When Turkey Vote For Thanksgiving

Most governments (except for 17 Euro countries) can create unlimited amount of their sovereign money. Yet most of us choose to ignore this fact. Some of us even fret on that notion. However, the hard truth is that government spending is not a burden. It is a gift of a monetarily sovereign nation, the most brilliant form of government financing ever created.

That said, there is something insidious, essentially invisible, that happens when government spending is reduced or stagnated. The absence of benefits sneaks up on us, like the butterfly killer that leaves no clue, until one day there are no butterflies. You never will know how your life and country’s future will be affected by reduce or stagnate government spending say on education. What child genius will not grow to invent the cancer cure or the unlimited, pollution-free fuel or the food that does not require farming? How many great scientists and artists and builders will not be created? We never will know.

The list goes on and on: The lame who might have walked. The blind who might have seen. The children who might have given to their country. The inventions never invented. The life-saving drugs that might have been developed. The people who might not have died too soon. The beauty never created. The ideas lost. The better world that might have been. We never will know. 

And we trade all this potential for the reality of a meaner, uglier, less elegant life, especially for the lower classes, who will be affected most by reduce or stagnate spending, though we all will be affected. What a waste, given the tools we’ve been given, that we intentionally should deprive ourselves and our children and our grandchildren of the benefits a society can offer, and instead retreat toward the days of hardscrabble anarchy. 

What have we lost? What will we lose tomorrow? We never will know. But one thing we know - the turkey is voting for thanksgiving.

Royal Brunei Airlines Saga

Few days ago, RBA announced staffs layoff as part of its "stabilization" plan. Further reading can be found on the following link - http://brudirect.com/index.php/Local-News/laid-off-staff-lament-rba-restructuring.html

To me RBA had forgotten its true purpose. If we were to look into the history, RBA was created and tasked by the government to build connectivity and enhance economic activity for the country by the provision of high-quality, competitively priced flights to destinations in Southeast Asia and around the globe. As time goes by we forgot about it. Instead we are increasingly diverging from the narrow private profit interests of the company. Thus, RBA is now embarking a policy of returning to its roots which involves a series route suspensions and staffs layoff. This race to the bottom and cost-cutting mentality is leading the low-price airlines to trial stand-up “seats” and other service-diminishing angles. It is hardly the outcome we want for our national carrier.

My view is that our government should fully "nationalize" RBA and recreate its role as the iconic national carrier operating to maximize Brunei interest. Because every time a state-owned airline sells a ticket we must realize that the “revenue” it generates will be much larger than the difference between the ticket price and the cost of providing that seat. Every tourist RBA bringing in would be spending in a range of small and other businesses and generating employment throughout the economy. 

I sincerely believes that if RBA is fully "nationalize" then it would have an incentive to provide high quality attractive services. And importantly continue to offer the population secure and well-paid jobs and it would be truly a national icon - working to serve us all.

Exporting for Prosperity....huh?! - Redux

It is clear to me that every country in this world are jumping onto the export bandwagon mentality. We have the US, UK, BRIC, ASEAN, South Asians, Japan, Koreans, Australian, and many more are all jostling for a piece of the export pie. 

Now, we have the EU countries joining the export foray. On December 8, 2011 during an ECB press conference, President of ECB, Mario Draghi said that “if you enhance the competitiveness, you can actually count on your external demand, on your net exports”. Mr Draghi is telling that ECB now wants export driven growth for the whole Europe!

Now, let me asked you this. If every Tom, Dick and Harry wanted to export then who will be the buyer? Martians? According to recent world economic report, countries that have export driven policy are currently experiencing a slowdown in manufacturing activities i.e. reduce external demands. China latest PMI of 47~49 indicate a slowdown in factory orders. India, Singapore, Germany, South Korea, Malaysia, Brazil and many more, are all reporting a slowdown in new orders. Do you see the problem?!

How can the world economy continues to grow if everybody is selling? To me, there must be a at least an equal number of sellers and buyers. Without it, all the talks about exporting to prosperity is just meaningless.

IMF - The Great Con Artist

Yesterday, IMF released its latest review on Greece. It was called “Greece: Fifth Review Under the Stand-By Arrangement, Rephasing and Request for Waivers of Nonobservance of Performance Criteria; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Greece”. It is quite a mouthful title, isn't it?! To me, the title of the review says “We are bullies, we got it wrong, we need to twist the screws even tighter”. Why the negativity? I tell you why.

The latest IMF medium-term forecasts for Greece reveal a staggering failure by that institution to understand causality and the impacts that their austerity programs have on real economies. Since the first review on Greece was released in September 14, 2010, IMF continue to get their forecast wrong, every time! The sad thing is that they will not admit to it and continue to preach fiscal tightening (fiscal austerity). And the Greeks economy continue to go from bad to worse. The Greek economy has already declined by 15 per cent and the projected cutbacks in the government net spending will be of the order of 25 per cent. An economy cannot grow in those circumstances especially when its trading partners are also in decline (for the same reason).

