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11/29/2008

Act now before the next meltdown

This is the heading of an article by Paul Krugman in the New York Times and reprinted in the ST today. His primary concern is the failure to look at the serious problem when all the early signs were there which led to this financial meltdown. America pulled throw several near disasters, at the brink of collapses, but instead of understanding how they got so close to failures, gave themselves all the encouraging and triumphant pats on their backs, and pronounced how clever they were to avoid the falls. The lessons to be learn is to sit back and take a quick look at our own situation and examine if we are sliding towards the edge. And I think we are. The psyche and culture of greed and instant wealth will burst our bottoms before we know it or see it coming. We are in a state of delusion and intoxicated in our past successes. We have triumphed over all obstacles and we think we can continue to bullshit our way through. The thing is that if we are hit by a version of the American financial tsunami, I don't think we can absorb the blow. We would have to sell everything, including father and mother, to get back on our feet. Where are the fault lines? The stock market is one. You cannot build a market that is dependent solely of foreign funds and support to survive. Trying to be a mountain when we are actually an anthill is not only being ambitious, but maniacal. For the moment our market still looks like it is a big market with huge volume of trades executed daily. In reality it is like a hologram. Fictitious trading, or left hand to right hand, is the reason for the high volume. Then there are the rules and mechanisms that do not provide a level playing field for all players have distorted the meaning and viability of the stock market. It is waiting to collapse. Wait till the funds pull out. We will be left with a gaping hole to fill. The high property prices, particularly in the private sector, which also affect the prices of public housing. When the citizens have to pay a life time ransom for a place to stay is perceived as good and healthy, it tells a lot about the faulty mindsets of supposedly brilliant people. The high cost of properties is unsustainable in the long run as it will require a high income to support the prices. In the case of private properties, the few local super rich have bought whatever they could and are waiting for some suckers to offload from them at a profit. But the locals from public housing would barely be able to do it, except for a very few. So open the flood gate for foreign suckers to come in. And that is good. Sell our limited land to foreigners with the dole. Keep building more and more and at ever higher prices. The music will stop one day. The corollary to this madness is the rentals of shops, houses and factories. Just keep driving them up and the landlords will laugh all the way to the bank. One Tay Boon Yong wrote to the ST this morning complaining that his landlord, the HDB, has just informed him that his rental will go up by 20% in January 09. I presume someone will say this is inevitable, imported inflation, or HDB is now a private organisation and must answer to its shareholders, or profit is good. I am so tempted to use the 4 letter word here. Quick profit, by sheer market forces of supply and demand, is the easiest way to make money. The next easiest is monopoly or by edict. In the tiny world of ours, it is so easy to corner the market and put undue pressure to create the forces that favour high prices of everything. Even public transportation will be a victim of such a mentality. Hospitals, education, and anything, can be manipulated by quoting market mechanism or forces as an excuse to raise cost and price. If we keep going down this road unchecked, a few silly buggers who think that they are smart enough and fortune will smile on them forever, will think this is the best way to go. But the majority, which will also count these silly smart asses, will not be able to cope in the long haul. Many will have to struggle all the way while the few smart asses will have their turn to cry when fortune slams the door in their faces. The ancient wisdoms of thrift, lower cost, steady and sustainable growth in small increments are not called wisdoms for nothing.

3 comments:

Anonymous said...

'They listen, but they do not hear'.

This is said by a Russian Military Personnel when asked about whether the Americans have learned anything from the experience of the Russians in Afghanistan.

Anonymous said...

It is safer i.m.o. to assume that Krugman is wrong by default unless proven otherwise.

redbean said...

the problem is that krugman is talking with the benefit of hindsight. if his article will to appear a year ago they will call him mad or not even worth printing.