Angie's blog

D-Day

Letih, entah nak buat apa.

"Peering at the past, idling in the present, nervous…of the day after tomorrow."

i'm going wonka

'Have I gone mad?"

 

"I'm afraid so. You're entirely bonkers.

 But I'll tell you a secret.   All the best people are."

From fiscal stimulus to austerity policies

The Star

GLOBAL TRENDS
By MARTIN KHOR

For many countries that have over-borrowed to spend their way out of recession, the limits of fiscal stimulus have been reached, as Greece and other European countries have shown.

FOR the past two years, the priority of many countries was to counter recessionary forces that threatened to plunge their economies downwards, with potentially big job and income losses.

The new “orthodox” policy was to have fiscal stimulus packages (a boost to government spending) and easy monetary policies (low interest rates and increased liquidity to the banking system).

This new orthodoxy was opposite to the Washington Consensus, transmitted via the International Fund to developing countries in times of crises, which preached government budget cuts and high interest rates.

Through three decades of this economic consensus, developing countries suffered these “pro-cyclical” policies which accentuated rather than countered the recessionary tendencies, and which worsened and prolonged the crisis.

No wonder many of the countries called it the “lost decades”.

When it was the turn of the developed countries to fall into deep economic crisis, suddenly the Keynesian policies to counter recession became not only the fashion but the rage again.

Economic orthodoxy was turned upside down in the home of the Washington Consensus itself.

The state, so vilified in recent years, became the commander again and trillions of dollars were spent in bailing out failed banks and companies as well as in pumping liquidity into the system to avert a collapse while interest rates went to rock bottom and government spending ballooned.

The Keynesian counter-cyclical medicine worked and a recovery has taken place in several developed countries, so that GNP growth has turned from negative to positive.

In many developing countries which have the policy space and the funds, similar Keynesian measures were taken, a combination of fiscal stimulus and easy monetary policy.

The shock therapy seems to have worked in rescuing the financial system as well as in stemming the sharp downward trend in GNP. But in many countries where government debt is high, the limits of fast government spending and easy money have been reached, and dramatically, too.

They are learning the hard way that servicing of government debt and new loans for a growing government deficit require sufficient funds either from investors in the market or through the “printing of money” (the government lending to itself), and if there are insufficient funds, then a default situation looms.

This is the crisis that Greece is going through. As a member of the eurozone and with the government not having the authority to print money or devalue its currency, the country has to depend on investors or creditors to roll over existing debt and to get new loans to fund the current year’s budget deficit.

The inability of Greece to obtain new market loans required meant an imminent default of some 8bil (RM31.6bil) of loans due this month.

To avoid default, it sought credit from fellow European governments and the IMF.

The initial package of 40-50bil (RM158-197bil) did not stem the loss of investor confidence, so a new package of 110bil (RM434.7bil) was put together and when this also did not work, the European leaders and the IMF have now come up with a mega package of almost 1tril (RM3.9tril) from which Greece and other European countries can draw to avoid a financial meltdown.

Still, many economic experts, writing in the Financial Times and elsewhere, have assessed that although the amounts pledged to bail out Greece may meet its credit needs for a few years, the debts would still be growing and Greece would again be facing a default situation at the end of two or three years.

The emerging view is that it is better to recognise this and to arrange upfront for an orderly debt workout in which creditors take a “haircut” (agree to be paid back only part of the debt owed to them), and the country is able to start again on a better footing.

Otherwise, Greece will have to undergo a period of tremendous austerity. It has announced policy package of salary and pension cuts and reduced spending geared towards reducing the government deficit.

The strong street protests and strikes have already begun even before the policies are implemented, raising the question whether Greece will be able to sustain the required policies.

The new fear is that there will be contagion from Greece to other weak European countries such as Portugal, Spain and Ireland, and even Britain is being talked about as a potential crisis country.

The one trillion euro package was quickly put together by European leaders to prevent the potential of contagion from becoming a reality. These countries are now embarking on austerity policies to avoid becoming the next Greece.

Last week, the Spanish prime minister announced sweeping spending cuts of 15bil (RM59bil), including a 5% reduction in public servants’ pay.