IMF track record had not been very impressive after all this year especially to low income countries. For over 40 years, IMF had been subjecting low income countries to so called IMF Structural Adjustment Packages (SAPs) and the result had been disastrous, to say at least. The SAPs entered the scene in the late 1970s with the debt crisis that engulfed the world. This was constructed as a crisis for the developing nations but it was really a crisis for the first-world banks. The IMF made sure the poorest nations continued to transfer resources to the richest under these SAPs.

The overwhelming evidence is that these programs increase poverty and hardship rather than the other way around. The following graph comes from the World Development Indicators, provided by the World Bank. It shows Gross National Income per capita, which, in material terms is an indicator of increasing welfare.

There are many mechanisms through which the SAPs have increased poverty. 

1. Fiscal austerity is almost always targeted at cutting welfare services to the poor – which often means health and education (the IMF claims that educational and health cuts no longer happen). But moreover, the cuts prevent sovereign governments from building public infrastructure and directly creating public employment.

2. Public assets are typically privatised. Foreign investors often benefit signicantly by taking ownership of the valuable resources.

3. Contractionary monetary policy forces interest rates up which often discriminate against women who survive running small businesses.

4. Export-led growth strategies transform rural sectors which traditionally provided enough food for subsistance consumption. Smaller land holdings are concentrated into larger cash crop plantations or farms aimed at penetrating foreign markets. When international markets are over-supplied, the IMF then steps in with further loans. But the original fabric of the land use is lost and food poverty increases.

5. User pays regimes are typically imposed which increases costs of health care, education, power, and in some notable cases, reticulated clean water. Many of the poorest cohorts are prevented from using resources once user pays is introduced.

6. Trade liberalisation involves reductions in tariffs and capital controls. Often the elimination of protection reduces employment levels in exporting industries. Further, in some parts of the world child labour becomes exploited so as to remain “competitive”.

In essence, IMF is an organization that do much harm than good. My only wish is that people will realize this soon rather than later.

What is the alternative to export?

The other day a reader asked me what is the alternative to export? Well, in economics, it is better to receive than to give. Therefore, as taught in 1st year economics classes:

Imports are real benefits. Exports are real costs.

In other words, going to work to produce real goods and services to export for someone else to consume does you no economic good at all, unless you get to import and consume the real goods and services others produce in return. Put more succinctly: The real wealth of a nation is all it produces and keeps for itself, plus all it imports, minus what it must export.

Consider the following. Quite recently, our country bought 3 new offshore patrol boats - KDB Darussalam, KDB Darulaman and KDB Darulehsan from a German company, Lurseen Werft. Now if we look at the transaction, we, Brunei raised millions of Euros and wired it to Germany. In return, Lurseen Werft sweated it out for 3 years in building the vessels for Brunei. With the new vessels, our country are now better protected.

Does it take much effort for Brunei to raised the needed Euro? Honestly, I do not know. However, had our government understood what it meant to be a monetarily sovereign in the first place, I doubt it was a difficult endeavor. All our country needs was to create the necessary Brunei dollar and exchange them for the necessary Euro. Just like us going over to Miri or Limbang where we exchange our Brunei dollars for Malaysian ringgits. Does it require much effort? I don't think so.

But some of you might say, if we import so much, there shall be huge unemployment in our country. To me, our country can ALWAYS support domestic output and sustain domestic full employment with fiscal policy (tax cuts and/or govt. spending), even when Germany, or any other nation, decides to send us real goods and services that displace our industries previously doing that work. All we have to do is keep Bruneian spending power high enough to be able to buy BOTH what foreigners want to sell us AND all the goods and services that we can produce ourselves at full employment levels. Yes, jobs may be lost in one or more industries. But with the right fiscal policy, there will always be sufficient domestic spending power to be able to employ those willing and able to work, producing other goods and services for our private and public consumption.

A trade deficit, in fact, increases our real standard of living. How can it be any other way? So, the higher the trade deficit the better. The mainstream economists, politicians, and media all have the trade issue completely backwards. Sad but true.

D'OH!

Today's post is rather long. Here is an example to help you think about all of this economic jargon. The concepts are simple and the numbers are small which makes it easy to understand and relate to. 

Imagine the economy is my household which is comprised of me (the parent) and you (the kid)! As the parent I assume the role of “government” and you thus comprise the non-government (private) sector. As the government I decree that I will offer 100 of my business cards per week, if you agree to tend the garden on a weekly basis. These are the cards I exchange at meetings with business associates outside of the household. They are normal size rectangles of cardboard.

You say, naturally, “Why would I want your worthless business cards?”

I reply, “because to stay living in the house I expect 100 business cards a week to be paid in taxes”.

You say, “when do I start work!”

Immediately, by imposing tax obligations in the currency of issue (the business cards) I have created a demand for the currency and this allows me to transfer private resources (your work in the garden) to the public sector (the nice garden). However, also note that I have to spend the 100 cards each week before you can pay the tax of 100 cards – which clearly means that the taxation can never be considered a source of revenue which “finances” or allows me to spend the cards in the first place. The cards come from no-where and I have the monopoly rights to spend them. I am never financially constrained in my own business cards (the currency).

So this sort of currency is what we call a fiat currency – being made legal by legislative fiat. It has no intrinsic worth and its value is tax driven. Just like the Brunei dollar!

