The Global Economy in Turbulent Times

By See-Yan Lin

A leading authority's answer to today's global economic challenges

In Global Economy in Turbulent Times, Harvard economist Dr. See-Yan Lin offers his timely and incisive views on today's key economic issues. Adapted from his hugely popular column in the Malaysia Star newspaper, these articles offer fresh and entertaining perspectives on perennial economic problems. The discussion covers the world economy, with particular attention to the US, EU, Japan, and the international monetary system, as Dr. Lin explains how the economy is broken and offers multiple paths to repair. Coverage includes emerging East Asia, ASEAN (especially Malaysia), and BRICS nations, plus the author's own views on global demography, the need for quality education, corporate governance in Malaysia, and more.

Dr. Lin's expertise in strategic and financial issues is renown and actively sought in the academic, economic, banking, and business realms. In this book, he presents his observations and analysis of the global economy, and the most pressing issues facing the world's financial future.

• Consider the issues faced by the world's leading economies
• Examine the factors underlying inadequacy of political will to act
• Gain insight into the middle class that's emerging across the globe
• Get new perspective on CSR and management from a leading authority

Opinions on the world's economic problems are abundant, but seldom do they come from such an authoritative source. Dr. Lin draws upon decades of economic experience and the knowledge gained through three post-graduate Harvard degrees to give you a deeper understanding of the current state of the economy. Gain the insight of a multi-awarded scholar and economist with the deep discussion and expert analysis in Global Economy in Turbulent Times.

• Language: English
• Publisher: Wiley
• Release date: May 19, 2015
• ISBN: 9781119059943

Book preview

               Royal Prelude

Tan Sri Dr. Lin See-Yan is one of Malaysia’s most distinguished economists. I have long been an admirer of his career achievements and am an avid reader of his fortnightly column in The Star newspaper. Like me, his numerous readers will be delighted that these essays are now compiled into a book. These essays are characterized by a depth of analysis and breadth of coverage that can only come from someone with a sound understanding of the issues involved, and they are written in a style that is easy to read and can be understood by a nonspecialist.

Tan Sri Dr. Lin, I am proud to say, is a Perak-born, Harvard-educated economist. He served for many years as a central banker at Malaysia’s Bank Negara, where he ended up as deputy governor for 14 years. Subsequently, he became a commercial banker, financier, and venture investor. Malaysia is fortunate to have had, and continues to have, his services. His perspectives on macroeconomics, finance, and economic matters in general are, therefore, no mere armchair cogitations but shaped in the crucible of real-world experience. In this, he differs from many others.

The chapters in this book address many of the important global issues of our time. Anybody with even the slightest interest in current economic matters and regional financial affairs should own and read this book. You will be richly rewarded. You will not find another book quite like it.

Sultan Nazrin Shah

Istana Iskandariah

Kuala Kangsar

Malaysia

January 9, 2015

Foreword

Tan Sri Dr. Lin See-Yan is certainly the most qualified to speak on the economy—both national and global.

We are living in turbulent times—both politically and economically. Political turbulence affects the economy and economic turbulence affects politics. The two cannot really be separated.

I remember Tan Sri Lin’s contribution toward my thinking during the days when I was prime minister. His analytical mind managed to see things in depth and sharply. It is an uncommon gift.

I often read his essays in newspapers and magazines. Now he has put all of these essays in a book for everyone to read and learn.

I wish the leaders of Europe and America, as much as the leaders of Malaysia, would read what he has to say about the many wrong things that are happening to the world’s economy.

I think many of us are in denial. We refuse to see the reality that is clearly evident before us. But reading the essays in this book might help us to acknowledge the truth.

I am no great believer of textbooks. I read them but I prefer to do my own thinking. This process is helped by reading some of the essays of See-Yan.

I recommend that this book be read by people entrusted with guiding and leading their societies and nations.

Tun Dr. Mahathir Mohamad

Prime Minister, Malaysia

1981–2003

1, Jalan P8H, Presint 8

62250, Putrajaya

October 13, 2014

Preface

In the twenty-first century, the economies of all of the world’s nations are interconnected. What happens in one part of the globe has ripple effects that affect every other part. Even well-informed citizens often still see economic changes as being largely shaped by the actions of politicians and businesses close to home. Those who read through the 151 short chapters in this book will have their perspective on world economic events and the impact of those events on their own lives broadened greatly.

These chapters were originally written as freestanding short essays in Dr. Lin’s column in The Star designed for an audience primarily in Southeast Asia, but the breadth of coverage makes them relevant to anyone in the world who is interested in global economic affairs. Many of the chapters deal explicitly with the global economy and the many high-level meetings, such as the G-20, that attempt to construct a global response to emerging economic challenges. A number of chapters are devoted to unraveling and explaining the United States’ exposure to the recent Great Recession and the damage done by partisan politics. Others go in depth into the problems of Europe, ranging from the Greek bankruptcy to the dangers of deflation. Still other chapters deal with Japan’s struggle through Abenomics to reverse the two decades of economic stagnation that resulted from the bursting Japanese stock market and real estate bubbles and the subsequent equivocating response of the Japanese government. Many chapters deal with issues such as the role of gold in the economic system and the effectiveness of the international monetary system. There is highly informed analysis of the various financial scandals that have erupted in recent years, such as the LIBOR scandal, and the fear felt by many of the expansion of shadow banking in many parts of the world.

Not surprisingly, given that the chapters were originally written for a Southeast Asian audience, there are many chapters that analyze the issues facing Malaysia, Indonesia, Thailand, Vietnam, the Philippines, Myanmar, and the ASEAN region as a whole. There are chapters on the economic challenges facing China and India and others on the BRICS (Brazil, Russia, India, China, and South Africa) as a whole or individually. Not all of the chapters deal exclusively with economic issues. There are essays on some of the demographic and environmental challenges facing various parts of the globe, the problem of rising inequality and the emerging middle class, which is common to many countries, and issues concerning the quality of university education.

In all of these chapters, seemingly complex economic issues are explained without technical jargon in ways that any educated person can follow even if they have no background in economics. The analysis, however, does not sacrifice rigor in order to make the issues seem simpler or clearer. Most economists have trouble being both rigorous and clear, but Dr. Lin is a notable exception.

