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Malaysia joins ‘rocky markets’ on inflation fears, weak ringgit….sigh.

January 30, 2014

January 30, 2014 (TMI)

Malaysian households are hit hard as the cost of basic necessities rise in the face of a weakening ringgit. The market is also rattled by such negative sentiments. – The Malaysian Insider pic, January 30, 2014.Malaysian households are hit hard as the cost of basic necessities rise in the face of a weakening ringgit. The market is also rattled by such negative sentiments. – The Malaysian Insider pic, January 30, 2014.Malaysia, once an “investors’ darling”, joins other rocky markets in Southeast Asia, as investors continued to abandon emerging markets, the Wall Street Journal reported today.

The report said with its currency at the weakest in more than three years this week, Malaysia was now “vulnerable” to global fund managers, already jittery about emerging markets, should they decide to pull back further.

After sliding 2% this year, the ringgit is the worst performer in Asia after the Korean won and Philippine peso.

WSJ said the fear among businesses was reflected in the increase in foreign currency accounts of Malaysian banks – up 0.19% in the two months between September and November 2013 – as local investors sought to protect themselves from the brunt of weaker currency.

“There seems to be a growing trend for residents to convert part of their local currency savings and deposits into foreign currency, as they get more worried about depreciation in their currencies,” the paper quoted Sameer Goel, who is attached with Deutsche Bank in Singapore.

It also spoke to an investment manager who manages US$$778.7 billion for Invesco in Singapore as saying that local exporters were delaying converting dollars into ringgit as the dollar continued its upward trend.

“It’s been a defensive market when there is a jittery outlook on the other markets,” Jalil Rasheed told WSJ.

The report further attributed the current stand taken by investors to the price increases and Putrajaya’s subsidy removals on essential items, as part of efforts by Putrajaya to plug its budget deficit.

It noted that yields on benchmark government debt were at the highest since 2010, and that the share of government debts owned by foreign funds was the highest in Asia.

“There’s a lot of cautiousness and uncertainty in terms of who owns this foreign portion of government bonds, what would trigger them to go out, what’s the impact on the market if they go out,” WSJ quoted Elsie Tham, of Manulife Asset Management, who is in charge of RM2 billion.

But not all have joined the exodus, with some staying put amid rising export and government efforts to plug the continued deficit, it added. – January 30, 2014.

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4 Comments leave one →
  1. najib manaukau permalink
    January 30, 2014 10:30 am

    I remember that in 1965 that 1 Singapore dollar was only able to buy .97 Malaysian cent and as of to day the 1 Singapore dollar can get 2.62 ringgit. A whooping of over 160% more ringgit at the rate the ringgit is depreciating very soon the ringgit is not worth any better than the Japanese banana notes.
    Now you know why all the warlords of Umno are holding, for sure, foreign bank accounts and that must one of the reasons why the egregious Mahathir is stacking the stolen loots abroad. No doubt the main reason is that the stolen fortune is not traceable ! Why do you think the sons were rushing to Australia when he was hospitalized during his last visit there.
    To be told where the loot is hidden !

  2. truthseeker permalink
    February 1, 2014 4:42 am

    Home › Headlines › Theft Is Deflationary–Especially the Crony-Capitalist/State Kind
    Theft Is Deflationary–Especially the Crony-Capitalist/State Kind
    Posted on January 31, 2014 by Charles Hugh Smith — 3 Comments ↓

    Monopoly power in all its forms–in our system, crony capitalism and its partner, the neofeudal state–enables theft on a systemic scale.

    If a monopoly forces its customers to pay more for low-quality goods and services because they have no choice, how is that not theft?

    If the Mafia raises the price of “protection” on small businesses (another case of monopoly and no other choice), how is that extortion not theft?

    When a local government raises junk fees to fund its cronies’ excessive (i.e. non-market-rate) salaries and pensions, how is that monopoly power to extort more money from those with no other choice any different from Mafia extortion/theft?

    If a pharmaceutical company extends a patent on a costly medication by changing the dosage slightly, how is that not theft via regulatory capture? If a government contractor charges the Pentagon $1,000 for a hammer (all those overhead charges, tsk-tsk–lobbying corrupt politicos costs a lot, you know), how is that not theft of taxpayers’ money?

    When the Federal Reserve drops the yield on savings to near-zero to funnel all that stolen wealth to its cronies on Wall Street, how is that not theft?