Note that I probably would never “print” any cards. I would run some spreadsheet on the house computer and just keep “bank entries” to record all the outflows (spending) and inflows (taxation). All the transactions would just be numbers entered into relevant columns. If I slipped up and added a 0 to my spending one week, I wouldn’t have to “print” 900 new cards. You would be better off by 900 cards because it would show up as a deposit in your account. But nothing else would be required. Same as in our country economy.

Now under these conditions, the household budget would be balanced each week: I spend 100 cards and you pay 100 cards. You are unable to accumulate any cards (that is, save) because you can only get access to the volume of cards that I make available via spending. Same as in our country economy.

What if I wanted to teach you to save as preparation for managing your own affairs when you became an adult? Well the only way you can save is if I, for example, decided to employ you more each week and offered, say, 120 cards per week as wages (government spending) yet continued to tax you only 100 cards. The same effect could have been if I reduced the tax rate and held spending constant or a combination of increasing spending and reducing taxes.

Whatever, and lets stick to the spending of 120 and the tax of 100, the budget now goes into deficit of 20 cards per week. You now can save 20 cards per week because my spending (the government spending) has provided the “finance” to permit you to do that. As the weeks go by you could accumulate more and more savings (numbers in the spreadsheet would increase) and you would soon see that the non-government saving over time is the exact record of the cumulative deficits being run by me (the government). Same as in our economy.

Now, you might want to make more money (cards) on your savings. The only way that can happen is if I offer you a government bond or sukuk (a bit of paper saying that if you deposit your savings with me each week I will pay them back at some future time plus some interest all in business cards). So the offer of a new financial asset – the household debt instrument (the bit of paper) gives you a chance to compound your saving and maybe take a holiday – not work some weeks but still pay taxes!

So the debt issuance in the household establishes a non-zero rate of interest in the household and increases your wealth. I didn’t have to issue the bond/sukuk to keep running the deficits. The bond/sukuk just replaced non-interest bearing savings (reserves in our “banking” system) with an interest-earning asset (the bond/sukuk). Same as in our country economy.

Now lets say I am reading some neo-liberal literature on the Internet which warns me against running budget deficits. As a result I get the feeling we have to get back into budget surplus to be a responsible government. So I tax 100 cards but cut my spending on garden work to, say 90 cards per week.

Can you predict what will happen now? Well in that particular week there are not enough cards “spent” to generate the funds necessary for you to pay the tax. There are 10 cards short. The household (government) budget is in surplus for that week to the tune of 10 cards. But this shortage of cards liquidity in the private sector (that is, you!) means that you will:

a. Demand more work to earn the shortfall – noting that the household has now reduced employment levels (in hours) and there is some underemployment creeping in. If I made the example more complicated with 2 or 3 kids in the house I could have easily cut spending by not paying anything to one or more of the kids thus creating unemployment.

b. Try to sell some of your possessions to get some cards. In this simple case, you will offer your bonds/sukuks (the bits of paper) for sale to get the funds. So the surplus starts to eat away at your wealth portfolio. I would be boasting like a neo-liberal would that I was running down the government debt – “getting the debt monkey off the government’s back” – which may help me sleep better – but you would just be feeling less well off (and maybe developing insomnia!).

c. Start to run down any savings that are not being stored in bonds/sukuks. Either way you run down your wealth holdings.

But in aggregate, the budget surplus is squeezing your card liquidity and forcing you to run down wealth. Same as in our country economy.

If I kept running budget surpluses, you would eventually run out of assets and your labor would be severely underutilized  You might be able to persuade me to start lending you the money (I might set up a privatized bank in the household) and this would keep you afloat (paying the taxes) as long as you were prepared to accept increasing private debt levels. But this is not a sustainable option. Same as in our country economy.

And finally, Homer said,....

Time To Ponder...

I had been keeping track on the current economic crisis. What I had found out is quite unsettling. Majority of the current economic pundits such as ECB, IMF, World Bank and mainstream media are advocating on cutting government spending and increase taxation as a sure way for recovery. Well, I have problem with that line of thinking. My problem is this ~ 

HOW DOES A TAX INCREASE OR SPENDING DECREASE REDUCE UNEMPLOYMENT OR GROW THE ECONOMY?

Can you see the logic? In my line of thinking, to grow an economy, you need growing supply of money. And  also, a nation can not tax itself into prosperity.

I just only hope that people shall come to their senses soon. If not we shall be seeing the rise of fascism, nationalism and perhaps Nazism. When that happen, I would not be surprise if World War 3 becomes a reality.   

May god save us all!

Trade Surplus...Are They Beneficial?

With current world economic malaise, most countries are trying very hard to run a trade surplus. The thinking behind this so called logic is that more money will flow into that particular country economy. With more money coming in, the affected countries hope to "wiggle" themselves out from the current doldrums. But do trade surplus really brings in the anticipated benefits?

