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View on 2nd Financial Stimulus Package

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bluez_aspic
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  #11 Old 13-02-2009 Default Re: View on 2nd Financial Stimulus Package

re: currency devaluation

There is a wonderful chapter in von Mises' Human Action dedicated to this topic. Excerpt:

Quote:
The objectives of (currency) devaluation are:

1. To preserve the height of nominal wage rates or even to create the conditions required for their further increase, while real wage rates should rather sink.

2. To make commodity prices, especially the prices of farm products, rise in terms of domestic money or, at least, to check their further drop.

3. To favor the debtors at the expense of the creditors.

4. To encourage exports and to reduce imports.

5. To attract more foreign tourists and to make it more expensive (in terms of domestic money) for the country's own citizens to visit foreign countries.


It is impossible to take seriously the arguments advanced in favor of devaluation. They are utterly confused and contradictory.

If one looks at devaluation not with the eyes of an apologist of government and union policies, but with the eyes of an economist, one must first of all stress the point that all its alleged blessings are temporary only. Moreover, they depend on the condition that only one country devalues while the other countries abstain from devaluing their own currencies. If the other countries devalue in the same proportion, no changes in foreign trade appear. If they devalue to a greater extent, all these transitory blessings, whatever they may be, favor them exclusively. A general acceptance of the principles of the flexible standard must therefore result in a race between the nations to outbid one another. At the end of this competition is the complete destruction of all nations' monetary systems.

The much talked about advantages which devaluation secures in foreign trade and tourism, are entirely due to the fact that the adjustment of domestic prices and wage rates to the state of affairs created by devaluation requires some time. As long as this adjustment process is not yet completed, exporting is encouraged and importing is discouraged. However, this merely means that in this interval the citizens of the devaluating country are getting less for what they are selling abroad and paying more for what they are buying abroad; concomitantly they must restrict their consumption. This effect may appear as a boon in the opinion of those for whom the balance of trade is the yardstick of a nation's welfare. In plain language it is to be described in this way: The British citizen must export more British goods in order to buy that quantity of tea which he received before the devaluation for a smaller quantity of exported British goods.

The devaluation, say its champions, reduces the burden of debts. This is certainly true. It favors debtors at the expense of creditors. In the eyes of those who still have not learned that under modern conditions the creditors must not be identified with the rich not the debtors with the poor, this is beneficial. The actual effect is that the indebted owners of real estate and farm land and the shareholders of indebted corporations reap gains at the expense of the majority of people whose savings are invested in bonds, debentures, savings-bank deposits, and insurance policies.

There are also foreign loans to be considered. When Great Britain, the United States, France, Switzerland and some other European creditor countries devalued their currencies, they made a gift to their foreign debtors.
The myth here is that a weak currency is the key to economic growth; but - as Mises argues - currency devaluation for the sake of it (like all forms of monetary inflation) redistributes wealth, makes a nation poorer as a whole, and if carried out long enough is capable of inflicting tremendous harm on both sides. So a weaker currency can boost exports in the short-term, but only at the expense of a reduction in domestic purchasing power.

Some of the richest economies in the world have strong currencies.

People can devalue their wealth if they want, so long as they don't devalue mine.



re: wealth production and employment

The economic goal of any nation is to get the greatest amount of material wealth, with the least amount of work and resources. This objective may seem obvious - but from this perspective, I don't really understand why the deadly obsession with employment and production. It is true that to maximize wealth requires full employment so that fullest production is achieved - but employment is but means to an end. To have employment for the sake of it is silly - a nation can employ people to dig holes in the ground and fill them up again, but it does not emerge wealthier as a hole (haha). Similarly, production for the sake of it is silly too - you can be producing a lot of stuff which nobody really wants.

The dream of the ages has always been to satisfy all your material wants without having to work anyway.

Last edited by bluez_aspic; 13-02-2009 at 10:12 AM.
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Throne911 Male
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  #12 Old 13-02-2009 Default Re: View on 2nd Financial Stimulus Package

Yes thats the dream..to want all material things without working hehehe.

The obsession of both productivity and employment is from a country's point of view (IMHO). Of cos we only produce something that people / other nations wishes to buy =)

Most of the time employment would be the first to happen...generally the higher the employment..means the higher the demands for your goods / services and in turn the more incomes govt can generate (via taxes). These taxes would than be channel back into the construction and/or maintainece of infrastructure which increase the productivity..eg better tranportation and coordination.

Production is normally measures in terms of units produce so it does not mean full employment = full production. Production can be increase thru innovation to make things faster and/or better with the same or even less people employed. Better goods commands a higher prices = more profits = higher taxes.

