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.