Brunei creates the goods/services such as oil and gas, others want and export them overseas in exchange for other people money. The oil and gas are scarce to Brunei. Time, manpower and physical resources are necessary for their creation. By contrast, dollar, yen, won, pound and etc are not scarce to the US, Japan, Korea, UK and etc. Those governments have the unlimited power and authority to produce their monies, without using any resources, whatsoever. The press of a computer key sends billions of dollars, yens, wons, pounds from those governments to anywhere.

A trade surplus is an example of one country devoting great effort to creating scarce materials for another country in exchange for something that requires no effort by the other country. In that sense, Brunei is becoming a servant to others. We work, sweat and strain and use our valuable resources to create and ship to others the things (oil and gas) they want, while they, hardly lifting a finger, ship their monies to us. Who has the better deal?

Obviously, for any given individual, the situation is different. None of us has the unlimited ability to create Brunei dollar. We have to work hard for our Brunei dollar. Brunei dollars are scarce to each of us. But when we talk about trade deficits, we are talking about governments, and there the situation changes. Dollars, Yens, Wons, Pounds are not scarce to the US, Japan, Korea, UK government respectively.

To satisfy our "trading partners", we dig and ship every drop of oil and gas in our country; we burn all our oil and gas; we employ every man and woman in harsh conditions; we empty our country of all physical resources, and still they would have plenty of dollars, yens, wons, pounds to send to us, simply by touching a computer key.

This may be more easily understood by looking at China, with whom US have a huge trade deficit. One day, China will have sent the US every yard of cloth or every ounce of their steel, leaving their country a hollow, empty resource depleted, while the US blithely will go on producing dollars. Who has the better deal?

Of course, as monetarily sovereign nation, China is able to create as much of their own money as they wish. They do not need to work so hard to send their precious resources to the US in exchange for the dollars. Just like our country, we are also monetarily sovereign and able to create our own Brunei dollar as much as we wish.

Cry For Help?

Quite recently Brunei Times ran a story about the pitiful family life of 14 at Sungai Batong. Full story can be read at the following:

http://www.bt.com.bn/news-national/2011/11/28/emotional-tale-familys-fight-survival

The story lead me to wonder just how many more families in our country are in the same predicament! Not having enough money, children not attending school, saddle with huge debts and so forth. With new electric tariff coming online as of January 1, 2012, I left to ponder what would be the outcome? In any case, it seems that the things that I had put up on this blog are coming true. 

Well, is there a solution to all this? To me it is obvious - Our government needs to understand what it meant to be monetarily sovereign. Understanding those term shall alleviate much of the population woos. 

Printing Gazillion Brunei Dollar...But

I believe that by now some of you might be thinking that the things I had put up are pure crazy. There is no way in the whole wide world that you can print an endless amount of money without any consequences. Honestly, you are right.

However, as it is now, under current fiat currency system, Government CAN print any amount of money. Yup, any government in this world can print an endless amount of money. One trillion, no problem. 100 gazillion, no problem. Make every citizens in this world a trillionaire, no problem. But, yes, there is a but to it!

We can print an obscene amount of money PROVIDED there are real goods and services to buy. That's right, you need something to buy with your money. If there are no real goods or services available to buy or procure, then printing gazillion of Brunei dollar shall be a pointless endevour. Brunei dollar shall lose its value and inflation sets in.

As I had mentioned in my early post, printing more money never lead to inflation or hyperinflation. It is the loss or non availability of real goods or services that money can buy, leads to the uncontrollable inflation. That is why I advocate that our government should create or print or key ins few more millions of Brunei dollar in order to build Temburong bridge.

Temburong bridge is a real good and service. It is physical and provide an endless amount of benefits to the country. Thus, there is no need for the government to seek private money. And furthermore, those private money is the same money that our government created in the first place. There is nothing special about private money.

Temburong Bridge

I was quite please with today's announcement in Brunei Times about the near completion of Temburong bridge feasibility study. After all these years, we are now one step closer in closing the gap and linking all the 4 districts. Further reading can be found at the following link:

http://www.bt.com.bn/news-national/2011/12/02/temburong-bridge-study-nearly-done

However at the end of the article, it is quite disheartening to learn that our country is still looking for various options to fund the multi-million project. This was revealed by Ministry of Development's Permanent Secretary, Hj Suhaimi bin Hj Gafar. I gasped in amazement how ignorance of us in our government financial capabilities. Since when government spending is revenue constrained. Didn't he realized that our government had the ability and mean to build the Temburong bridge without resorting to private scheme?!

Brunei Darussalam is a monetarily sovereign nation. She create her Brunei dollar without the need of oil and gas money. Brunei had this ability since August 15, 1971 after the collapse of Bretton Woods System. Brunei will never runs out of Brunei dollar. Nowadays, money does not require to be printed into existence. With just a few keystrokes on the computer keyboard, Brunei can "create" hundred of millions worth of Brunei dollars, sufficient enough to build the Temburong bridge.

Only wish people will understand and not being blinded with the notion of government being revenue constrained in its ability to spend.