Portugal announced it would cut government deficit from 9.4% of GNP this year to 4.6% next year, including through tax hikes and salary cuts. And the new Treasury chief of Britain, George Osborne, pledged to accelerate spending cuts to reduce the government deficit from 12% of GNP.

From the mantra of fiscal stimulus which was the rage of the last two years, the new concern is to slash government spending and deficits, and prove that the country is credit worthy.

What this means is that the developed countries can be expected to be in a state of low growth or worse in the next several years, as increased government spending reaches its useful limit and an exit policy is being sought for the fiscal stimulus.

For developing countries, the implication is that there are limits, too, to the old model of export-led growth dependent on the rich economies.

Exports may still grow but at a reduced rate.

They have to look more to themselves to fill up the gap left by reduced export growth and for the generation of demand to drive future development.

"Third Way" Thinking

 

"The best phrase to describe the Third Way (leading article, 9 June) is "benevolent pragmatism"; that is subjecting any government proposal to the two criteria "Is it good?" and "Will it work?" Using this definition, it is clear how the Third Way will antagonise both wings of the political spectrum - the Old Right, who hardly ever did anything benevolent, and the Old Left, who hardly ever did anything that worked."

 

Hot Money

Extremely volatile short-term capital that moves on a short notice to any country providing better returns. Powerful speculators can quickly pump massive sums into a high-yield economy, giving it an artificial aura of success and propriety. But, on a mere suspicion of a downturn or other negative factor, they can (and do) withdraw it almost overnight causing a near collapse of the country's financial structure.

Parasites in Paradise

By PETER J. HOTEZ

Published: May 14, 2010

New York Times

PRESIDENT OBAMA has started an ambitious global health initiative that will deliver urgently needed medicine and preventative care to hundreds of millions of people in poor countries. Included in the plan are efforts to devote resources to “neglected tropical diseases,” afflictions like hookworm infections, river blindness and elephantiasis that many think have gone the way of smallpox, but which still make up the most common ailments among the world’s bottom billion.

When we talk about these diseases, we tend to think of distant places like West Africa and South Asia. As we develop the plan, however, it’s crucial that we remember that they plague communities much closer to home as well.

Just off the beautiful beaches of the Caribbean islands popular with American vacationers live millions who suffer from neglected tropical diseases. In Haiti and the Dominican Republic, more than 600,000 people are infected with lymphatic filariasis, a parasitic infection also known as elephantiasis for the profound disfigurement it produces in the limbs and genitals. In the Dominican Republic, 250,000 people are infected with the blood flukes that cause schistosomiasis, and more than a million in the region have hookworms. Intestinal worms are also common in Jamaica, Barbados and Grenada, where they cause chronic anemia, as well as stunted growth and impaired intellectual development in children.

The prevalence of these diseases in the Caribbean is at least in part a tragic consequence of the slave trade. When slavers transported 11 million human captives from West Africa to the New World, they brought parasites and infections that flourished in the horrific conditions of plantation life.

Distressingly, some of these diseases have been found in the United States. Researchers have uncovered similar neglected infections like toxocariasis and trichomoniasis, two parasitic infections, among African-Americans living in poverty, particularly in the South and disadvantaged urban areas. In Baltimore and Detroit, there have been appearances of a bacterial infection known as leptospirosis. Nearly three million African-Americans have toxocariasis, a parasitic worm infection transmitted by dogs that can cause asthma and developmental delays. And thousands of African-American infants are born annually with congenital cytomegalovirus, which can result in hearing loss and severe mental disability.

Of course, African-Americans are not the only ones who suffer from these diseases. Hundreds of thousands of Hispanic Americans are infected with Chagas disease, a parasitic infection that causes heart disease. Cysticercosis, a parasitic brain infection, is a leading cause of epilepsy among this same population. And whites living in poverty are also at risk.

Diseases like these represent one of the world’s — and our nation’s — greatest health disparities. But today, few doctors are familiar with them.

This has to change, especially because many of them can be cured or prevented at astonishingly low cost with either inexpensive generic drugs or drugs donated by pharmaceutical companies. For example, diethylcarbmazine, used to control elephantiasis, costs less than one cent per dose, and Merck donates ivermectin for the treatment of river blindness. Typically these drugs are effective with one dose a year.