Dr. Lin See-Yan brings a unique background to these chapters. For much of his career, he was a central banker in Malaysia’s Bank Negara. He was at the center of Malaysian inter-ministerial meetings on economic policy from very early in his career and for a very long period as deputy governor of the bank. During his time at Bank Negara, he took time out to come to Harvard University—originally to do a year of study for a master’s in public administration from Harvard’s Kennedy School, but he stayed on to do a PhD in economics in the Harvard Economic Department before returning to the bank. After retiring from the bank, he became chief executive officer of a publicly listed commercial bank. In addition, he served and continues to serve on numerous corporate boards in Malaysia as well as in the United States and elsewhere, and also on foundations and university boards. He has continued to be actively involved in economic policy, serving (among other positions) on the Prime Minister’s Economic Council.

This book can be read from cover to cover, but for many readers it will serve two roles. It is an excellent reference book to be referred to when one wants to better understand the nature of the international monetary system, the reasons for deflation, or China’s economic challenges. It is also a book for use as a very good university course on global economic issues.

Dwight H. Perkins

Harold Hitchings Burbank Professor of Political Economy, Emeritus

Harvard University

Chairman, International Academic Advisory Council, Jeffrey

Cheah Institute on Southeast Asia, Sunway University

September 15, 2014

Introduction

Lin See-Yan has had a remarkable and inspiringly productive career and an exciting life as a prized government official, a leading business strategist, a top-notch research economist, a revered public intellectual, and a loving family man. He worked at Bank Negara from 1961 to 1994 (as the deputy governor in the last 14 years) and, after retirement, he has been active in business consultancy, support of the arts, and the upgrading of tertiary education in Malaysia. Most wonderfully for me, he has consistently been a dear friend, a guru, and a guide on matters of economic development in Malaysia, Asia, and the world.

Lin See-Yan has been particularly involved in strengthening academic ties between Harvard University (where he received his PhD) and Malaysian institutions. He is the first non-American to be a member of the Harvard Graduate School Alumni Council, and the first non-American chairman of that Council. He has worked closely with Professor Arthur Kleinman, Professor Dwight Perkins, and Professor Anthony Saich of Harvard Asia Center to help to establish the nonpartisan privately funded think tank, the Jeffrey Cheah Institute on Southeast Asia (JCI), in Kuala Lumpur to promote high-quality research on public policy choices in the region.

Lin See-Yan has worked as a highly valued adviser with every Malaysian prime minister, and continued to do so after he left Bank Negara. For over 50 years, through his wide global network of high-level policy analysts and his deep immersion in core domestic policy discussions, he has helped to brainstorm and address every major macroeconomic crisis that has confronted Malaysia and the world. In each case, he has lent his powerful analytical mind and sense of culture, history, and politics to help shape public policy responses to ameliorate the situation.

We are very fortunate that since 2008, Lin See-Yan has taken up the additional effort of public education through a biweekly column on economic affairs for The Star newspaper. This book is a selection of his essays on the main economic developments of the past six years, including the global financial crisis, the slow jobless economic recovery in the United States, and the stagnation of the eurozone countries. These excellent essays were written for the broad public in Malaysia, and thanks to the publication of this book, they are now also accessible to the public worldwide. The globalization of knowledge is a wonderful outcome indeed, and it is my great pleasure and honor to help disseminate Lin See-Yan’s great wisdom for the wide world.

Jeffrey D. Sachs

Quetelet Professor of Sustainable Development

& Professor of Health Policy and Management

Director, Earth Institute

Special Adviser to UN Secretary-General Ban Ki-moon

Columbia University

New York, NY, USA

January 5, 2015

About the Book

The idea for the book came from friends and readers, from both professors and students as well. I am told that after reading the original essays (published in my fortnightly Saturday column, What Are We to Do in the Star newspaper in Malaysia), whenever they can, many have found them useful enough to save them every other Saturday for future reference. This gets messy to manage, as the file grows. What’s really wanted is a well-organized single source of convenient reference, which they can readily resort to whenever they want or feel the need to. So many have encouraged me to compile the essays in some order: essentially to get them properly organized in a systematic and logical way for ease of reference and, just as important, convenient to locate.

Pressure to do so came by way of Tan Sri Rashid Hussain, who made me a friendly offer I couldn’t possibly refuse: sponsorship by the Prime Minister’s Exchange Fellowship Programme Malaysia to publish them in book form. John Wiley & Sons Singapore had since agreed to be the publisher. With that in place, I began to assemble the 151 essays that were written once a fortnight without fail since the last week of 2008. This date is significant in that since the onset of the 2008 Great Recession, I have been asked by many friends and corporates frequently enough to help explain simply what’s going on, but also the meaning of economic and financial jargon used so very loosely in newspapers and magazines and on radio and TV—all these at a time when much of the news was deemed biased (in different ways depending on the source), and where the lines between gossip, fact, and opinion are unclear and not readily discernible.

There was, at that time, a growing demand for up-to-date, objective economic, business, and market news and independent analysis, written in a form most intelligent people can easily understand. As the recession deepened, the news coverage of interest expanded to include topics on political-economy, behavioral economics and social media, education, corporate governance, demography, and the environment. I gathered that what was really missing was reliable and intelligent news with objective, dependable analysis. Readers wanted to be well informed in order to better understand and become more aware of the world around them, especially on fast-emerging Asia. They needed insights about tomorrow’s world and views by a wide range of experts and thinkers. My Saturday column took on these challenges to fill the need.

As I write, my primary aim is to help people better appreciate the world around them: not just about Malaysia, which is but a speck in our vast universe. We are just too small to be in a position to ignore what’s really happening outside that can have such a profound impact—whether we like it or not—on what we do or plan to do: to help place breaking news, happenings, and opinions in context; to give insights into some moments of history; and indeed, for some, to even influence the course of the rest of this century. The goal is to get Malaysians, especially the young, to learn more about Asia and the rest of the world, and from the mistakes that others and we make; and to get them to be engaged and care enough to create a better world. More important, to watch the world change before our eyes as the rest of civilization looks to a source of trust, not just for information and analysis, but also for understanding and guidance: even some comfort.

My column’s essays are rabidly nonpartisan. I hope they are versed in the highest standards, practices, and ethics of our craft. They are intended to always strike a balance with the idea that we often feel nothing really changes with the notion that yet, everything changes so fast; especially in the ever-evolving Internet on everything—the biggest change agent to hit the global economy in our lifetime. Finally, each essay hopes to initiate a conversation among readers and with leaders on serious problems surrounding us (especially in Asia), and how we should react and interact to make Malaysia a better place for all to work and live. These essays (now chapters) are committed to be a dependable guide: to inform, engage, and I hope, even delight readers along their journey through life.