Take olive oil for an exmple (of a better product)...walk thru tesco or any supermarkets....u'll notice there are few kinds of olive oil namely:

1) Extra Virgin Olive Oil
2) Virgin Olive Oil
3) Olive Oils

(Note : Even in each categories there are many different grades)

The prices for all 3 are different..the most expensive being the (1) as it is the best of all the of the categories.

Example 2 : Assembly of cars (faster production)

say a factory manufactures 15,000 cars a year and has 4 assembly lines. Previously cars were manually assemble part by part....every assembly line got approximately say 50 ppl

4 x 50 = 200 ppl

But with automation...the factory could probably only need 20 ppl (80 ppl in total) on each assembly line and can produce 20,000 cars a year.

PS : Hopes this helps =)
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Leen
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  #13 Old 23-02-2009 Default Re: View on 2nd Financial Stimulus Package

I'm quoting vikraman here.

A) Remove NEP.
B) Enact Race Relations Act banning all forms of racial discrimination in both government and private sectors.
C) Dissolve and ban race and religion based political parties.
D) Sack all inefficient members of bureaucracy and cut down red tape.
E) Enact Media Ownership Laws banning peoples with vested interests in owning any part of the Media.
F) Repeal the Big 5. ISA, OSA, PPPA, Dangerous Drugs (Detention), Sedition Acts.
G) Revert to 1963 Constitution (with amendment for removal of Royal Immunity.)
H) Strengthen protection of individual rights (Copy and Paste American Federal Constitution Bill of Rights?)
I) Remove Executive Control of Judiciary by creating a fully independent JAC (Not a watered down, UMNO-ised one.)
J) Institute a fully independent Anti Corruption mechanism and ombudsman mechanism for both government and private sectors.

Agreed completely up to this point.


K) FORCEFULLY RENATIONALISE ALL GOVERNMENT LINKED COMPANIES.

Erhmm.. what will that do though?

L) SELL OFF ALL NEWLY RENATIONALISED GOVERNMENT LINKED COMPANIES ON A PIECEMEAL BASIS AT FAIR PRICES.

Oh, so you want to make GLC into government properties and resell them? You mean privatizing them?

M) Institute anti-monopoly and anti-competition laws.
N) Dedicate Money from oil royalties to a national welfare fund for people living in difficult conditions. (Unemployed, Disabled, Single Parent, Senior Citizens etc.)

Agreed

O) Enact Minimum Wage Laws.

I will disagree on this issue. I understand that welfare is important but a price floor (like minimun wage) will cause a lot of problems. Just look at how union works in US. It hurts the automobile companies so badly.

Q) Allow Labour Unions to operate freely and without restriction.

Again, I do not see unions as such a good thing because sometimes, their demand can be ridiculous.

I'm not commenting on the rest
However, I will like to see Freedom of Religion and definitely Freedom of Speech to be enacted in Malaysia. Don't joke with me saying that there is freedom of religion and speech here. It's a joke and I don't buy it for good reasons.

----
And I know the above has nothing to do with the financial stimulus. So I will comment on the stimulus package here.

It is not a good idea to poor in so much cash into the system. It is not a good idea to borrow more money from different countries to fund the package. This is because:

who's going to pay for the debt?
Next generation. The children and the grandchildren of this generation will be paying back the debt. I consider this action as irresponsible. How dare you put your own mistakes on your children's shoulder to bear? How dare you borrow from your kids and have them clean up your mess for you?

I think the union should take pay cut drastically for their workers. I think the banks should be protected and be split into 2 (1 to let it die with the bad debt and the other to go on doing normal business). I'm not too good at explaining but I'll let you read more here. http://www.voxeu.org/index.php?q=node/2807
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vikraman Male
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  #14 Old 23-02-2009 Default Re: View on 2nd Financial Stimulus Package

Quote:
K) FORCEFULLY RENATIONALISE ALL GOVERNMENT LINKED COMPANIES.

Erhmm.. what will that do though?

L) SELL OFF ALL NEWLY RENATIONALISED GOVERNMENT LINKED COMPANIES ON A PIECEMEAL BASIS AT FAIR PRICES.

Oh, so you want to make GLC into government properties and resell them? You mean privatizing them?
All the "privatizations" up to these points have been to sell of valuable state assets to cronies and people who are unable to effectively manage and improve the value of the companies. Also many of them (TNB, Telekom) operate monopolies. What I'm suggesting is all this cronies be cut out. All the assets be re-nationalized and then resold in parts to whoever makes the best bid (thus creating competition in telecoms, energy, construction sectors). I don't want to see the government holding on to these assets any longer than absolutely necessary to realise their fair long term value. We were hopelessly cheated in the 1980's "mahathirization-privatization exercise".

Quote:
O) Enact Minimum Wage Laws.