Mass distributions could control or eliminate most neglected tropical diseases from the Caribbean at an estimated cost of $20 million per year for five years (a total that is roughly equivalent to one dollar for every tourist who visits there each year). The United States Agency for International Development finances great neglected tropical disease control programs in Africa, Asia and Haiti, but money for the rest of the Americas is still short. My organization is working with the Interamerican Development Bank and the World Health Organization to find the funding to deliver urgently needed drugs to those communities that need them.

It would probably cost more to eliminate these diseases in the United States, in part because of our expensive health care system. But they’ve been ignored for so long here — by our government and our medical community — that the full extent of the problem is still unknown. We need to develop programs to track the transmission of these diseases and increase the number of affected people who are diagnosed and treated. We also need to invest in researching new cures and vaccines.

Treating those at home should not come at the expense of the needy abroad, but we cannot ignore the neglected tropical diseases in our midst any longer. This is one vestige of slavery and racism we can do more to erase.

Peter J. Hotez, a professor at George Washington University and the president of the Sabin Vaccine Institute, is the author of “Forgotten People, Forgotten Diseases.”

Around & About

I have not uploaded any photos recently. Due to the dry season, my pool of shots have become dry too. There really is nothing else to take these days, I feel. 

Solo Debut

This was at Wendi's recital in Maclaurin. The small auditorium would have been great as a cinema. 

STOP. No, let's just go all the way

Taken after having dinner out. Because the traffic light was blinking, I had a hard time trying to capture its red glare.

Looking Up Keynes

It is a beautiful Friday afternoon. The sun is really shining out there. As I sit in the Bibliocafe, overlooking the stretch of green outside....I miss the guy in black.

 

bleh.

 

Anyway, this post isn't about him. A group of friends are planning to watch Iron Man tonight after dinner & have invited me to join. But here I am, sitting next to the library, with a borrowed laptop, reading about John Maynard Keynes (Keynes is pronounced like 'brains' - must remember that cause I made a bit of a fool of myself today in class by saying keens instead )

 

Oh my professor gave me a somewhat deathly stare when my cellphone rang its annoying frog-like sound (trust me, it's only annoying when you don't want a phone call./..) towards the end of our diagnostic test. We were writing an essay about money & whether it makes people happy. It happened, thankfully while I was wrapping up the conclusion because I couldn't really concentrate after that. Lesson learnt .

 

 

Say's Law - supply creates it's own demand. simple as that.

 The General Theory argues that demand, not supply, is the key variable governing the overall level of economic activity. Aggregate demand, which equals total un-hoarded income in a society, is defined by the sum of consumption and investment. In a state of unemployment and unused production capacity, one can only enhance employment and total income by first increasing expenditures for either consumption or investment. Without government intervention to increase expenditure, an economy can remain trapped in a low employment equilibrium – the demonstration of this possibility has been described as the revolutionary formal achievement of the work.^[25] The book advocated activist economic policy by government to stimulate demand in times of high unemployment, for example by spending on public works. The General Theory is often viewed as the foundation of modern macroeconomics.

Keynes's limited use of mathematics was partly the result of his scepticism about whether phenomena as inherently uncertain as economic activity could ever be adequately captured by mathematical models

What the Goldman Sachs case really shows

A Question of Business

By P. GUNASEGARAM

FIRST, a quick re-visit of subprime mortgages. These were packaged together and then resold as collateralised debt obligations (CDOs), which carried higher interest rates than the mortgages based on the principle that diversification reduced risk.

But when you diversify assets you must have different kinds of assets. You could diversify within property but concentrating assets in less than prime real estate where default risk is relatively high is not the best way to do it.

To make these instruments more palatable, investment bankers such as Goldman Sachs and others got the largest insurer in the world, AIG, to insure them, and why they agreed is anybody’s guess.

To make matters worse, what happened was the creation of synthetic CDOs which effectively gives a holder exposure to the CDOs without actually owning any of the securities issued in relation to the CDOs. This is done through the issue of credit default swaps or CDS, a derivative product.