And so my mission has been to write about what’s current and topical in our complex world in simple language, so it’s easy for most common folks to understand, and whenever called for, to clarify technical concepts and explain unfamiliar jargon to help nonbankers and noneconomists follow what they read in the popular press on world affairs. Essentially, the book is intended to be partly educational (to explain, clarify, and interpret); partly informative (to remind people it’s important to be aware of happenings in the big world out there); and partly commentary (to express an objective opinion on happenings as I find them to need analysis). Over the years, I had gathered that the readers and regulars are rather wide ranging: from corporate executives to curious government officials; from teachers to university students; and from professionals to the usual Saturday run-of-the-mill readers. I am surprised to learn even many stay-at-home mothers read them (however, they do complain that I sometimes get carried away and start using semi-technical language). So they keep me honest. I always end with the tagline, What, then, are we to do? That’s pure commentary: how I see things as they evolve and what needs to be done. No holds barred. The idea is to provide enough information and a keen perspective to enable readers to judge for themselves the efficacy of public policies. I would have done this for six and a half years by the time this book goes to press.

See-Yan

Kuala Lumpur

March 31, 2015

Acknowledgments

I am grateful to many people and institutions whose support and encouragement made this book possible. Each made it better, but none bears any blame for its flaws. First among all has to be the late Tun Ismail Ali (Governor, Bank Negara Malaysia: Malaysia’s Central Bank, 1962–1980), my mentor, a true gentleman and a dear friend, who impressed on me that there is beauty in saying something clearly and simply, and held me always to that high standard. I have gained enormously from his razor-sharp mind and particular attention to detail. His skepticism and constant questioning helped me build strong analytical skills and a certain meticulous care in precise drafting.

Indeed, no one really knows where our ideas come from. Supportive peer pressure and an academic environment are surely part of the answer. I remember with fondness my own teachers at Harvard, whose sensitivity to the tenderness of my skills nourished this growth over time. The very presence of Nobel laureates as early teachers, especially Professors Simon Kuznets, Wassily Leontief, and Kenneth Arrow, boosted my self-confidence, as did great textbook-name teachers, including Gottfried Harberler, John Kenneth Galbraith, Martin Feldstein, James Duesenberry, Richard Caves, Richard Cooper, Dale Jorgenson, Jerry Green, Hendrik Hauthakker, Stephen Marglin, Richard Musgrave, and of course, Alexander Gerschenkron, the last man with all known knowledge. Above all, a colleague and good friend with whom I started to work in my early professional life and who later, at Harvard, became my teacher and mentor: Professor Dwight Perkins. He helped me better understand the importance of disciplined, synthesizing, and creative minds, and of delineating ethical minds. For me, Dwight sets the perfect example of always being able to strike an exquisite balance between critique and encouragement. I am honored and grateful that he wrote the Preface to this book. I thank him for his support, wisdom, kindness, and generosity over the years. Dwight remains a good friend.

I am especially indebted to HRH Sultan Dr. Nazrin Shah for his continuing support, encouragement, generosity, and guidance. It was Tuanku who constantly reminded me whenever we met to compile and organize the essays into a book. This way, the wealth of in-depth knowledge will be consolidated and made readily accessible, delivered at a one-stop single source. The intention is for the book to become an essential guide, engaging, informing, and hopefully delighting readers along the way. Without this pressure from Tuanku, I would not have done it. I am ever grateful to Tuanku for his confidence in me. Most of all, I deeply appreciate the Royal Prelude written by Tuanku to support and introduce the book. Most respectfully, I value his friendship, fellowship, and fraternity.

I started working for Tun Dr. Mahathir Mohamad when he was deputy prime minister in the mid-1970s and thereafter throughout his 22 years as prime minister. I’ve had the priceless good luck to learn from him what it means to be an effective and fearless leader. I’ve also had marvelous opportunities to absorb from Tun original insights about governance in practice and firm decision making, and about perceptions of the rapidly evolving political panorama of the Street and about tomorrow’s world through the eyes of a seasoned street-smart politician. So it is with great pride that I express my appreciation to Dr. M (as he is known to many of us who work for him) for consenting to write the Foreword to this book.

I am particularly proud of my long association with Harvard University: first, as a graduate student (1969–1972 and 1976–1977) starting at the Kennedy School of Government as a Mason Fellow, then the Business School, and finally, the Economics Department of the Graduate School of Arts and Sciences, as well as with the Harvard Institute of International Development (and its predecessor, the Development Advisory Service). Thereafter, I was an active Harvard alumnus since 1993, as a member of Harvard’s Graduate School Alumni Association Council (as its chairman, 2003–2005); 1998–2008, as member of the Harvard Alumni Association Council (serving, in addition, as its regional director for Asia, 2000–2010); 1998–2008, as founding deputy president, Association of Harvard University Alumni Clubs of Asia; and 2003–2006, as a member of Harvard’s Visiting Committee on Asian Studies. And since 2002, I have served as the president of the Harvard Club of Malaysia. During this time, I came to be acquainted and later collaborated with Harvard Professor Jeffrey Sachs (now at Columbia University), whom I am honored and proud to call my friend—a man of remarkable dedication, optimism, and talent. I am inspired, as I seem to always be, by his vast area of interest and expertise. I thank Jeff most sincerely for writing the Introduction to this book, and extend to him my appreciation of his friendship.

Taken as a whole, this book benefited greatly from the support of my many friends in Malaysia and around the world. Each chapter relies in part on the mindfulness of colleagues, friends, and readers, as well as global academics and students with whom I had the pleasure of working for many years. Their contributions are mostly invisible, but their influence was enormously significant. Over the years, I have written and rewritten chapters in the book many times: each time, drawing on ideas and written texts of scholar-friends and influential writers I admire—in particular Nobel laureates Joseph Stiglitz, Paul Krugman, Robert Solow, Michael Spence, and Robert Mundell, and Professors Alan Blinder, Barry Eichengreen, and Martin Wolf as well as Harvard Professors Martin Feldstein, Larry Summers, Jorge Dominguez, Robert Barro, Henry Rosovsky, Derek Bok, Howard Gardner, Ellen Langer, and Harry Lewis—each time, trying to make the ideas of interest reach an ever-expanding audience; each time, enlisting the patient advice of friends and scholars, as well as many writers and journalists in public affairs. All have enriched the book with their perceptive viewpoints, comments, and published texts. I am humbled by their help, guidance, and support. I should repeat that many of the ideas in this book are derived from the works of these scholars and many more, too numerous to mention by name. I am indebted to all of them: They have been invaluable in shaping this book. All errors and infelicities that are here are all my own. I take full responsibility for them.