Create Jobs to Eradicate Poverty

In today's BT paper, it was reported that Ministry of Youth, Culture and Sport (MYCS) with the collaboration of Women's Business Council (WBC) is organizing a 3 day workshop on social enterprise. It aims to introduce the concept of social enterprise with a welfare element in order help the society to benefit from the new concept. Further reading can be found on the following link:

http://www.bt.com.bn/news-national/2011/11/22/citizen-empowerment-growth-vital

My view is that in their rush to create justifications for reducing the footprint of government on the economy (and society), policymakers, public, economists and etc have invented a number of new “approaches” to economic development, unemployment and poverty which rely on an increased private sector presence. Concepts such as social entrepreneurship and new regionalism emerged as the governments embraced the so-called Third Way – neither free market (right) or government regulation (left) – as a way to resolve unemployment and regional disadvantage. Microcredit was another version and the 2006 Nobel Prize was awarded to the Grameen Bank in Bangladesh and its founder. The media held microcredit out in various positive ways but gave the impression that it was another solution. 

However, insiders knew it was not but then I have always argued that the best solution for poverty is to initially create decent paying jobs. I have also argued that only the government has the capacity to really intervene in this way. For it is was “profitable” in the free market sense, the private sector would have already done it.

Creating or Printing More Money - Why worry?

A medal commemorating Germany's 1923 hyperinflation. The engraving reads: "On 1st November 1923 1 pound of bread cost 3 billion, 1 pound of meat: 36 billion, 1 glass of beer: 4 billion."

It seems that people have in their genes, the notion of creating or printing more money is dangerous. It can create an uncontrollable inflation (what ever that is). And the only evidence that the people have in supporting their arguments are Weimar and Zimbabwe. Thus, it's make me wonder as to why people do not want to study the history and understand those two nations - why both nations had experienced a hyperinflation?!
 

Therefore, today's history lesson, we start off with the following links:
 

http://en.wikipedia.org/wiki/Occupation_of_the_Ruhr
 

http://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic

http://modernmoney.wordpress.com/2011/01/17/reasons-behind-zimbabwe-hyperinflation%C2%A0political/

So what did we found out?

It turns out that it was those pesky war reparations that caused Weimar government deficit spending to soar to something like 50 percent of GDP annually, with most of that whopping deficit spending used to sell the German currency and buy foreign currency to pay their war reparations. As expected, that drove their currency down the rat hole in short order, and kept driving it down, causing that famous bout of hyperinflation that did not end until that policy ended. And when all that ended and policy changed the inflation stopped dead in its tracks. In one day!!!!

How about Zimbabwe? Turns out they had a tad of civil unrest that dropped their productive capacity by about 80 percent, but government spending stayed high and too much spending power with too few goods and services for sale drove prices through the roof. Not to mention rumors of insiders using the local currency to buy foreign currencies for personal gain.

In all honesty, there must be circumstances to be happening first before a nation experience hyperinflation. The very specific circumstances are such as unwillingness or inability to impose and collect taxes - social and political upheaval, weak government, civil war, collapse of productive capacity or huge external debts denominated in a foreign currency or gold.

It is not creating or printing more money that leads to hyperinflation. It never had been and never will be.

Do A Bruneian Rich

Normally a Gross Domestic Product (GDP) is being calculated based on the following formula:

GDP = C + G + I + (X - M) where;

C = Personal Consumption Expenditure

G= Government Consumption Expenditure

I = Investment

X = Export

M = Import

The above formula calculate GDP based on Expenditure Approach. Another way of calculating GDP is through Income Approach. And the formula is:

GDP = C + S + T where;

S = Private Saving

T = Total Taxation 

If we are to combine both formulas, we got:

C + S + T = C + G + I + (X - M)

Eliminating C as being common and rearranging the formula, we end up with:

(S - I) = (G - T) + (X - M)

The above translate into three sectoral balances:

(S - I) = Private Domestic 

(G - T) = Government Budget

(X - M) = External

The sectoral balances equation says that total private savings (S) minus private investment (I) has to equal the public deficit (spending, G minus taxes, T) plus net exports (exports (X) minus imports (M)), where net exports represent the net savings of non-residents.

Another way of saying this is that total private savings (S) is equal to private investment (I) plus the public deficit (spending, G minus taxes, T) plus net exports (exports (X) minus imports (M)), where net exports represent the net savings of non-residents. All these relationships (equations) hold as a matter of accounting and not matters of opinion.

Based on the above and using current JPKE - BDKI 2011 report, I manage to put some numbers into it and found a very interesting conclusion.

	2008 (B$ Million)	2009 (B$ Million)	2010 (B$ Million)
Investment, I	694.6	713.3	853.1
Government Consumption Expenditure, G	3,722.5	3,919	4,055.2
Total Taxation, T	11,378	6,392.9	9,134.9
Export, X	6,576.6	6,229.9	5,744.1
Import, M	5,559.8	5,515.2	5,500.4
Private Saving, S	- 5,944.1	- 1,045.9	- 3,982.9

No wonder, most Bruneians felt that it is getting harder to live-by in the country. No wonder, most Bruneians are mostly in debts. No wonder, we have Bruneians seeking zakat or alms monies. No wonder, we have Bruneians passing envelopes to His Majesty every time he meets his subjects. No wonder, the country GDP's is so sad year after year. All of this is just because we are broke. That's right an ordinary Bruneian is broke!!!!!

