shrink which is expected to continue well into 2009.With reduced global demand prices are expected to fall below US$50 a barrel before the year ended.

If the global recession become hard-headed and carry on without any sign of recovery than prices may even drop below US$30 per barrel by the first-half of 2009."

The oil-producing countries have had it too good and have been totally inconsiderate to poorer countries by demanding ridiculous price for their oil.

I believe crude price should stay around the US$50 per barrel, a reasonable threshold for both oil-producers and the rest of the world.

Anything more is extortion.

Malaysia Fast Asleep

Hantu Laut

"Yesterday the Dow went up 11% and every where other markets soared.The Nikkei went up 12% in a day.Will the trend continue or was it a flash in the pan before the big dive to the abyss of economic disaster." Hantu Laut, Wednesday 14 Oct.

That what I said when the world's stock exchanges made dramatic recovery 3 days ago on a false sense of emboldened euphoria.The good feelings have now manifested into stark reality that the world might have to face the inevitable adversity of its own making.What happened to the world's economy today is not adventitious but the result of human folly.

As citizens I think we have the right to know what actions the government has in store to lessen the burden on the people in the event we go into a recession.High unemployment and business failures are two most imminent things in a recession.

The Nikkei was down 11.41% at today's closing, Hong Kong about 7% and Seoul 9.44%.The European markets which had just opened declined with the London FTSE down 5.17%.Most of the gains on Tuesday's rally have either been completely wiped out or are in bigger negative territory.

Bad news bear no significant in Malaysia where politics is still the master of the day.The sky might come down on Malaysia and if pigs have wings we would still be as strong as ever and no conundrum is beyond our ability to overcome.Both the Prime Minister and Deputy Prime Minister have full confidence in our economy to being able to withstand the onslaught of the global recession.

Deputy Prime Minister and Finance Minister Najib Tun Razak visited Kota Kinabalu yesterday to officially launch the Sabah International Expo 2008 and said "We Won't Fare Badly" and that the Malaysian economy is resilient and can withstood the global financial meltdown and recession.

I expect the KLCI to drop at least between 3 to 4% at today's closing.The ball will start rolling down hill from now on with small rebounds every now and then before the finale.

"The whole world is in financial turmoil.Malaysia is still in a slumber.More concerned with politics than state of the economy.The KLSE is the only exchange that is not in sync with the other markets.Are we fundamentally strong or are we living in a state of denial.Watch the market next week." Hantu Laut, Friday Oct 10

Malaysian leaders need to wake up to reality.Even our neighbour down south, Singapore has officially announced they are going into a recession and here, they are still playing politics and telling the people not to worry as we can overcome the crisis.

Can we ?

Badawi's State Of Euphoria II

Hantu Laut

Prime Minister Abdullah Ahmad Badawi is confident that Malaysia will not have a recession and will not be affected by the contagion of the global financial meltdown.He said we have a strong reserves, strong surpluses,high savings and a stable currency.These are all true and there is no doubt that Malaysia can ride over the global upheaval provided the government took measures to pump the economy and keep investors' confidence alive.

In this particular exercise keeping the banking system liquid and no tightening of credit would help keep normal businesses to function and confidence in the economy for new investments.However, GDP growth may be affected by declining industrial output due to declining demands from overseas markets.This will not give us any choice or flexibility.

Malaysia is a major exporting nation and most of our manufactured products are exported overseas.The US is the biggest market for Malaysian products.To say we will not suffer the effect of the contagion may not be all that true.With less demand there would be decline in our industrial output and that would mean rising unemployment due to retrenchment of workers,reduced GDP growth and less spending.With less economic activity there would be less consumer's spending which is an essential element in a thriving economy.

With less economic activities and falling prices of crude oil the government would have less revenue in the form of reduction of income taxes,other taxes and less oil revenue.

Government debt is expected to rise substantially to meet the shortfall by the issuance of government bonds.A strong reserve is one thing.It is money to back liabilities and currency, not spending money, unless the government is thinking of drawing on the reserve.A currency is only as good as the confidence it has in the foreign exchange market and this confidence can evaporate very quickly if there were erosion of confidence in the economy.