A special thank-you goes to Tan Sri Rashid Hussain, chairman of the Program Pertukaran Fellowship Perdana Menteri Malaysia (the Prime Minister’s Exchange Fellowship Programme Malaysia), for the Foundation’s generous sponsorship to publish this book. Thanks are also due to Wah Seong Corporation for its continuing support.

Particular thanks are in order to my Eisenhower Fellow colleague, Datuk Mohd Nor Khalid (Lat), for taking time off to contribute the wonderful caricature featured in the cover design.

Last, but foremost, I am deeply indebted to my editor and friend, Ng Hon-Soon, whose skill, patience, and wisdom helped me finalize each chapter of this book. He read all the manuscripts with meticulous care and made invaluable suggestions. He has been an adviser and close friend for more than 25 years, and I owe him a great deal, personally and professionally. Hon-Soon has been singularly thoughtful in his suggestions about how to improve the book. He also did yeoman’s work in research and fact checking, and assisted me to avoid technical errors, including helping to locate source materials that I had clearly forgotten.

I should also acknowledge the help of another old acquaintance, Soong Mun-Wai, a professional librarian and family friend, who has been of enormous help in this regard.

All errors remain mine. In no aspect of this book was I more fortunate than having Wong Lily to manage the draft manuscripts and getting them typed with meticulous care, often over and over again. She saw the manuscripts through from start to finish, shepherded the book’s progress from submission to publication, and showed unerringly good judgment in ensuring each chapter was always completed on time, including attending to the subtlest details. I thank Lily for a job well done.

I owe special thanks to P. Gunasegaram, the former managing editor of StarBizWeek of Star Publications, for the opportunity to write my own column, What Are We to Do, since December 2008. He and his executive team helped to instill in me the discipline of bringing this column out on time every fortnight. I appreciate their invaluable support and patience. I am also most grateful for the continuing enthusiastic assistance and direction received from his successors and their professional support teams, including Soo Ewe-Jin, Errol Oh, Shanmugam Murugasu, Anita Gabriel, Jagdev Singh Sidhu, and Thean Lee-Cheng, who had worked tirelessly to plan and coordinate in ensuring the timely publication of the column. I value their contributions and colleagueship.

I received extraordinary professional support in the production of the book. Jeremy Chia’s and Kimberly Monroe-Hill’s editorial skills have been invaluable in ensuring the book conforms with the best international practice. Also, they simply did a great job in putting together the notes, and index for the book. Along with their teammates Thomas Hyrkiel, Gladys Ganaden, and Nazneed Halim, they all exceeded reasonable expectations of effort and skill.

I do owe many thanks to many people, especially Harvard Professors Dwight Perkins, Jorge Dominguez, and Arthur Kleinman; and Tun Hanif Omar, Tun Ahmad Sarji, Tan Sri Thong Yaw Hong, Tan Sri Jeffrey Cheah, Tan Sri Rashid Hussain, Tan Sri Jawhar Hassan, Tan Sri Lim Kok Thay, Tan Sri Sidek Hassan, Tan Sri Andrew Sheng, Tan Sri Hamad Piah, Tan Sri Lim Wee Chai, Dato’ Sri Robert Tan, Dato’ Tan Chin Nam, Datuk Ali Kadir, Dato’ Dr. Tan Tat Wai, Datuk Noor Azlan Ghazali, Dato’ Ooi Sang Kuang, Dato’ Siew Ka Wai, Professor Rajah Rasiah, Datuk Seri Dr Govindan Kunchamboo, Chew Gek Khim, Goh Peng Ooi, Raymond Kwong, Datuk Sulaiman Daud, Ong Kian Min, John Lim, Halim Din, Chan Cheu Leong, Mark Chang, Charles Lim, Ng Kay Yip, Gregory Poarch, my Thursday lunch buddies, Jeffrey Toh, Lim Chee Sing, Cheah Kim Ling, Lee Guat Keow, Zoe Rai, and my exceptional colleague Datuk Professor Wing-Thye Woo for their unfailing support, assistance, encouragement, and generosity.

By no means least, I am grateful to my colleagues, students, and readers, from whom I learn how to be a better writer and become a more effective leader as well. The Roman proverb sums it up best: Qui docet discet. He who teaches, learns.

My greatest debt by far is to my wife, Emily. I am grateful for her unwavering care for our family over many, many years, as well as her sustained support and assistance of what I do. It is an infinite debt for which only Goethe could aptly find the right words: A debt that can only be discharged through all eternity. This book is dedicated with love to her; also, to my kids and grandkids. They are the loves of my life.

Izmir, Turkey; Constanta, Romania

Nessebur, Bulgaria; Athens, Greece

October 4–10, 2014

PART I

That Was the World That Was (TW3)

CHAPTER 1

TW3 2008: The Year Free Markets Ran Amok1

I am writing from Boracay, with both my feet well-sunk into the powder-textured white sand on the best stretch of beach in the world, located south of the city of Manila. The weather was just nice enough for me to think about what to write for my second essay in The Star (the first was on December 20, 2008, now published as Chapter 101, Getting ‘Cangkul-Ready’) as another annus horribilis draws to a sad conclusion. Hence, TW3 2008, or that was the world that was in 2008.

Looking back, it’s hard to summarize a year that blew hot and cold—both rather uncomfortable. The first half of the year reminds me of Malthus’s challenge to the dwindling global supply of resources—oil, food, and other commodities. None foresaw (including me) that the crude oil price would rise so fast from its lows in early 2007 to US$87 a barrel on February 6, 2008, to US$100 on February 19, and then on to a high of US$145 on July 3, only to fall precipitously to US$31 by December 22 (US$44.60 on December 31, 2008). Similarly with crude palm oil: from a low of RM1,893 per tonne on January 30, 2007, to RM3,117 by end-2007 to a high of RM4,330 on March 3, 2008; the highest price reached in the second half of the year was RM3,600 on July 3, before falling to its lowest on October 24 at RM1,390 (RM1,629.50 on December 31).