While the actual operations of these are complex – even some of the bankers could not understand these - their effects are not difficult to understand. Basically, a large number of institutions took leveraged bets by buying these instruments both for capital gain and yield.

When the real-estate bubble burst, the loss was greater than the loss in the value of the real-estate assets because derivative instruments traded based on these assets far exceeded the value of these assets.

Not surprisingly, those who were left holding the assets and the derivatives collapsed – some of the biggest names in the US – requiring an unprecedented rescue by the US government, which effectively injected hundreds of billions of dollars directly.

The latest episode, where the US Securities Exchange Commission or SEC is filing civil action against Goldman Sachs for fraud may well be the tip of the iceberg and eventually other financial institutions may be similarly charged.

But really, for those who watch the financial markets and the predatory types of profits that hedge funds, investment banks and others were seeking by engineering all kinds of incomprehensible financial products and market manipulation in some cases, this action comes as no surprise.

That Goldman Sachs may have sold a financial derivative to one client while helping another client short the product is quite a clear example of how the company took money from both sides. The end result was the hedge fund that took the opposite bet made US$1bil at the expense of other investors.

It is pretty difficult to estimate how prevalent this practice was among other investment banks but this action by the SEC is going to put a lot of them under the microscope.

Public opinion is already against the financial shenanigans that brought the mighty US financial institutions to their knees and this latest episode will make it even more so.

One good thing that hopefully will come out of this is that the authorities in the US will no longer be duped by the capitalism mantra into believing that deregulation is the way to go.

Events in recent times clearly show that those institutions that take massive deposits from the public must be closely watched to see what they do with that money and what kinds of products they put on the market and the kind of risks they carry.

Profit is fine so long as it is within the limits of the law, is ethical, within the limits of acceptable risk and does not destroy the very fabric and functioning of the markets from which it comes. More than anything else, both individuals and institutions have to be held to greater account in their behaviour.

There, here and everywhere one thing must be kept in mind: the role of the capital markets is to efficiently intermediate the allocation of capital between those who have too much of it and those who have too little of it. Profits are merely the by-product of this.

Blessings

If you woke up this morning
with more health than illness,
you are more blessed than the
million who won't survive the week.

If you have never experienced
the danger of battle,
the loneliness of imprisonment,
the agony of torture or
the pangs of starvation,
you are ahead of 20 million people
around the world.

If you attend a church meeting
without fear of harassment,
arrest, torture, or death,
you are more blessed than almost
three billion people in the world.

If you have money in the bank,
in your wallet, and spare change
in a dish someplace, you are among
the top 8% of the world's wealthy.

If your parents are still married and alive,
you are very rare,
especially in the  United States .

If you hold up your head with   a smile
on your face   and are truly thankful,
you are blessed because the majority can,
but most do not.

If you can hold someone's hand, hug them
or even touch them on the shoulder,
you are blessed because you can
offer God's healing touch.

the Beginning of Summer

Baby Bunny Outside My Window

Hello all! I have not been updating recently because of my finals & the whole process of moving out of residence. A lot of things have been keeping me occupied, which I suppose is a good thing, considering how bored one may get if there's nothing to do. Yes, I'm currently at a new place my friends & I rented out. I'll try to take some pictures & upload them here soon :) I'm sure my family is dead curious about how it's like !  However, I'm only treating this as temporary place for the summer. I'm hoping to get back into res for the winter term. Hopefully, my application will be approved -- FINGERS CROSSED!!! 

Summer is here ^--^ The sun is out (like in Malaysia -.-), the wind is blowing hard, the grass is greeen, the flowers are blooming & my skin is dry & cracking (like the time when I first came here :( 

I'll be heading home in late July. In the meantime, summer classes start next Monday for me. I'm still contemplating on whether I should take 1 or 2 courses. Since it's a 2-month thing, it could be an intensive one & I really do not look forward to overworking myself to no end. It's summer after all, & I deserve a break. 

I'm sure a lot of people have interesting plans for the summer. Some will be studying (like moi!), working or travelling. Whatever it may be, use the 4 months meaningfully. It's FOUR MONTHS people, so surely there's plenty that can be done :D 

Have a great one!