    Monopoly power in all its forms–in our system, crony capitalism and its partner, the neofeudal state–enables theft on a systemic scale. When crony capitalism and the state are essentially one system, the propaganda organs of the state and mainstream corporate media combine to persuade the stripmined populace that their theft is not theft, it’s “capitalism and democracy at work.” This is known as The Big Lie. What we have is systemic theft, predation and exploitation.

    Calling things what they really are would upset the apple cart of systemic exploitation.Let’s Call Things What They Really Are in 2014 (January 15, 2014)

    Correspondent Jeff W. explains that all this systemic theft is inherently deflationary:

    All forms of stealing are deflationary. Stealing cuts into the average citizen’s disposable income, it reduces how much he can buy. Because there are now fewer dollars chasing more goods, deflation is the inevitable result. Stealing is actually worse than a zero-sum game. Society loses more than the thief takes. In addition to losses from theft, a victim often has to spend more on security measures. Theft also has a chilling effect on capital investment and commerce in general.Consider how many different kinds of theft the American citizen is exposed to: street crime, sickcare industry ripoffs, legal system ripoffs including huge fines for traffic violations, high taxes, interest earnings on his savings that amount to ZIRP, a corporatist state determined to suppress his wages by any means necessary, unending victimization at the hands of predators enabled and protected by the state. If he owns a small business, he has to deal with a corrupt regulatory state, higher taxes, and an enlarged menagerie of predators. Today there are thieves everywhere.

    So one big deflation trend is theft. As theft increases, deflation increases. As society collapses and thieves start roaming freely all over the landscape, a deflationary collapse can be expected—absent a determined and persistent campaign of money printing.

    Exhibit A for the case that stealing is deflationary is the Dark Ages.Stealing was rampant in the Dark Ages. How did people react to that? By “going medieval.” They wore clothing that made them look poor so as to avoid attracting the attention of thieves. Their dwellings looked poor for the same reason. If they had cash, they would bury it in the ground; no one could be trusted. Unless one was an insider who could get protection from the state, no one’s property was safe.

    Capital investments were much too risky, and out of the question. What were the price characteristics of the Dark Ages? Wages were low. Real estate valuations low. Prices of manufactured items (such as they were) were low. Only food was expensive. People can cut back on clothing and shelter, but there is a limit to how much they can cut back on food. In the Dark Ages, people really hunkered down and just focused on basic survival.

    Exhibit B is Detroit. Detroit for many years has been a high crime area, i.e. it had lots of thieves running around. What are the price characteristics of Detroit? Wages low. Real estate valuations low. There is very little manufacturing being done inside the city limits today because of high property taxes and crime. There is also very little capital investment for the same reasons.

    There is a vicious circle at work here. 1) Thieves control the government; 2) Which results in increased stealing; 3) Deflation results from that; 4) Which gives the thieves a reason to print money and give it to themselves; 5) Which enriches the thieves some more; 6) Which gives them more resources they can use to consolidate their control of the government; 7) Back to step 1.

    Many people seem confused about how there could be deflation in the paper (or digital) money era. If they would recognize how much stealing is going on, and if they understood the powerful deflationary effect of stealing, then perhaps they would not be so surprised to observe price decreases, particularly in wages and the prices of manufactured products.

    Thank you, Jeff, for explaining the causal connection between systemic theft and deflation. To all those terrified of deflation (for example, central bankers and their cronies holding trillions of dollars in phantom assets and illusory collateral), the solution is obvious: get rid of systemic theft. But since those terrified of deflation are at the top of the monopoly-power thievery pyramid, that is asking the impossible: for the thieves to relinquish their power to steal.

    Read more at http://www.maxkeiser.com/2014/01/theft-is-deflationary-especially-the-crony-capitaliststate-kind/#joLx7vohoETRALvG.99

  3. truthseeker permalink
    February 1, 2014 6:35 am

    1.Due to 40+ years of UMNO BN and its feudal capitalist cronies buffoonery,thievery,sheer greed,Malaysia today is financially ruined.BNM under the influence of anglo moron THE FED is equally responsible for the current financial mess!

  4. truthseeker permalink
    February 2, 2014 4:13 am

    How Central Banks Cause Income Inequality

    Submitted by Frank Hollenbeck via the Ludwig von Mises Institute,

    The gap between the rich and poor continues to grow. The wealthiest 1 percent held 8 percent of the economic pie in 1975 but now hold over 20 percent. This is a striking change from the 1950s and 1960s when their share of all incomes was slightly over 10 percent. A study by Emmanuel Saez found that between 2009 and 2012 the real incomes of the top 1 percent jumped 31.4 percent. The richest 10 percent now receive 50.5 percent of all incomes, the largest share since data was first recorded in 1917. The wealthiest are becoming disproportionally wealthier at an ever increasing rate.Most of the literature on income inequalities is written by professors from the sociology departments of universities. They have identified factors such as technology, the reduced role of labor unions, the decline in the real value of the minimum wage, and, everyone’s favorite scapegoat, the growing importance of China.