Name the commodity, and we see similar sharp gyrating trends all within a calendar year. In the same vein, central banks saw the scepter of inflation and debated seriously on the trade-off between growth and inflation. The second half of the year turned it all around—by year-end, the talk had centered on how to avoid stag-deflation (Columbia University’s Professor Nouriel Roubini’s combination of stagnation/recession and deflation) or even depression (at worse, the Great Depression Mark II). Just as quickly, John Maynard Keynes has been disinterred and became the topic of conversation within the infamous Malaysian tai-tai network,2 so I was told. Politicians have since had a field day and decided that the state now has a proactive role beyond standing back, since the market no longer has all the answers. They do have good reasons.

Annus Horribilis

Indeed, 2008 was the year the system failed in the United States. Consider these contradictory phenomena: (1) In this year, US long-term interest rates were at their lowest in 500 years; but the year also saw the highest rates in 20 years; (2) this year was the worst for the US stock market in 70 years—yet, of the 10 best days experienced during this long period, 6 came in 2008; (3) this year, economists started off by worrying a lot about inflation but then switched to concerns about recession and deflation, all within a year; (4) this year, the US government started lending to businesses and banks in ways that they could never have borrowed before, as people feared widespread corporate and financial bankruptcies since the businesses and banks could not borrow to repay; and (5) this year, a few trusted Wall Street personalities defrauded their own kind (Madoff for a reported US$50 billion through a Ponzi-like fraud scheme, and lawyer Marc Stuart Dreier getting hedge funds to invest monies that eventually landed in his pockets). These glaring contradictions—all within a year—reflect the sentiments behind the title: The Year Free Markets Ran Amok.

That’s not all: (1) This year, in a dramatic turnaround to save the financial system, Washington practically nationalized federal government–guaranteed housing mortgage institutions, Fannie Mae and Freddie Mac, as well as the AIG group of insurance companies (including bailing out those who lent to Bear Stearns) and later, Citigroup; however, it allowed investment bank Lehman Brothers to fail with disastrous worldwide repercussions; (2) this year, the US securitization machine (which was heavily relied on previously to prop up the system) collapsed so badly that the financial system could not perform its traditional role of bridging lenders and borrowers—worse still, banks could no longer trust one another’s balance sheet; as a consequence, government had to become lender of first and only resort; (3) this year, it took Washington most of the year to realize that the underlying problem of the banks and investment houses was one of solvency, not just illiquidity; (4) this year, most economists were caught flat-footed before they realized that the US recession had already started in December 2007, with optimists still thinking then that it wouldn’t last longer than early 2009; (5) this year, with oil and commodity prices collapsing, inflation vanishing, and unemployment rising rapidly, the US Federal Reserve Bank (Fed) cut short-term interest rates rapidly to about zero by near year-end with 10-year Treasuries at close to 2 percent (not seen since Eisenhower years); but junk bond yields rose to 17 percent (i.e., about 1990 levels, the last time the banking system almost collapsed)—indeed, money has become so cheap that recently the US Treasury bills rate turned negative briefly (can you imagine, the government got paid for borrowing!); (6) this year, we began to see that the expected push of the Chinese and Indian locomotives could not be de-coupled from the ever-evolving global interdependence—that the BRIC nations’ (Brazil, Russia, India, and China)3 expansion was not sufficiently dynamic to offset the recession contagion originating in the United States and Europe, whose virulence has since surprised even those who supposedly had the prescience to foresee; and (7) this year, we saw a crisis of global proportions made in the West—from irresponsibility emanating not from them (for until now such crises only happen to them in Asia, Latin America, and Russia) but from indiscipline, profligacy, and regulatory failures of the United States and Europe, ironically with them as the creditors and the West, the debtors—and this list is not exhaustive.

What’s in Store for 2009?

What, then, are the lessons? What are we to do? The thing that continues to puzzle and intrigue is how the two halves of 2008 could not have been more different and yet, they came together rather seamlessly within the same year. It does, however, point to the inadequacy of conventional wisdom to explain just how quickly the unthinkable can readily come to pass and just as quickly become the unremarkable. The big lesson: It is foolhardy to even offer to peer into 2009. We just don’t know enough about the nature of the global transmission mechanism and the time taken for economic interdependence to work through on the financial front (failure of political governance to keep pace with tightening interconnections among markets, banks, and regulators), on the geopolitical side (the disappearing line between them and us regarding the origin of crisis) and in the wider context of a cracked established world economic order that is not working and not properly understood. Nevertheless, let’s take stock and see where the unfolding financial crisis and current recession in the United States and Europe are leading us. My own take is as follows:

We are already witnessing (and most certainly feeling) a global recession, and it is likely to get worse.

US gross domestic product (GDP) will likely remain negative over most of the first half of 2009; the best-case scenario being negative until the end-2009. Recovery in late 2009 is still possible but will be weak (it’s going to still feel like a recession) and is expected to be still rather weak in 2010. Unemployment could possibly peak at 9 percent in 2010 (nowhere close to the 25 percent, and a 50 percent national income loss, as in 1929–1933).

Things have happened (and are still happening) that I have not seen in my 39 years as a working economist and banker: (a) the sharp amplitude of US stock market movements—value of the real (adjusted for inflation) S&P 500 Index tripled in 1995–2000, but by November 2008, it fell 60 percent from its 2000 peak (in 1924–1929, real stock prices tripled, and then fell 80 percent in 1929–1932); (b) the biggest housing bust since the Great Depression; (c) zero interest rates—and briefly, in December, negative rates—not seen since 1941; (d) global equity values estimated to be down by 50 to 60 percent in 2008—the year in which every asset class (stocks, real estate, commodities, even high-yield bonds) fell by significant double digits. Total paper wealth destruction could be in the region of US$30–35 trillion. The list goes on.

I don’t see a Great Depression Mark II coming on.

Lessons

Here are 10 useful lessons from the Great Depression to think about:

Adjustment from the sharp downturn will be long and painful.

Credible solutions need to focus on demand and output, and in the process, avoid fixing prices and wages.

It is useful to have a willingness to explore new, lean-against-the-wind programs.

Time is of the essence in the politics of recovery—large direct spending fusions do serve to weaken downward spirals; recessions are prone to develop.

When spending during recessionary times, deflation is a worse enemy than inflation.

Do not engage in beggar-thy-neighbor policies.

When trust is shattered, economic stakeholders need firm leadership and confidence in an effective public authority to manage expectations and address the destructive deleveraging recession.

Economic mishaps can quickly eat up political capital since expectations are high to deliver quick results.