To lift the Bruneians from the doldrums, the government needs to tax less or increase her spending or increase her investments and reduce her export. Only then we can start to save up.

Super Credit Card

Imagine yourself having a super credit card. It do not has spending limit. It can repay itself. And has the best cash-back deal. What would you do? I bet most of you would go gaga on it, wouldn't you? I would. Imagine that:

a. I could spend as much as I like anywhere where the card is accepted.

b. I never have to fund my spending.

c. I never have to worry about the balance because I do not have to pay it off, it does not affect my credit limit either, and the best of all 

d. I know I'll get the cashback to cover it anyway when you spend your savings.

But then can such credit card exist?

I have not got such card. No you do not either. However, your and my government certainly could obtain one. But then we are too dumb to realize its existence. It is really sad, isn't it?!

Currency Issuer Vs Currency User

Had been keeping close tab on the so called world financial crisis. Honestly there is no crisis. And what is really interesting is that the "crisis" can be easily resolved. The solution is really simple. The people only needs to differentiate between currency issuer and user.

There is no insolvency issue for currency issuer. Government of monetarily sovereign nations such as Brunei, USA, UK, Japan, Singapore and etc are currency issuer. They can create/print/credit money as much or as little they want! These governments have the abilities to do this since August 15, 1971. Since then monetarily sovereign nations do not need to earned revenue before they can spend.

Non monetarily sovereign nations such as Greece, Portugal, Italy, Germany, France and the other 12 notions on the euro zone are currency users. They use the Euro as their national currency. You and me are currency users of our government issued money. As a currency user there is always insolvency issue. They do not have the authority to create/print/credit money as much or as little they want. Currency users needs to earned the money first - through selling (export) or taking on debts, before they can spend.

I only wish that people understand this.

Governmant money or private money - which one is better?

In order for money to come into existence, some entity that have an exclusive right to create money must exist first. Without that there will be no money for the people to save and spend.  In short, for money to exist, it must be created. Whatever creates it has some power over those who do not create it.

So who have that exclusive authority or power? Only Government and bank.

Government create money either physically and digitally. Government have printing machine that can create physical money. At the same time Government also can create money digitally (computer) by crediting her vendors/suppliers bank account.

As for bank, it create money through lending activity to creditworthy customer. All the bank had to do is credit its customer account with the required money. That's about it. And bank does not require her customer deposit first in order to make a loan either. Bank can not create money by printing money. 

With government money, the people have the ability to accumulate wealth without the burden i.e.paying back. With bank money, the people have the ability to accumulate wealth but with the burden of paying back. Failed to do so, you could end up being considered insolvent i.e. made bankrupt.

So, which one is better?

Energy Savings To Lift Government Revenues - Brunei Times

"REDUCING government subsidies on electricity by half will mean more jobs and revenues through export opportunities for Brunei.

Hj Jamain Julaihi, deputy permanent secretary (Downstream and Power) of the Energy Department at the Prime Minister's Office (EDPMO) told The Brunei Times on Saturday that they want to prevent any more wastage.

"We want to save because that savings can be translated to many things. One of them is to generate revenue for the government in the form of exports, and can attract investors to the downstream industries which are based on gas," he said, adding that wasting energy would hurt Brunei's economy, and hamper economic growth.

He stressed that the generated revenues will then create job opportunities for "hundreds of Bruneians".

He said that the new electricity tariff which will come into effect on January 1, 2012 is expected to reduce government subsidies on electricity by half which will in turn present new opportunities in the form of export and job creation.

In 2010, the government spent $40 million on electricity subsidy, which prompted the need to introduce a smart subsidy, focusing more on the needy, while penalising higher consumers to avoid further wastage".

With due respect, the notion of cutting or government making cuts in her services to lift government revenue is totally false or fallacy. In fact the opposite shall be happening. Furthermore, exporting precious resources such as our oil and gas in order to accumulate other people's money is detrimental to the nation.

Why all the above?

After August 15, 1971, when United States then President Nixon ended the last remaining gold standard, the world had been operating on FIAT currency system. This system empowered nations to "create" their own sovereign currency without the backing of any precious assets such as gold, oil and gas and etc. NONE what so ever!! In fact the last remaining country in this world to remove her currency from gold was Switzerland on May 1, 2000. Since then all monies created in this world either digitally or physical creation are fiat - money that is created out of thin air! Thus the notion that our country to have revenue first through exportation of her oil and gas in order to spend is totally false. As a sovereign nation, Brunei have the ability to create her own sovereign currency i.e. Brunei Dollar or Brunei Ringgit.

I applaud the government initiative to save the country's precious energy resources but targeting people's wallet is counter productive. My view is that saving energy should not be at the expense of the people. In fact, should the government initiate green technology now such as Wind Farm - as mentioned in recent CSPS studies, the country can save more of her precious resources and at the same time create more jobs now.

Honestly, our country should be saving her resources and categorizing them as strategic assets. This should not be limited to oil and gas. It should be extended to all. Thus, I would advocate that our government to seriously think of doing massive spending. Those spending should be directed at improving the country's infrastructure such adopting renewable energy technologies, building LRT, building more schools, PTE's and universities, mosques, desalination plant, and etc. Furthermore, the government should be improving her population welfare rather than trimming them. All these can be achieve by the country because Brunei is a monetarily sovereign country.

