Thursday, November 19, 2020

Of course we should not print more money!

When one youth leader who happens to be a Deputy Minister suggested that Malaysia should get Bank Negara Malaysia to print more money or in another sense, "helicopter money" it felt like, how come nobody thought of this. His proposal was, to get the BNM to create more money, provide them to the affected through perhaps subscription of debt issued by government. Here we go again, how come nobody thought of by drinking 'warm water" it should have killed the corona virus?

How come nobody in this world can "think outside the box" and solve these twin problems. COVID-19 and the economic disaster that comes with it. To be fair, there are countries that basically print more money, but they are not physical cash. Those countries the most famous or notorious among them - United States when its Federal Reserve literally increased its balance sheet size by a multiple of 2 from $4 trillion to $8 trillion in a matter of weeks sometime in March. The Fed then subscribed to debt issued the US government which were then be handed out to the groups in need. On top of that, there were a contentious debate where at one point of time the Fed were even considering purchasing debts issued by companies. 

Why US can do things that we cannot do? At the time, when the Fed chairman came up with the bold move, it was rather scary but that action seemed to work. Well, during then. Firstly, US will get away with these action because the greenback is largely the reserve currency for the world. Because many countries, Malaysia included are holding US dollars as part of its reserves, we cannot afford for the currency to depreciate - in the short run, especially when the world are grappling with COVID together. There is basically nowhere to run as all countries is facing a similar issue.

For many, whom would have seen how the Fed had reacted, many alternative assets were deemed to be safe haven - there we see people rushing for gold, bitcoins, shares especially the less affected ones - as many do not trust US dollars anymore. But at least that is the US currency. We just cannot let it fall.

What about RM?

Well, we are not those currencies such as USD, Euros, Swiss Francs, Japanese Yen. As someone pointed out, Malaysia is more susceptible to follow the Zimbabwe's route if we do the same. Someone who follows bitcoin will understand the brilliance of the creator - where he or she understands that anything that is created with a finite number will be of value as long as it becomes a currency where people would want to hold. My belief is how many digital currencies can people create. That is infinite. Hence, we do not know human being's limitation to create. While Bitcoin can have a finite number, digital currencies itself is not. The debate is still on.

If Malaysia prints more money, we will be a small developing country which many around the world would not put the trust on. We are possibly doomed economically. Inflation would be uncontrollable, and Ringgit would be worthless.

What should we do then?

At this time, there is no choice but to increase the supply of money and hoping that its velocity of spending improves as many are just unable to spend, given the fear and lockdown included. We have seen the success of loan moratorium. During then, we still were able to see people are looking for ways to spend more as they suddenly have extra cash. While some would argue that one should not pamper those who are less affected with more short term cash and only concentrates on those that are affected, I do not agree. Provide loan moratorium to all except for those whom request for exemption. Do it the other way round! Rather than just give to the ones that need it. Extraordinary times call for extraordinary measure. For a while, take away the thought that people can misuse the leeway of extra cash as we need all the cash rotations that we need.

We need the ones that have jobs to support the ones that have not. That is not done by increasing taxes but get the people to spend more. Extend loans by another year. After all, the year 2020 felt like it is almost a non-existence in terms of growth. 

Increase working age by at least another year i.e. from 60 to 61. Better still 62. We should get people to feel that they can have the opportunity to work longer to save the lost year(s). The feeling itself for many helps. Whether people really work until 62 is another matter. At least they have that assurance.

For those measures to work, I believe the banks would be able to absorb, after all I think during this times, new loans issued should be slower as banks would be more careful. It will not be a lost to the banks. For the hire purchase losses, maybe we should change the rules as the 6 months free interest should have stopped and the banks have already absorbed the losses.

With us getting the ones that still are capable to help the ones that have lost their jobs through consuming, I think that will help to create more jobs unintentionally. (Maybe intentionally)

There are however those that are affected even without these consumption fueling measures. Those are the airline workers, school bus drivers, school canteen operators. I am sure, the government should have enough information to know who are affected. During these times, we should not be lazy to go down to the details of those that are affected. Money should not be given free to all, but the affected many. The EPF's decision to allow drawdown for those affected is the right one, but with more of the budget that are given to those affected, I think the EPF's drawdown will be less needed as these should be deemed as long term savings.  

Another thing that we should do is to convert the credit card interests into at least 36 months fixed loan with much lower interests - not more than 6%. These are times where banks should not take advantage but to extend their loan loss provisions. Put a cutoff period and limit. Limit that to 2 credit cards per individual or by amount. I would think the banks today have no problem with deposits, just that it will have higher loans provisions in the future. Still it should be able to withstand.

Like many have said, these are extraordinary times. We cannot just do the same old, but definitely not helicopter money!


dominguezmarta said...
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Brandon Jayson said...
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