I will disagree on this issue. I understand that welfare is important but a price floor (like minimun wage) will cause a lot of problems. Just look at how union works in US. It hurts the automobile companies so badly.
A minimum wage is absolutely necessary to increase the base standard of living so that people can survive. I'm not in favour of a ridiculously high minimum wage that slows down growth but a fair one enabling a person to live a life of dignity. Today the average hourly wage in many sectors is RM4 an hour. Working an average of 44 hours a week a person can earn at most RM176 a week. That works out to be RM704 a month. The level of income classified as hardcore poverty in KL is RM723 a month. People end up working 75 hours or even 80 hour weeks to make ends meet. Do you know what that does to people? It kills them. All the free market rhetoric is not going to feed these people.

Quote:
Q) Allow Labour Unions to operate freely and without restriction.

Again, I do not see unions as such a good thing because sometimes, their demand can be ridiculous.
That's for them to sort out with their companies. We should not be butting in.
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  #15 Old 23-02-2009 Default Re: View on 2nd Financial Stimulus Package

Quote:
Enact Minimum Wage Laws.
I agree but don't you think that the employers might make this an excuse to cut down workforce or terminate the employment of those low skilled/low productivity workers during this economic tough time?
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vikraman Male
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  #16 Old 23-02-2009 Default Re: View on 2nd Financial Stimulus Package

Here's some Troubled Asset Relief Program for you.





















Tell you something??
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  #17 Old 19-03-2009 Default Re: View on 2nd Financial Stimulus Package

Actually, in the US, the TARP does do something. It basically propped up the economy for now. When Merrill Lynch and Lehman Brothers collapsed, the US economy was just days away from collapsing without any intervention. Malaysia has just entered the recession, and probably will take the next year and the half to recover, depending on government actions.

I agree, it seems like we are throwing good money after bad money, but, economy growth subsists on liquidity, and just like any dynamic system, even that has overshoots, and needs to settle down to equilibrium.

Some of the things that should come with the money, both in the US and overseas is strings attached, such as:

1. Limiting executive compensation. You don't get paid till you fixed the problem. The rest of us don't, why should you? Compensation should be given in the chance to purchase company stocks, at discount prices, and not cashable until several years. That way, if the company gets screwed, you get screwed too.

2. Transparency. Where is the money going? How is it going to help Mr. Joe Nelayan? Let us know, so all taxpayers can benefit.

3. Executive compensation should be proportionate with the loss/gain of the company. If everybody gets a pay cut, so do you.

Watching the debacle on AIG and other TARP assisted companies really riles me up. If any of these executives have a sense of ethics, they should offer to take no bonuses until the companies make money and are in the black. The same goes for all our GLCs.
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bluez_aspic
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  #18 Old 19-03-2009 Default Re: View on 2nd Financial Stimulus Package

This book gives a comprehensible and accessible account on the financial crisis - of what went wrong, why it happened, and who is to blame. Written for the everyday Joe, still #1 on the Amazon Econs bestseller list:

Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse


People are perpetuating the Keynesian fallacy that it is consumption which drives the economy - i.e. the more you spend, the richer you get. Common sense would have revealed the patent absurdity of it - before you can spend, there needs to be stuff for you to buy. Stuff needs to be produced, and this requires real savings (not "money" out of thin air) to invest in production and purchase resources. But before you can have real savings, you have to cut down on spending.

If economic growth depended on "liquidity" - i.e. the creation of paper money and credit out of thin air (as opposed to real savings), poverty would have been eliminated long ago. Fiscal and monetary measures can be taken to cushion the downturn, but they cannot form the basis for a sound economic recovery. The usual folks would be footing the bill, of course — the working, tax-paying middle class, and probably future generations.


Hayek's Road to Serfdom in comic form:

http://mises.org/books/TRTS/

Last edited by bluez_aspic; 19-03-2009 at 09:22 PM.
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  #19 Old 22-03-2009 Default Re: View on 2nd Financial Stimulus Package

Interesting...I agree that the whole idea that liquidity fuels growth is flawed, but it is interesting to see what happens when you spread your company/country's liquidity to thinly. The innate greed in human beings are probably the more constant factor in the growth for all these companies, but also the downfall.

The funny thing is, all the steps taken by all the governments to prop up their economies are going to mask the actual weakness of the system more, even if it recovers. Although I do not agree that is the right way to fix the root cause of the problem with the economies, it is a necessary step to prevent total meltdown.

SIgh, sometimes i wish that the way to fix the system is as easy as shown in Fight Club.
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bluez_aspic
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  #20 Old 22-03-2009 Default Re: View on 2nd Financial Stimulus Package

In about a year (or less), it'd be clear whether Obama and Bernanke's stunts are working.

And same here - sometimes I wish for Fight Club anarchy too when I'm on emo-overdrive.
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