Need to address early the capitulation of underlying consumer spending since both income and wealth have been drastically reduced—the policy response needed is purposeful measures to fill the void left by retrenching consumers—that is, a massive fiscal stimulus.

The key economic lesson: The political will to do enough—that is, leadership to err on the side of doing too much to stimulate rather than doing too little and too late.

What, Then, Are We to Do?

The key to good leadership is to be ahead of the curve. For us in Malaysia, there is no doubt that the worst is yet to come—likely to come on after the Chinese New Year festivities in early 2009. Already, businesses and consumers are getting that sinking feeling regardless of what the economic numbers now show. One of the lessons from our short history of recessions and slowdowns is that things can smolder for a longer time than expected. As of now, confidence is still fragile, and whatever is being done, don’t forget we are dealing with managing expectations, a psychological phenomenon.

People need to believe that public policies will do the whole job, not just plugging holes. As I see it, we are at most times more of an ostrich than a sage owl. Realistically, our macroeconomic adjustment is likely to be longer than shorter. Unfortunately, we are optimists by nature, already thinking too soon that we can discern a beginning of better days ahead. I assure you, there will be time for optimism, but not just yet. I fear we must expect macroeconomic weaknesses still to come and maybe even persist through most of 2009.

I realize, of course, it’s hard to know what’s going to happen next week, never mind the entire 2009. My gut feeling is that the overall economy is worse than what many people expect. The year 2008 saw the markets pushing the economy down; if so, 2009 will see the macroeconomy impacting the markets. Indeed, the process has already started—surely in the United States and Europe, and the impact is beginning to be felt in China, India, and Japan.

Through good and bad times, the Malaysian economy has always shown an innate resilience that eventually pulls the country through, mainly with firm leadership at the helm to restore confidence and, when needed, rejuvenate Keynes’s animal spirits to help jump-start the economy.

But before this can happen, at a time like now, we need the type of leadership we deserve to stimulate activity through large-scale effective government spending to fill the gap created by softening consumer spending (because of declining wealth, stock prices and Bursa Malaysia market capitalization had fallen 45 percent between their high and low in 2008, with expectations of income loss), business downswing in profits and reduced earnings growth, if any, and the deleveraging of private balance sheets as the slowdown bites. The key push must be to generate employment since the economy will not stabilize until wealth and incomes are rebuilt in a sustained way. The full force of fiscal policy needs to be deployed to push for an early recovery through compensatory government spending to fill the void left by business and consumer withdrawal of spending and borrowing.

In earlier essays (published in The Star on December 20, 2008, and in The Edge on December 29, 2008), both now reproduced as Chapters 101 and 102, respectively, I proposed (and rationalized in some detail) the urgent need for a second stimulus program of RM30–40 billion over the next two to three years. This should give us the value-added jobs and evolving income we badly need, bearing in mind the lessons we can learn from the past. Indeed, we need to do more rather than less at a time of great uncertainty in the face of a rapidly expanding global recession, and at a time when the risks of pump-priming are minimal.

In times of complexity, I believe commonsense pragmatism has to prevail. I am optimistic about the macroeconomic choices now before us. The political and economic risks can be readily managed. The current and unfolding uncertain circumstances present the best time for Malaysia to spend smartly on projects with lasting benefits, and at the same time, add value and restructure the economy to build capacity in an environment of slowing and weakening economic conditions at home. We deserve more.

Boracay, Philippines

Kuala Lumpur

January 1, 2009

Notes

1. First published on January 3, 2009.

2. Refers to the proactive network of well-to-do and well-connected housewives (mainly tai-tais, usually rich or titled or both) with nothing better to do than organize regular get-togethers (usually lunches, sometimes dinners) at which they exchange the latest goings-on around town (and act as an online breaking news) over a game of mah-jongg or afternoon tea.

3. This new grouping (first suggested by Jim O’Neill, then of Goldman Sachs, in 2001) comprises Brazil, Russia, India, and China—the rapidly rising major emerging developing nations. Together, they exceed 3 billion people (nearly 45 percent of world) and account for 25 percent of the global GDP on a purchasing power parity basis. South Africa was included as a member since December 2010, with the grouping consequently known as BRICS.

CHAPTER 2

2009: Oxpicious Year Ahead1

In January 2009, I have had many conference calls with friends overseas, stretching from Boston (Harvard and MIT) to New York (Columbia) to Washington, DC (Brookings) to get an updated feel of the prospective state of the United States, the eurozone, and Japanese economies. As expected, the economic situation had since changed for the worse with each passing day (especially the rapidly deteriorating unemployment situation) and that does not appear to have reached bottom. So I decided to round up the picture and revisited Association of Southeast Asian Nations (ASEAN)2 (among the last to be really affected, except Singapore) to gauge the prevailing mood especially in this part of the world. I landed up in Chiang Rai, Thailand, over the February Chinese New Year festivities. Indeed, I am writing this from a tent (literally) along the Burma/Thailand/Laos Golden Triangle.

Ox Year

Here, this is also open season for astrologers/feng-shui masters/fortunetellers. For them, the year of the Rat (2008) was not good—we all know that. After all, the rat and water go together, and as everyone who follows this knows, water brings worries and provides fear. Worse, 2008 was also a year without fire—the element that drives the pursuit of money. This is not rocket science, of course. Nevertheless, their views have a general thrust that points in the same direction: There is no fire in the year of the Ox (2009), either. So don’t expect all things related to money and banking to bounce back big-time this year! Now the plot thickens: Instead of water, the element influencing this year is yin-earth, and since the Ox is an earth animal, 2009 is really a double earth year, which is good (I think). This earthly combination promises harmony and stability, reconstruction and rebuilding, bringing opportunities for long-term gain. The last yin-earth-Ox year was 1949, with the world settling to a new order (People’s Republic of China came into being that year, so did the North Atlantic Treaty Organization (NATO); but it was also a time of the Cold War, with the USSR testing its first atom bomb that August).

I have it from a good source that President Obama is an Ox, born on a yin-earth day in 1961. So is Timothy Geithner, the new secretary of the US Treasury. Such double-earth people, according to my Túng Shu, the ancient Chinese almanac, are moderate, peaceful, charismatic, intellectual, and slim! For your information, President Bush is a yin-metal person who became president in 2001, a yin-metal year that saw great turbulence. There is more. A pure earth year points to the lack of conflict. But without fire (i.e., optimism), conservatism prevails. It also points to no early recovery—a year of cooling down, moving over time to stability. Without fire, the earth just cools. Finance and banking is considered a metal industry, and without fire, metal is quite useless. However, 2010 looks more promising—the Tiger is a wood sign that feeds fire! All this information is secondhand, of course. You get sucked into this sort of mood when you are situated in the Golden Triangle.

