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3/17/2010

The unfathomable depth of intelligence

The whole world is so foolish. Why are they so afraid of inflation? Why are they so afraid of high property prices and property bubble? And the Americans too are getting silly, trying to curb speculations in derivatives and hedge funds activities and more stringent regulations on their brilliant bankers. And what is so wrong with huge income gap between the rich and poor? The bigger the gap, the better. They should come down to paradise and take a lesson or two on how good inflation is, how good high property prices is, how good deregulations and hedge fund activities and derivative tradings are. And they would surely be impressed by our world class number one income gap between the rich and poor. We are the best, with the unfathomable depth of intelligent beans, everything is just fine. Oops, my mistake, I mean demigods and immortals.

2 comments:

Anonymous said...

the income gap between rich and poor is still affordable,
no one has starved to death.

singapore is still net importer of maids and FWs, inflow of human traffic far exceeds the outflow.

no worries, still looking good.

Matilah_Singapura said...

The central banks of most countries are engaging in what is known as "competitive inflation" in order to "be comprtitive". This is one reason for inflation, but not the only reason.

Supposing country A inflates. Country B is a customer of A. Therefore B in terms of its own currency, B pays less for goods bought from A.

However B's exports are now more expensive relative to A. A's other customers C, D etc. now prefer to buy from A because in terms of their currencies they pay less when buying from A than buying from B.

The drop off in exports means workers lose their jobs as export-dependent business finds it harder to compete.

The govt and central bank of B sucummbing to political pressure from unions, business and people who are scared of losing their jobs, and those who already have, thus "have no choice" but to lower the purchasing power of B's currency to "be globally competitive".

However inflation (of the money supply) is not without consequence. The usual consequence is a rise in the general price level and asset inflation. The expansion of credit through the fractional reserve banking system (banks can lend > 10 times what they have in reserves) due to low interest rates (a feature of excess money supply) drives up business activity, real estate prices, stock and commodity prices and inflates business profits and profit forecasts causing entrpreneurs and investors to make errors in allocating resources.

Think about it like this: a guy is building a house and his idea is to build as big as possible as if the supply of bricks and concrete were infinite. Reality bite and he soon realises that there is no such thing as infinite resources. This is the kind of error made by investors and entrepreneurs during an inflationary boom

So will there be a crash? Absolutely. When it will happen no one can say for sure, but it will happen, and the few lucky ones who have a "feel" for market dynamics can make a fortune in real wealth and assets.

My mentor beach bum, a well-known flamboyant businessman in S'pore, tells me he only "works" twice a decade at the most. As soon as there is a collapse in property, he's out there buying buildings and land from folks who paid too much (during the inflation where prices skyrocketed and The Herd went nuts) and are hemorrhaging from their debt.