When people started to default on their mortgages in various cities in the US, no one in the Bush Administration was worried. They believe in the Free Market system and that it could take care of itself. Of course, they were and are people who made and are making money out of other people inability to pay their mortgages. They were and are happy because they can still make tons of money out of the bailout as long as consumers cannot smell out how they were and are being cheated out of their hard earned cash. Central Banks pay us with banknotes with a promissory note that they will pay those, – should those with the notes demand the respective Central Banks- to pay them back in the GOLD equivalent. Very few would ask for the gold to be used for trading or as electronic money.
However most Central Banks use the “greenbacks”, another name for the US Dollar, as their exchange modus operandi. Throughout the world, deficit budgets are the order of the day as most ruling parties wants to collect political dividends by using money not in hand. They make every one live on credits so that money can be made out of the interests charged. Living on credits which have to be paid someday are made worse when fat bonuses are paid to the executives of failing companies which in the end fell into troubles for giving out easy and unsecured loans and mortgages to people who cannot by normal standards afford to pay. Naturally they will default, but commissions were already earned by the loan giver, an unnecessary cost to the overall consumers.
Laws which had and will force banks and financial institutions to give out loans to people who have no means to repay must be abolished once and for all. Such law have befallen Wall Street, and it will destroy other stock markets if potential defaulters are allowed to borrow purely for political reasons. Banks should not give out loans because of a “phone call” or recommendation from a serving politician without the necessary collaterals. Only unnecessary loss of money can be stopped. A law should be instituted so that the approving authority should personally be the guarantor for any loan he/she approves, otherwise abuses by them will be passed on to the Institution or are, as is, to-day to the Taxpayers.
The Bush conservatives’ belief in the free market system showed in their votes in the US Congress where only 90 out of 198 Congressmen voted for the bailout legislation which although only 700 Billion is mentioned but it will ran out into the Trillion before the credit crunch is reversed. The severity and duration of the recession is being forecast everywhere and by every renowned economists and as is, it is anybody guess. Will the consumers with savings invest and buy and pour their savings to rescue the market? Will the billionaires invest or allow their heirs to spend? The problem with too many billionaires is that so many will have to go bankrupt or become poor to make, keep and sustain them. How just to kill them all like what the Marxists did before does not resolve the problem in Russia, or without the reforms of Deng JP, China will still be struggling to-day. How much can one billionaire consumed in a year while the greed has to be paid by thousands who have to starve to death like in Africa?
It is unlikely that the G-7 will allow the meltdown to happen because the Western world will lose a lot to the emerging market like China and India. Just like when Russia broke up and lost the Cold World when its economy collapsed then the Western World will lose its war on the “rogue” States and Terrorism. However it will cost us Malaysians more if our political leaders are unable to contain the “meltdown contagion” with the right policies. These are now on the shoulders on Najib, the next Prime Minister of Malaysia as far as the current thought of UMNO is concerned, come March 2009 and the current Finance Minister. Our own Stock Market has fallen down to below the 900 KLCI(Kuala Lumpur Composite Index) in September from over 1000 in August. The News Straits headline on Saturday, October 11, was that on this “BLACK OCTOBER” alone with local Bourse lost RM 57 Billion in capital. What is next?
While the local Bourse lost money, the individual comsumer are still paying more and more for their daily necessities as the buying power of our RM gets less and less. Most of basic necessities are getting out of reach for most consumers. For some they have to cut down on the amount consumed, as one pensioner told me, “Last time I used to buy one kilo of p…., now I buy half a kilo!” So it is to reduce the amount bought… is the marketing strategy of all who could not afford the increases in prices. I guess if everybody does that buying less but the amount spent remains the same but the GDP will not be halved. But the stock consumed will be only half. Those business will bear the loss and staff may have to be trimmed to make ends meet. If this is the strategy adopted by most businesses, more staff will have to be cut making unemployment to go up. On top of that, people currently on low pay will have to leave their present job as their pay is not enough to pay the necessary expenses.
Under those circumstances, we have a problem to resolve as we have a pool of workers who need to work but could not work because it becomes too expensive to work or to employ! The Government of the Day has to resolve this issue where the potential employers find it too expensive to employ and the workers find it too expensive to work.
Unless work is available and affordable, consumers will stop buying as their little cash keep flying away. Recession or depression will come on. All of this started because small people in the US defaulted on their mortgages.