    Those factors may have played a role, but there are really two overriding factors that are the real cause of income differentials. One is desirable and justified while the other is the exact opposite.

    In a capitalist economy, prices and profit play a critical role in ensuring resources are allocated where they are most needed and used to produce goods and services that best meets society’s needs. When Apple took the risk of producing the iPad, many commentators expected it to flop. Its success brought profits while at the same time sent a signal to all other producers that society wanted more of this product. The profits were a reward for the risks taken. It is the profit motive that has given us a multitude of new products and an ever-increasing standard of living. Yet, profits and income inequalities go hand in hand. We cannot have one without the other, and if we try to eliminate one, we will eliminate, or significantly reduce, the other. Income inequalities are an integral outcome of the profit-and-loss characteristic of capitalism; they cannot be divorced.

    Prime Minister Margaret Thatcher understood this inseparability well. She once said it is better to have large income inequalities and have everyone near the top of the ladder, than have little income differences and have everyone closer to the bottom of the ladder.

    Yet, the middle class has been sinking toward poverty: that is not climbing the ladder. Over the period between 1979 and 2007, incomes for the middle 60 percent increased less than 40 percent while inflation was 186 percent. According to the Saez study, the remaining 99 percent saw their real incomes increase a mere .4 percent between 2009 and 2012. However, this does not come close to recovering the loss of 11.6 percent suffered between 2007 and 2009, the largest two-year decline since the Great Depression. When adjusted for inflation, low-wage workers are actually making less now than they did 50 years ago.

    This brings us to the second undesirable and unjustified source of income inequalities, i.e., the creation of money out of thin air, or legal counterfeiting, by central banks. It should be no surprise the growing gap in income inequalities has coincided with the adoption of fiat currencies worldwide. Every dollar the central bank creates benefits the early recipients of the money—the government and the banking sector — at the expense of the late recipients of the money, the wage earners, and the poor. Since the creation of a fiat currency system in 1971, the dollar has lost 82 percent of its value while the banking sector has gone from 4 percent of GDP to well over 10 percent today.

    The central bank does not create anything real; neither resources nor goods and services. When it creates money it causes the price of transactions to increase. The original quantity theory of money clearly related money to the price of anything money can buy, including assets. When the central bank creates money, traders, hedge funds and banks — being first in line — benefit from the increased variability and upward trend in asset prices. Also, future contracts and other derivative products on exchange rates or interest rates were unnecessary prior to 1971, since hedging activity was mostly unnecessary. The central bank is responsible for this added risk, variability, and surge in asset prices unjustified by fundamentals.

    The banking sector has been able to significantly increase its profits or claims on goods and services. However, more claims held by one sector, which essentially does not create anything of real value, means less claims on real goods and services for everyone else. This is why counterfeiting is illegal. Hence, the central bank has been playing a central role as a “reverse Robin Hood” by increasing the economic pie going to the rich and by slowly sinking the middle class toward poverty.

    Janet Yellen recently said “I am hopeful that … inflation will move back toward our longer-run goal of 2 percent, demonstrating her commitment to an institutionalized policy of theft and wealth redistribution.” The European central bank is no better. Its LTRO strategy was to give longer term loans to banks on dodgy collateral to buy government bonds which they promptly turned around and deposited with the central bank for more cheap loans for more government bonds. This has nothing to do with liquidity and everything to do with boosting bank profits. Yet, every euro the central bank creates is a tax on everyone that uses the euro. It is a tax on cash balances. It is taking from the working man to give to the rich European bankers. This is clearly a back door monetization of the debt with the banking sector acting as a middle man and taking a nice juicy cut. The same logic applies to the redistribution created by paying interest on reserves to U.S. banks.

    Concerned with income inequalities, President Obama and democrats have suggested even higher taxes on the rich and boosting the minimum wage. They are wrongly focusing on the results instead of the causes of income inequalities. If they succeed, they will be throwing the baby out with the bathwater. If they are serious about reducing income inequalities, they should focus on its main cause, the central bank.

    In 1923, Germany returned to its pre-war currency and the gold standard with essentially no gold. It did it by pledging never to print again. We should do the same.

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