Dear Malaysia Government, “To Spend Or Not To Spend?”. A Quick Lesson Of How Economy and Money Works for Anyone.
Nov 28th, 2008 Posted in Intelligent Investing
Sometimes (actually most of the time) what the Malaysian government really want is very confusing and contradicting to the people.
When the economy is not good, government use the magic pill called ‘interest rate’ to boost up the economy. By lowering interest rate, businesses can access to cheaper funds to expand their business and produce more goods/services. They will hire more people and thus create more jobs, expand production and thus increase purchases of raw materials, etc. Consumers are also tempted to borrow more money to spend, such as buying cars, house, Armani, etc. So the reason to reduce interest rate is to increase spending.
Government also setup emergency funds for SME to borrow and use. Reason? To increase spending.
EPF asks us to reduce contributions from 11% to 7% so we can have the extra money to spend and thus get the economy rolling.
I understand all these. But at the same time, government also ask us not to spend money. They say the economy is not good. They ask us not to go shopping, not to buy house, not to buy car. They ask us to keep all our money and spend nothing.
They even ask us not to buy vegetables but instead plant them ourselves. Ask us not to eat in mamak store but cook ourselves. They even suggest something call the ‘no spending day’ where we choose a day that whole Malaysian will not be spending.
I am confused. Mr Government, what do you actually want me to do? To spend or not to spend?
When they ask us not to spend and give suggestions that we should plant vegetables ourselves and organize ‘no spending day’, you know that they come from politicians that can talk but don’t know what they are talking (ahem, they are leaders chosen by you).
Lets look at planting vegetables ourselves.
In KL, if you have land in your house to plant vegetables, I think you are the less affected by the economy downturn! Most people stay in condos, apartments and terrace house and where should they plant the vegetables? In the toilet bowl? Or on top of their proton saga?
Now look at the effect of ‘no spending’.
Everyone is not going to Mid Valley and mamak store and kopitiam. The management of Mid Valley and the CEO of the mamak store decided that since there will be no business, why do business? So they close shop. All staff no need to work and no salary is paid because their work is no longer required. Staff has no salary, business also not making money. Business don’t pay rent anymore. Premise owner also don’t have money to pay loan installment. The ex-staff also don’t have money to eat and feed their family! They spend their savings if they still have some. Factory also stop running because mid valley won’t buy their productions because no one is buying. Factory worker also lost their job. Factory are not buying new machine, machine seller also go out of business. Factory and Mid Valley are not using electricity, TNB also lose money. Everyone no money to eat, farmers also stop planting because their crops are left to rot because no one is buying. Borrowers don’t have money to pay housing loan and car loan. Loans start to default. Borrowers become bankrupt, bank loses money and don’t want to lend anymore… then parti keadilan blame BN for all these, Lim Kit Siang and Kapal Sigh blame Najib and Ong Kee Tiat for these, the Malay blame Chinese for all these, and the Chinese blame feng shui for all these…
Sorry to be too fat fetched. I just want you to know the chain reaction of not spending is very big. Even if the whole Malaysians stop spending for just 1 day, the effect can be very destructing.
Although most of us didn’t go to business school. The economy can be understood by this simple metaphor. The whole economy is like our body. The money flowing is like our blood. Our blood need to circulate to do all the works of transporting oxygen to the body and carbon dioxide out of our body. The blood also contains white blood cells that protect us from ‘alien’, platelets that stop us from bleeding to death, etc. The blood play an important role to sustain the health of the body. All it needs to do is just to flow and flow and continue to flow. What happened when the blood stop flowing? The body dies. The same applies to economy (the body), the money (blood) flow decides the health/state of the economy (body)
Blood stop flowing = die.
Blood flowing too slow? tired, boredom = economy downturn/recession.
Blood flowing too fast? stress, high blood pressure, heart attack! = inflation, “hard landing”, unsustainable growth and economy collapsed.
interest rate = one of the magic pill to control how fast the blood flow. Higher = make it slower. Lower = make it faster.
Japan interest rate is almost zero. The magic pill don’t work in Japan. The Japanese themselves don’t spend money. Everyday is ‘no spending day’. The Japanese can only sell to non-Japanese so actually the non-Japanese are doing blood infusion to the Japan economy to sustain their life. Now the whole world does’t have enough blood and no longer be able to do blood infusion to Japan. That’s why Japan is the first country in the world to get into recession in this ‘crisis’.
Leaders are meant to lead and teach people. Choose your leaders wisely.