A recent example of how fast a currency can depreciate is the Australian Dollar that was trading against the ringgit at its highest of 3.15 in June/July this year is now around 2.20 and against the US Dollar at o.98 and now 0.65.

For some unknown reason there always seems to be a time lag of 6 to 12 months before we catch the flu.Past recessions had shown that this region did not get the immediate effect of recession in the West but only suffered the consequence much later.

Although the global economy is more resilient now and many lessons have been learned from past upheavals, the recent meltdown that caused failure of the financial system were human greed compounded by government failure to regulate the financial markets.

Yesterday the Dow went up 11% and every where other markets soared.The Nikkei went up 12% in a day.Will the trend continue or was it a flash in the pan before the big dive to the abyss of economic disaster.

I believe the markets would stay good as long as the leaders of the world continue to support the bailouts of the troubled global economy.Any slackening of this support would spell disaster.

In the 1930s Depression 744 US banks failed in the first 10 months of 1930 and a total of 9,000 banks failed throughout the period.With almost everything including food production on downward spiral there were widespread hardship and starvation and it was the worse depression in modern history.Its recovery culminated with the 2nd World War.

The world leaders had probably learned from it and took immediate action to intervene in the present financial meltdown before it went out of control.

The government should not listen to Anwar Ibrahim asking for review of the budget.Any cut in development expenditure would dull economic activities and bring about economic downturn, which was exactly what he wanted to happen just to discredit the government and gave him opportunity to take over.What the government need to do is to trim operating expenditure and downsize the civil service.A chance I believe the government wouldn't dare take.

However, it would be imperative for Prime Minister Abdullah Ahmad Badawi and his successor Najib Tun Razak to ensure that money are wisely spent and ensure less wastage through corruption,nepotism and cronyism.

Majority of Malaysians are fed up with the excesses of those in power.Now is the time to show the people that the government is capable of change.

Read also:
Badawi's State Of Euphoria

Weathering The Storm

Hantu Laut

The US$700 billion bailout bill was passed by the US Congress with vote of 263 for and 176 against. Wall Street has successfully clobbered the US Government into submission into giving it huge sum of money to save it from total annihilation and save the nation from the brink of economic catastrophe say promoters of the bailout.

The passing of the bill was overwhelmingly supported by the Democrats.There were 172 Democrat votes and only 91 from the Republican.More Republicans(108) opposed the bill.They do not see it fits to support their Republican President.The passage of this bill was made possible by sweeteners given to some congressmen for their constituents, promises of tax breaks and other incentives. In Malaysia the oppositions would call it bribery and corruption.

America faced serious liquidity problem with huge NPL(non performing loans) in the mortgage markets that have affected other sectors of the economy.The tight liquidity had made bank borrowings difficult to secure.In simple term the banks don't have enough money to lend or those that have are reluctant to lend for fear of default.Without the bailout the economy could grind to a halt.A period of depression is not a far-fetched scenario.

In September 159,000 jobs were slashed bringing total unemployment figure to 800,000 for the year, sign of a sinking economy. With credit slowing down and in some cases dried up most businesses find it difficult to conduct their routine business.The credit crunch have adversely affected those seeking finance for their businesses and those seeking personal financing.It's the men in the street that suffered most rather than those on Wall Street.Those on Wall Street would have accumulated huge stacks of cash to ride the recession in comfort.

America is a big consumers society with very low saving rate.Majority of American live on credit from buying their houses,cars,furniture to their daily needs.

Cyclic recession is a normal phenomenon in the economy when the bubble had overinflated and needs to burst to readjust.It would bring contraction to the economy.

What you see now is not the normal circle but the folly, irresponsibility and greed of men.The desire to amass fortunes as fast as possible through highly speculative financial instruments. In the case of Freddie Mac and Maggie May most of their troubles started when they over-extended their credit facilities through indiscriminate lending and massive factoring of mortgages from other financial institutions with tacit support of the Bush administration.

The Federal Reserve and the Treasury as supervising and regulating bodies would have to shoulder much of the blame for allowing the situation to deteriorate to such unmanageable level where they could have intervened earlier to stop the rot in the financial system.Bernanke may not have the nose and ears of former Chairman Alan Greenspan.

Now that the bill has been passed by Congress it would be imperative for the US Government to find out what causes the meltdown and who were responsible for it.

