Too much money makes world spin out of control
By Thomas Soon
MONEY makes the world go round, as the famous saying goes, but too much money makes the world spin out of control.
As 2009 winds down in relative stability compared to the horrific start, 2010 promises deliverance, led by Asia's two brightest stars, China and India, though not without the element of fear.
Fear of the consequences of the fiscal clutches being removed and fear of a global currency crisis.
Current foreign exchange and trade imbalances give little confidence that the global economy will not turn topsy-turvy in the new year as the loss of faith in the US dollar may yet gain more traction.
The US dollar is now the currency of carry trade — whereby investors borrow in cheap US dollar and park the funds in higher yielding assets, now in emerging Asia.
The globe is setting itself up for more crises amid the shortening of economic cycles. Asset bubbles build and burst at much shorter intervals.
China, due to its undervalued yuan vis-รก-vis the US dollar, builds up more international reserves (now nearing US$2.4 trillion) in the greenback and amid all that a currency world war implodes.
Hyperinflation makes its round globally. A plummeting US dollar causes commodity prices to surge further.
Crude oil may yet surge again to the July 2008 high of US$147 (RM499.80) per barrel and beyond, and gold to US$2,500 an ounce.
With printing presses rolling on and the ubiquitous fiat (not backed by any physical commodity) money sloshing around the world economy, the fear is real.
The world may be in dire need of another dreamer in the likes of '60s rock 'n roll star John Lennon whose cry for a sustainable model of globalisation could not have been any clearer: "Imagine there's no countries" — meaning a single world currency, a concept that has been around.
Regional blocs may need to seriously study the birth of the euro, and imitate the move. A regional bloc and its single currency may have a better chance of standing up against the might of the developed world.
Who knows, a few regional blocs' single currencies may even lead to a single world currency. An impossibility, you may say.
Yet, as the world looks ahead to the new year, its leaders need a new vision and a new act — to "imagine", "try" and see if it's "hard to do".
A single world currency is perhaps too far-fetched, but something has to be done. Will a revaluation of the yuan be enough? Answers have to be found to resolve the forex and trade imbalances.
Meanwhile, a sizeable portion of the yet-to-be spent stimulus packages globally will continue to support economic activities. No additional pump-priming initiatives have been announced.
With existing measures priced in, is it any wonder if equity markets are taking a breather? Japan's equity rally in its lost decade was supported significantly by its own fiscal stimulus then.
The world will be hoping enough momentum has been created to allow the private sector to take back the growth torch and one would naturally expect monetary policy to stay accommodative globally as the stimulus is wound down in 2010.
The end of stimulus and liquidity tightening may yet take the wind out of any potential bubbles.
Speaking of currency scare, citing reports, the BBC website reported last friday of North Koreans' devastation in hearing that their government was "knocking two noughts off the nominal value of banknotes", a move that "could wipe out their savings".
According to the BBC report, ordinary people were desperately trying to buy as many goods as they could with their old currency while it was still valid.
The 99% capital reduction or devaluing of the banknotes is said to be aimed at tackling inflation and rein in free markets.
Reports said the people had until yesterday to change their old notes into the new currency, and unimaginably, it was reported that each adult could only convert up to 150,000 won, equivalent to US$1,050.
Can you imagine your entire savings of thousands of ringgit being slashed by 99% and then some?
A North Korean central banker reportedly blamed economic hardships in the country on international sanctions, natural disasters and the fall of the communist bloc.
Economic cycles and currency crises have shown how much havoc they could cause to disrupt people's lives. The single most crucial question for 2010: How to ensure that money makes the world go round, at a constructive pace?
MONEY makes the world go round, as the famous saying goes, but too much money makes the world spin out of control.
As 2009 winds down in relative stability compared to the horrific start, 2010 promises deliverance, led by Asia's two brightest stars, China and India, though not without the element of fear.
Fear of the consequences of the fiscal clutches being removed and fear of a global currency crisis.
Current foreign exchange and trade imbalances give little confidence that the global economy will not turn topsy-turvy in the new year as the loss of faith in the US dollar may yet gain more traction.
The US dollar is now the currency of carry trade — whereby investors borrow in cheap US dollar and park the funds in higher yielding assets, now in emerging Asia.
The globe is setting itself up for more crises amid the shortening of economic cycles. Asset bubbles build and burst at much shorter intervals.
China, due to its undervalued yuan vis-รก-vis the US dollar, builds up more international reserves (now nearing US$2.4 trillion) in the greenback and amid all that a currency world war implodes.
Hyperinflation makes its round globally. A plummeting US dollar causes commodity prices to surge further.
Crude oil may yet surge again to the July 2008 high of US$147 (RM499.80) per barrel and beyond, and gold to US$2,500 an ounce.
With printing presses rolling on and the ubiquitous fiat (not backed by any physical commodity) money sloshing around the world economy, the fear is real.
The world may be in dire need of another dreamer in the likes of '60s rock 'n roll star John Lennon whose cry for a sustainable model of globalisation could not have been any clearer: "Imagine there's no countries" — meaning a single world currency, a concept that has been around.
Regional blocs may need to seriously study the birth of the euro, and imitate the move. A regional bloc and its single currency may have a better chance of standing up against the might of the developed world.
Who knows, a few regional blocs' single currencies may even lead to a single world currency. An impossibility, you may say.
Yet, as the world looks ahead to the new year, its leaders need a new vision and a new act — to "imagine", "try" and see if it's "hard to do".
A single world currency is perhaps too far-fetched, but something has to be done. Will a revaluation of the yuan be enough? Answers have to be found to resolve the forex and trade imbalances.
Meanwhile, a sizeable portion of the yet-to-be spent stimulus packages globally will continue to support economic activities. No additional pump-priming initiatives have been announced.
With existing measures priced in, is it any wonder if equity markets are taking a breather? Japan's equity rally in its lost decade was supported significantly by its own fiscal stimulus then.
The world will be hoping enough momentum has been created to allow the private sector to take back the growth torch and one would naturally expect monetary policy to stay accommodative globally as the stimulus is wound down in 2010.
The end of stimulus and liquidity tightening may yet take the wind out of any potential bubbles.
Speaking of currency scare, citing reports, the BBC website reported last friday of North Koreans' devastation in hearing that their government was "knocking two noughts off the nominal value of banknotes", a move that "could wipe out their savings".
According to the BBC report, ordinary people were desperately trying to buy as many goods as they could with their old currency while it was still valid.
The 99% capital reduction or devaluing of the banknotes is said to be aimed at tackling inflation and rein in free markets.
Reports said the people had until yesterday to change their old notes into the new currency, and unimaginably, it was reported that each adult could only convert up to 150,000 won, equivalent to US$1,050.
Can you imagine your entire savings of thousands of ringgit being slashed by 99% and then some?
A North Korean central banker reportedly blamed economic hardships in the country on international sanctions, natural disasters and the fall of the communist bloc.
Economic cycles and currency crises have shown how much havoc they could cause to disrupt people's lives. The single most crucial question for 2010: How to ensure that money makes the world go round, at a constructive pace?
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