Reassessment

My reassessment is made after considering the following seven factors:

International Monetary Fund’s (IMF) 2008 study of recessions over three decades had concluded that (a) recessions preceded by financial crises are deeper and longer; (b) recessions tend to be worse if the crisis is in banking; (c) nations hardest hit are those with arm’s-length financial institutions (e.g., United States and Europe); and (d) recessions linked with banking crises last two times longer and the cumulative gross domestic product loss is four times larger. Overall, the evidence points to a severe global recession this time around.

The recession, which started in the United States in December 2007, has now bloated into a worldwide phenomenon. Job cuts have gained rapid speed as the global economy slides. In the United States, about 2.6 million jobs have already been lost in 2008. Job losses are widespread from Britain to the eurozone to China. The International Labour Organization had estimated that 51 million jobs will be lost by the end of this year, 2009. Recessionary influences are now globally driven. Revised IMF predictions for 2009 put the world on the precipice, and likely to slow to a standstill. Already, the United States, the eurozone, the United Kingdom, and Japan are in recession. Developing countries as a whole are not far behind.

Today’s global business climate is at its worst since World War II (WWII) if recent survey results are to be believed. Sluggish demand is most pronounced in the goods-producing sectors. Both investor and consumer sentiments have since turned pessimistic and are fast becoming a global phenomenon.

Throughout most of Asia, certainly in most ASEAN nations, governments have come out strongly to stimulate—in some cases, not just once, but already in the midst of a second recovery plan. As of now, the overall sentiment remains opportunistic.

Few would argue that the economic crisis (especially in the United States, the eurozone, and Japan) has grown worse. Earlier on, most thought the Keynesian way was simply the easiest way to go. With each passing month, it appears that the situation gets harder to resolve as the crisis gets more global and as decisions and their implementation take more and more time to effectively put on the ground—what economics Nobel laureate Paul Krugman calls stuck in the muddle, echoing John Maynard Keynes, who wrote as the world plunged into the Great Depression: But today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand.3

Despite the severity of this crisis recession, there is scant evidence, so far, that it will soon develop into a depression (à la 1929–1933). Thus far, it is also unlikely that deflation (à la Japanese style in the 1990s) will set in (even in the United States). It is true that consumers and investors are spending less (if at all) and more wisely. Given the harsh economic climate, more firms are resorting to price cuts to lure buyers, and consumers are looking for real bargains and postponing spending. It is also true that lenders and consumers have become skittish about taking on new risks. This wait and see mentality continues to spark fears of deflation. The Obama stimulus package is intended to lead and reverse such sentiments.

Since September 2008, when events in the United States really turned sour, the government remains the only lender of first and last resort. Despite bold measures (especially by the Fed), markets are still nervous and stressed, and it remains true that no one really knows what’s going to happen the next day. Similarly, the overall situation in the United Kingdom, the eurozone, and Japan has markedly deteriorated. Confidence remains fragile. Two key ingredients are needed now, more than ever, if any bold government stimulus is to work: return of confidence, especially for investors and consumers, and widespread ready access to bank credit. Both are still found wanting, despite governments and central banks doing their darndest to help. As the liquidity trap sets in (because of prevailing very low interest rates), monetary policy gets increasingly less potent while the fiscal policy options take time to pass and implement (if ever). In the meantime, Northeast Asia, ASEAN, and South Asia are getting very nervous, mainly because more nations fear getting into a worsening recession at home as the global side worsens. On the surface, things might have appeared not to be as bad for some because of the lagged effects. The key risk involves the feedback loop between the financial and real sectors, which gets more adverse as the recession deepens. The case of Malaysia—which came through a sustained period of commodity price and electronics boom—had continued to record a credible macroeconomic performance right until the fourth quarter of 2008, especially the corporate results. This has tended to lull many, especially consumers, into a sense of complacency, which I am afraid could drag until early first quarter of 2009. There is no doubt that for countries like Malaysia, the worst is yet to come.

The Worst Is Yet to Come

Overall, those revisiting their outlook are revising it down. For some, it’s now a matter of whether a country is technically in recession. But this is not really important from the point of view of public policy since most people— investors, businesspeople, exporters, and consumers—are already feeling the recessionary tendencies; indeed, people expect more gloomy news to emerge. As it plays out, most forecasters are now on their worst-case scenario for the world. Many, like me, don’t really know what the new worst-case scenario is going to be like. But one thing is sure: at the eye (United States) of the recession, at best, there could be some sort of recovery by the fourth quarter of 2009, but I think this to be rather implausible. To be sure, I can’t see real recovery before 2011; even so, unemployment will likely remain high (in double digits). For my friends in the United States, this outlook is a reasonable outcome given the historical perspective. Economics Nobel Laureate Paul Samuelson (basically, a cautious person) is reported to have said: I suspect we won’t see a recovery before 2012, and possibly even 2014. That more closely resembles the time frame it took Roosevelt from his inauguration in March 1933 to the eve of the WWII.4 For us in emerging Asia, the deep, inner longing to grow and the deep hunger for new business opportunities remains intact, and politicians who lack the will to react swiftly and act boldly remain so at their own peril.

What, Then, Are We to Do?

Don’t curse the darkness; light a candle.

—Peter Benenson, founder of Amnesty International

We tend to associate Keynesian economics with just the concept of priming the pump (or jump-starting). In his landmark 1936 book, General Theory of Employment, Interest and Money, Lord Keynes discusses the business cycle by introducing the emotive concept of animal spirits, which lie at the very core of why the economy fluctuates up and down as it does in real life.5 Many have offered interpretations of Keynes’s intention (Professor Robert Shiller6 of Yale being the latest) to embody the ideas of trust and confidence building, without which fiscal policy measures will not have their desired impact. It has a lot to do with consumer, investor, and businessman confidence inasmuch as it also deals with trust among all stakeholders in the economy. It would seem that Keynes wanted to convey the feeling that swings in confidence (trust) are not always logical. That’s why business cycles are what they are—driven largely by animal spirits. When times are good, people feel optimistic and trusting, thereby helping to build a climate of confidence where they tend to act spontaneously and even let their guard down, since they feel instinctively that they will get to where they want to go. Over sustained periods of good times and growing confidence in the system (as the United States had for most of the 2000s), this almost blind trust was destroyed overnight by the mortgage bubble, and turned emotions into deep mistrust—their animal spirits are now at the lowest ebb. That is why any stimulative package has to be targeted to revive people’s badly bruised animal spirits. The real danger here is that if recovery efforts are not bold enough or substantial enough to have a clear and present significant and visible impact on people’s economic life, loss of confidence can deepen further and makes reviving it that much harder. That explains why the US efforts are now of such an enormous size!