Our Deputy Prime Minister Najib Tun Razak recently said that Malaysia would not be affected by any recession or financial meltdown in the US, I would urge the DPM to re-consider his conclusion that we are actually insulated against such economic disaster. Instead, as Finance Minister he has the responsibility to take precautionary measures to protect the economy.To simply say we are impregnable is reckless.Malaysia as an exporting nation is dependent on the global economy.A sick USA would make the whole world sick and Malaysia would suffer more because of its significant volume of trades in export.

Beware of so-called financial experts who intentionally give wrong advice to make sure you make mistakes and undermine your position.

America A Bankrupt Nation: Mahathir Was Right

Hantu Laut

President Bush appealed to the nation on Wednesday night to support the bailout financial package of $700 billion to avert a financial meltdown on Wall Street and a prolonged recession that could have serious repercussions on the nation and American people."Our entire economy is in danger" he said.

America is now in early stage of insolvency.Without the rescue package it would be a bankrupt nation.

In the 1997 East Asian financial crisis almost the entire East Asian countries were not spared the effect of the meltdown.The crisis was triggered by the collapse of the Thai baht in July 1997 which led to currency and financial crisis with domino effect that eventually affected other countries in the region.The financial anomaly led to recession in most of those countries.

However, the Malaysian economy and population were not as badly affected by the recession as compared to Thailand,Indonesia and South Korea.Although Malaysia indebtedness was quite high at that time the foreign debt was much lower and unlike Indonesia was not in default of its repayment.Its foreign liabilities did not exceed its foreign exchange reserves so the country was not in dire need of emergency credit facilities including those from IMF (International Monetary Fund)

The meltdown was due to highly speculative currency trading that was traced to one of the biggest fund managers and currency traders George Soros as the culprit who speculated in currency of the regions making billion of dollars for his hedge funds and himself and caused those currencies to collapse.Subsequently, the stock market collapsed and the KLSE Composite Index which stood at 1300 in early 1997 dropped to a low of 262 by September 1998. Mahathir the prime minister at that time blamed Soros and took defensive action to avert a financial disaster by pegging the ringgit.The peg slowed down the flights of capital and ended with war of words between Mahathir and Soros and criticism by the Western media and Western governments of Mahathir's unilateral action.Even his own finance minister at that time didn't agree with him and was one of the many things than that drove them apart.

The 1997 financial meltdown caused the Malaysian government to restructure and amalgamate its financial institutions and bailouts some of the troubled government linked companies

The American government was highly critical of Mahathir's political and financial policies at that time and didn't foresee that they would one day face even worse and more embarrassing situation.They accused Mahathir of bad governance,corruptions and a government that is not accountable to the people.

What causes the financial meltdown in America.A number of things and GREED is top of the list.

Highly speculative trading on Wall Street, over extended sub-prime sector, pay for failures CEO with huge paychecks, over-innovative financial system, poor financial governance and a society that live on credit.

The American stock markets and financial system are tailored to make the rich get richer. Short selling which is a dangerous form of share trading is rampant on Wall Street and financial institutions are willing to finance this risky business because they are conducted by big hedge funds and investment banks.

Britain is contemplating a permanent ban on short selling after the bashings of bank shares in the past weeks.Prime Minister Gordon Brown defending the recent ban said "when a group of people are exploiting a difficult economic situation, it is right to stop it." and said "I think you'll find new rules come in for the future...We have very unusual and volatile financial markets . It would be wrong for good companies to be brought down by speculators."

This will be the most expensive bailouts in the history of the US.Where are the money coming from ? Print more greenback, sell more Treasury Bills or go to war and sabotage the economy of other countries ?

If the American economy collapse and the greenback become useless many countries would go down with America. Their foreign reserves would be devalued and become almost worthless.

Mahathir was the only man who foresees this coming over a decade ago and the West ridiculed him and branded him as anti-Westerners.They condemned him for pegging the ringgit and the bailouts of some of the troubled government-linked companies during the Asian financial crisis.The man certainly has vision 20/20.

George W.Bush is going to put the money where his mouth is and hand over a very shattered economy to his successor.

The rest of the world have no choice.Rescue America or go down with it.