OUTSIDE THE BOX
JUJITSU is a Japanese martial art developed around the principle of using an attacker’s strength against him.
In his column “Clouds On The Horizon” (September 18, BusinessMirror) Sen. Manny Villar described the many challenges that the country and administration’s policy-makers are facing. He concluded by saying, “The Philippines should not only prepare for the worst, but also work to sustain its performance in the first quarter. This would not be easy. It will require determination and hard work to post gains, inch by inch, to reach the peak of the economic hill. And it is time, now more than ever, for the Philippines to draw on its inner strengths.”
The numerous obstacles that must be managed are internal and external. However, as the senator pointed out, they are relatively clear and straightforward. So why are the solutions so elusive?
On Tuesday the President said, “his administration is working diligently to come up with “creative solutions” so that all challenges may be addressed in the shortest possible time.”
Imagine this roundtable discussion. “The airport here in Manila is a mess. The runways should be longer. And we need more runways. The location is hazardous in a heavily populated area. Road access to the airport is a nightmare. The domestic terminal cannot handle the number of passengers. The international terminal is old, inefficient, over capacity and tourists hate it. Any suggestions?”
“Well, if tourists hate it, let’s build a new terminal or even two.”
Now listen to this discussion. “The airport here in Manila is a mess. For a variety of reasons, it is severely limiting the company’s ability to maximize profits. Any suggestions?”
“Well, if the current airport is hurting profits, let’s build a new airport.”
The first conversation shows the “creative solutions” of the government. The second shows why the private sector is successful.
What caught my attention in Senator Villar’s column was “And it is time, now more than ever, for the Philippines to draw on its inner strengths.”
The Philippines has some incredible strengths. But it seems that the government is using those strengths against the country like a deranged Ju-jitsu master.
Looking at the way the government operates, it might as well be 1898. With the speed at which the government moves, it is as if they are waiting for approval from the colonial governor-general to come by clipper ship.
The PHL is one of the most highly mineralized places on the planet, yet mining’s contribution to employment and economic activity is lower than it was 30 years ago.
The Mining Act was passed in 1995, 17 years ago. Multiple governments worked to rationalize the industry. The current administration said that it needed a year to put order to the mining industry to benefit all and answer the concerns about this business. Then it took nearly two years. And now we are told it will definitely be done by 2016. Is there a reason why “creative solutions” from the PHL government take a generation to create?
The PHL should be a major global tourist destination given its people and natural features. The government is making a major thrust on increasing tourism. For years we have heard how the PHL was going to become a major medical tourism destination, or was it dental tourism, maybe it was eco-tourism. Why wasn’t the government concentrating on “Fun Tourism?” But that’s ok because now we have a new slogan. The Department of Tourism projects 4.5 million visitors this year. Thailand gets that many in three months. Why?
Because the PHL is a difficult tourist destination and few really like coming here. From ABS-CBN reporting on the most recent survey: “The reputation of these two Southeast Asian nations [the PHL and Indonesia] is impeded by poor infrastructure, fears over safety, concern about corruption and regular word of mouth accounts of poor visitor experiences.” Indonesia I can understand since Muslim terrorists bomb hotels in the capital city.
What major improvements has the government made in the last 10 years to make PHL more “tourist friendly?” The government always has many project ideas and complains about not having money. How about borrowing some of that $80 billion that the Bangko Sentral is sitting on? And this is real money, not the funny money that the US government is borrowing from the Federal Reserve.
If as Senator Villar says, there are clouds on the horizon, then the PHL needs a government that knows how to make good quality umbrellas. The PHL is unfortunate to have had a succession of policy-makers that have been unable to advantageously use the strengths of this country and its people. And it is time for the Philippines to finally draw on its inner strengths.
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Friday, 21 September 2012
Wednesday, 19 September 2012
A PERSON suffering from hypoglycemia (low blood sugar), often a result of diabetes, might eat a piece of fruit or candy to get his body functioning properly again. But it is a temporary treatment only, as this emergency remedy does not solve the long-term problem and, if done too often, may actually make the condition worse.
Now you completely understand why quantitative easing (QE) has been and will continue to fail.
The US Federal Reserve announced this past week its QE3 program, which will see the Fed pump at least another $600 billion into the US economy. Some economists see the number rising to as much as $2 trillion. That is because there is no cap or time limit on this latest QE. The Fed intends to keep interest rates at near zero for as long as it takes to get the economy running properly again. It will do this by buying Mortgage Backed Securities, which means that home buyers will pay a lower-than-market rate for their mortgage. By lowering the mortgage interest rates, the Fed expects more home sales, as housing and related industries making up as much as 30 percent of the US economy.
The Fed has only two tools to push the economy. It can keep interest rates low or it can loan money to the national government, which then puts that money in the economy through a variety of ways.
This is an offshoot of Keynesian economic theory that says that the government can pump prime the economy. It has not worked before, and it will not work now because the US economy is already overloaded with debt.
The Fed believes there is not enough cheap money in the economy. It is wrong. US consumers and businesses are holding nearly $9 trillion, the most in history, in low-interest-paying bank accounts. In 2010 that amount was less than $8 trillion. Americans have saved $1 trillion in two years. That means that the banks have $9 trillion to lend at low interest rates. No one wants to borrow that money to spend to build the economy. More cheap money pumped into the economy through low interest rates will have a negligible effect.
Americans are not spending because the economy is not creating enough good-paying jobs. Most of the significant job creation is in the lower-paying service industry. Moreover, when fearful of the future, people save and consumer confidence has been falling most of 2012.
Why is the USA still doomed?
I wrote back in June to expect this round of QE before the end of September. It is a political move to bolster Obama’s chances of re-election. On the news of the Fed program, credit-ratings company Egan-Jones lowered the rating of the US to “AA-” from “AA.” In its downgrade, the firm said that issuing more currency and depressing interest rates “does little to raise the US’s real gross domestic product, but reduces the value of the dollar.”
So who cares if the US dollar is weak? It creates something I have spoken of many times: currency-induced cost-push inflation. This type of inflation creates asset bubbles that occur regardless of supply-and-demand factors. The euro is up a massive 8 percent since the end of July, while Europe drowns in debt.
The Dow Jones is up 13 percent since June, while companies like Hewlett-Packard and Cisco drop jobs. So far this year, US banks have announced more than 17,000 job cuts. While cost cutting may have a temporary positive effect on profits, those people being fired are the future customers. US industrial production fell 1.2 percent in August, with consumer goods dropping over 1 percent and utilities reporting a huge 3.6-percent fall in output.
Demand is down and supply is stable, but crude oil is up 27 percent since July. Consumers are buying less, and yet inflation is up 2.1 percent year on year.
Currency-induced cost-push inflation is disastrous for the US economy as price increases are both shrinking businesses’ profit margins but also increasing costs for essential goods, leaving little left over for expanding economic activity through discretionary spending on that new gadget. And how do Americans pay for the new iPhone? Credit cards, another form of “fake” money.
The current QE3 will not boost the economy fast enough to provide money to pay down the $16 trillion worth of government debt. Because of slow growth, the US standard of living will continue to fall. Currency-induced inflation will cripple the ordinary citizen.
The US is doomed and countries like the Philippines are the winners.