Economist Can Be Wrong

Not only did the global financial crisis catch the vast majority of economists completely unawares, they instead expected tranquil and even buoyant times just as the biggest economic crisis since the Great Depression began. My favourite such observation is from the OECD‘s Economic Outlook for June 2007—in which the Chief Economist suggested that, “the current economic situation is in many ways better than what we have experienced in years . . . Our central forecast remains indeed quite benign.” But there are countless other such utterly wrong prognostications about the economy, from the profession that is supposed to be the font of wisdom on the economy.

Those “in the know” understand that this is not an isolated failing. The Neoclassical model that dominates economics today is riven with logical and empirical fallacies. If economics were a real science, it would have long ago been overthrown and replaced by something more realistic.

Yet at least 90% of academic economists believe in this model, as do almost all economists working in government and private industry. Left to their own devices, they will continue thinking that this model does describe the economy as the real economy falls deeper and deeper into a crisis, even though their model says that this can’t even happen.

Since economics has failed to clean out its own intellectual stable, it will be the public that finally forces reform upon it – as once-supporters like Anatole Kaletsky of The Times calls for “a revolution in economic thought” and George Soros funds an Institute for New Economic Thinking. With luck, in a decade or two, a more realistic approach to economics might emerge. But in the meantime, here’s a simple guide for the public: Anything the vast majority of economists believe is likely to be wrong.

FDI in a nutshell

Some extreme view on FDI.......

Great Rush for Brunei Money's

For the past few days, there had been plenty of high profile delegations coming into Brunei. We have Malaysian, Indonesian and Uzbekistan going into great length in trying to woo our government to invest into their respective countries. Whilst at the same time our country also trying very hard to lure in foreigners investing in our country.

I found this to be very amusing. Why?

In one hand, we have foreigners clamoring for our Brunei dollar. On the other, we have our government clamoring for foreign currencies (FDI). It is comical, isn't it?

In any case, who do you think will have a better deal at the end of the day?

I'll give you a hint. Creating Brunei dollar does not involve plundering our resources. In this era, creation of Brunei dollar is mostly digital. That's right, our government create Brunei dollar with few keystrokes on the computer keyboard. The same applies for other countries. They create their money the same way as Brunei did.

Now again, who do you think will have a better deal?

iPad for all Brunei students

Read an interesting article in today's Brunei Times. It is about a proposal made by a Houghton Mifflin  Harcourt to our government about adopting iPad based learning.

Further reading can made on this link:

http://www.bt.com.bn/news-national/2011/09/14/ipad-based-learning-eyed-sultanates-classrooms

My views that our government should take up that suggestion. The reasons are as follows:

• Our country can afford to provide iPad to every students in the country.
• We are exposing our children to computer at an early stage of their education.
• We are leveraging technology on our education as envisaged in the 2035 vision.
• Preparing our people for Knowledge Based Economy.
• Reduce our schoolchildren burden in carrying multiples, heavy textbooks and workbooks to school.
• Engage the schoolchildren more on learning through its apps creativity.

Hopefully, the government will not take long to decide in embracing such idea.

A personal musing - Do jobs matter?

What is the future of jobs? Are we wrong to focus on job creation?

It is thought that Brunei suffers from a shortage of jobs. I suggest that may not be true. Rather, Brunei suffers from a shortage of money.

It began with the Industrial Revolution. Since then, machines have done more work that people once did. Machines chased people off labor-intensive farms to manufacturing and white collar work. Then, machines run by people, chased people off those jobs. Soon, machines run by computers began to take over. But someone had to build and program the computers, so jobs in electronics industries expanded. Now computers have begun to build and program computers.

So from where will the next jobs come? And does it matter?

Most people really don’t want a job; they want money. Yes, some jobs may offer personal satisfaction, and may occupy otherwise dull hours, but for most people seeking jobs, money is the primary goal.

Wait! People do not want money. They want what money will buy. They want more security, better shelter, food, clothing, health care, education. They want admiration. They want envy. They want accomplishment. They want to win.

O.K, money can’t buy everything, but it can buy much of what people want. A jobs is a means to obtain money, which in turn is a means to obtain the things we want. And that Rube Goldbergian “means-to-a-means-to-a-means” connection is being superseded by machines.

Those who have seen the “Star Trek, The Next Generation” TV series or its movies are familiar with the “replicator.” It can synthesize any non-living product, seemingly out of thin air. If such a device existed today, our money and job needs would decline radically. Yes, we might continue to work for satisfaction, for creativity, or to fill otherwise-empty hours – but not so much for money, since there would be little need for money other than perhaps to pay for some services. The replicator could supply our product needs.

Replicators may seem far off, but we are evolving in that direction, where machines supply more and more of our product needs. And as that happens we butt up against what will be increasingly difficult questions: Why must we work to obtain money – and why must people struggle to find jobs to obtain money – especially since money is free?