For Malaysia, what is it that we now need to do to uplift our animal spirits in an oxpicious year? The Keynesian prescription would involve three key elements:

A second fiscal stimulus significantly larger than the first, based on the worst-case scenario in macroeconomic terms: It needs to be large enough, bold enough, and focused enough to boost public confidence. It could well involve a combination of spending and tax relief, targeted at job creation and credits directed to aid consumers.

Opportunity should be taken to embed into it a sufficiently large and targeted assistance package to help restructure the economy (through fiscal incentives, soft loans, and training grants) with a strong tinge of green.

Access to credit markets that had worked well in boom times when animal spirits were high. With financial institutions well capitalized and highly liquid, ready access to relatively inexpensive credit is vital to lift confidence not just for small and medium-sized enterprises but also for the larger businesses and exporters, especially in the form of working capital and trade finance.

This is the time to be bold and firm, at a time when all stakeholders expect the government to have the strong political will to act swiftly and with great focus on the depth and breadth of impact. The real danger is to come up short. This Keynesian approach through reviving the animal spirits points to the way forward on what really needs to be done. I have written extensively on (1) and (2) above in my earlier essays in The Star on the need for an overarching RM30–40 billion stimulative package. It must be stressed that a quick shot in the arm will not work. We need sustained productive spending on a large enough scale. If needed, we should bring the 10th Malaysia Plan projects forward, provided they are ready for implementation. Let’s act unconventionally, as we have done in past crises.

Inflation and the budget deficit are the least of our worries today. Ready access to credit can be difficult at a time when lenders have turned significantly risk adverse, and since Bank Negara Malaysia (Central Bank) and the financial institutions have to act prudently to avoid situations of large nonperforming loans at a later date. This dilemma can be resolved with government lending through a special window at the Credit Guarantee Corporation (perhaps, an enhanced special access guarantee scheme) and through government-linked lending institutions to assist the larger businesses and exporters during this difficult time of great stress. Official interest rates are already low, and there is room for further cuts (if needed). What is important is for private lenders to keep the stream of credit flowing and to play their part in not unnecessarily raising the cost of credit, especially margins. For in the final analysis, without ready access to credit at relatively low cost at this time, the animal spirits will not turn positive to respond fast enough to meet public policy objectives. Speed and size are of the essence. Implementation is key, and it has to be swift. The idea is to strengthen and prepare the private sector for its confident return to resume driving the economy once the crisis is over.

Chiang Rai, Thailand

Kuala Lumpur

January 29, 2009

Notes

1. First published on January 31, 2009, as An ‘Oxpicious’ Year Ahead?

2. The Association of South-East Asian Nations, a grouping comprising Brunei, Indonesia, Malaysia, the Philippines, Thailand, and Singapore, as well as the Indo-Chinese States of Vietnam, Cambodia, and Laos, and since 1997, Myanmar (formerly Burma).

3. Paul Krugman, Stuck in the Muddle, International Herald Tribune (January 24, 2009).

4. Interview with Nathan Gardels on January 20, 2009, and reproduced in the Bangkok Post’s 2009 Global Viewpoint, distributed by Tribune Media Services.

5. John Maynard Keynes, General Theory of Employment, Interest and Money (New York: Harcourt, Brace, 1936).

6. Robert Shiller, Making Sense of the Madness, Fortune (December 22, 2008), pp. 67–68.

CHAPTER 3

Beware of PME in a Jobless 2009 Recovery1

This chapter is not on medicine. I have no interest in the medical dysfunction PME (premature ejaculation) that afflicts many males. I am concerned about the possibility of inflationary and rising debt pressures in the face of early green shoots from substantial global stimulus, which has led to talk of the early withdrawal of stimulus. Hence, PME, or premature exit. Don’t be fooled. At this time, if there is irresponsible talk, this is it. Unfortunately, a lot of this is politics. Indeed, any early pullback of stimuli can—and very likely will—lead to a premature end to the buildup of growth in Asia. Sure, in the end, if we are not careful, the large stimuli arising from massive pump-priming and easy money can well lead to inflation and high debt. But the world, especially the United States, needs the fiscal red ink in order to get out of the bigger evil—recession that is threatening to turn into a depression. This piling on of money and massive debt saved the United States, but there is still growing unemployment. As I see it, both can be readily managed. If there is a potential problem, it’s not because the United States, Europe, and Japan can’t handle the debt or inflationary expectations. It’s the politics that’s messing things up—same in most of Asia, including here at home. Politicians like to play to the gallery. They only want to do what’s popular. Tough times call for tough measures. It’s also time for reform, and that’s always difficult. The trouble is, what’s always good in the long run isn’t the best thing to do in the short run. That’s why we need leaders who are not afraid to do the right thing, no matter how unpopular.

Fragile Global Recovery

By now—21 months after the recession began in the United States—the Federal Reserve Bank finally calls it very likely over. But what is also clear is that even optimistic growth prospects in 2010 won’t be enough to bring gross domestic product (GDP) back in the United States to its US$14 trillion precrisis peak. In contrast, with its last 10 recoveries, GDP bounced back to its previous levels within one year! It is equally clear that the United States is unlikely to recover its close-to 7 million lost jobs and US$14 trillion of wealth lost during the recession until, perhaps, 2015. Even now, continuing tight credit conditions, a less-than-stable real-estate sector, a still-fragile banking environment, and a jobless recovery pose real risks of a double-dip recession (warnings are coming from no less than Feldstein,2 Roubini,3 the International Monetary Fund (IMF),4 Krugman,5 and Stiglitz6).

The good news is inflation (certainly core inflation), as of now, is not a real threat; neither is the rising US debt or its depreciating dollar. Curiously enough, US consumers are saving—Harvard’s Martin Feldstein7 estimated that rising US savings is now equivalent to US$800 million in consumption forgone. To