That’s right. Money is free. Brunei government has the infinite ability to create money out of thin air. In essence, our government is a “money replicator.” At the touch of a button, the government could supply each of us with unlimited money. Want $1 trillion? No problem. Here, take $2 trillion. There is no physical money; it’s all just data, and data is infinite.

Extreme amounts of money creation would reduce the value of money (aka “inflation”), but the point is this: There is no fundamental reason why anyone in Brunei should lack food, clothing, shelter, education, health care simply for lack of a job. There is no job-related reason for poverty in Brunei. Our “money-replicator” government has the power to lift everyone from poverty and supply all their basic needs.

This brings us to an important difference between why people want to work and why the economy wants people to work. While people work to obtain goods and services, the economy wants people to work to create goods and services. If we all owned replicators, and if no one worked, eventually we would have no progress and no services, and the economy would collapse.

There may be a compromise, between where we are today and an economy with no jobs at all. We not sure exactly where that compromise is, and surely it would change over time, but here are a couple of “what-ifs.” What if:

– The government’s “money replicator” gave every man, woman and child enough to pay for food, clothing, home, health care, entertainment and education through college — i.e. ended poverty?

– Those who wanted more than basics could work, but the standard, legal work days were lowered from 8 hours to 6 hours to 4 hours or less, providing more jobs for all who wanted them?

– Government taxes or bills, being unnecessary, were phased out?

Of course, the devil is in the details. What about Inflation? Motivation? Progress? International relations? I believe we eventually will loosen the connection between jobs to money to goods and services. It won’t be “if” but “when,” and it will be an improvement over our current situation of too much joblessness, poverty, illiteracy, homelessness, sickness and struggle.

Time and energy devoted to the creation of jobs may take us down the wrong path. Perhaps we should focus on the creation and distribution of money.

Other People's Money

Yesterday, Brunei Times (BT) carried an article about a consortium of Japanese oil firms, planning to invest 700 to 800 billion Yen in developing a large scale natural gas project in Brunei.

I purposely highlighted the numbers because I want the readers to understand the meaning of it.

As majority of you quite aware, Yen is not acceptable in Brunei. Furthermore, Yen is a fiat currency created by the Japanese Government. It is not being backed up with Mount Fuji. It is just a piece of paper or computer bits. And yet we are accepting them without question and stand ready to commit our resources for the Japanese people.

This so called investment is intriguing and prompt the question, what is wrong with Brunei dollar? Is it not good enough for investment? If it is not good enough, then why bother creating Brunei dollar in the first place?

Please note that I am not being negative about the so called investment. However, I am concern with the notion or mentality of some people that we need foreign currencies to develop Brunei. Furthermore, we are undermining our resources for other people prosperity.

Our oil and gas is a finite resources and not renewable. Imagine if we were to runs out of them, what should we do then? Sell our soul next?

From my perspective, going to work to produce real goods and services, to export for someone else to consume does no economic good at all, unless we get to import and consume the real goods and services others produce in return. Put more succinctly, The real wealth of a nation is all it produces and keep itself, plus all imports, minus what it must export.

Think about it....

Inflation

Today's entry I am considering inflationary pressures that arise from nominal demand (spending) growth outstripping the real capacity of the economy to react to it with output responses. In other words, I am excluding inflation that may arise from supply shocks – such as a rise in an imported raw material (for example, oil). That is another issue altogether.

The reason I am excluding supply-driven inflationary impulses is because the mainstream attack on the current use fiscal policy (and monetary policy) is really about demand pressures. We are continually reading crude statements such as there is “too much money” in the system.

Further, the mechanisms through which the supply shocks manifest are different and this deserves a separate analysis, which will come in a subsequent posting.

However, the solution to both sources of inflation is not that dissimilar although additional measures might be brought to bear to handle the case of a price hike in an imported raw material.

First we should make sure what we are talking about. Many conservative commentators think that when workers get a pay rise it is inflation. It is not. Those on the left think that when the corporate sector increase the price of a good or service it is inflation. It is not.

It is also not inflation when the exchange rate falls pushing the price of imports up a step. So a depreciation in the currency does not constitute inflation. It might stimulate inflation but is not in itself inflation.

It is also not inflation when the government increases a particular tax (say the VAT or GST) by x per cent to some new level.

So while a price rise is a necessary condition for inflation it is not a sufficient condition. Observing a price rise alone will not be sufficient to categorise the phenomena that you are observing as being an inflationary episode.

Inflation is the continuous rise in the price level. That is, the price level has to be rising each period that you observe it. So if the price level or a wage level rises by 10 per cent every month, then you have an inflationary episode. In this case, the inflation rate would be considered stable – a constant rise per period.

If the price level was rising by 10 per cent in month one, then 11 per cent in month two, then 12 per cent in month three and so on, then you have accelerating inflation. Alternatively, if the price level was rising by 10 per cent in month one, 9 per cent in month two etc then you have falling or decelerating inflation.

If the price level starts to continuously fall then we call that a deflationary episode.

Hyper-inflation is just inflation big-time!

So a price rise can become inflation but is not necessarily inflation. Many commentators, economists and ordinary folks get this basic understanding wrong – often and continually.