What Should Be Malaysia's Priority?
by Matthias Chang on 25 Jun 2011 0 Comment

The 13th General Election or Preparing the Economy for the Final Phase of the Global Tsunami, Total Financial Meltdown?

In my past postings to this website and my global Red Alerts, I had repeatedly warned the Barisan Nasional Government not to hold any General Elections in 2011 as I had reasoned as far back as November 2010 that the final phase of the Global Tsunami would hit us at the earliest by the end of the first quarter.


This has happened as forecasted and now in the last few days the crisis has deepened to the extent that Central Banks the world over are in panic mode. The beginning of the 3rd quarter, in July there will be formal recognition by global creditors that the US has defaulted and the bond markets will unravel. The US federal debt will eclipse the GDP for the first time since World War II. 


The tipping point will come when China panics. Presently, its leaders are putting up a brave front. If truth be told, they are making preparations for intensive care for their own survival.

This time round the crisis will be so devastating that what transpired in 2008/2009 would be considered mild in comparison.

This is common sense. If you are a banker / creditor and your principal borrower is spending beyond its means, continues to borrow from other creditors to make up the shortfall and its assets mortgaged to secure its indebtedness continue to depreciate to the extent that its value is less than the loan extended, what would you do?

Even your threats to use the baseball bat will have no effect. USA is dead meat!

My critics will as usual condemn me as a rumour-monger and a perpetual bear. But where were they in 2006, 2007 and even in 2008 when the crisis was full blown? They got it wrong. Bank Negara got it wrong. The Treasury got it wrong. The financial community and financial think tanks got it wrong. So how can you trust these pundits, these experts? 

As the only analyst in Malaysia that got it right at the end of 2006 (and not by hindsight, as evident by the numerous articles by these so-called experts post-crisis), my critics have no legs to stand on to criticise me on my detail analysis and as published in my book, “The Shadow Money-Lenders”.

My most conservative analysis at end of 2006 was that there were toxic assets (junks, toilet papers) floating in the global shadow financial system to the value of US$20 trillion. I still hold on to the view that the true value of the toxic assets is approximately US$40 to US$50 trillion. Be that as it may, these figures are meaningless to the Joe Six-packs and Main Street. It is beyond their imagination.

The toxic assets are still buried deep in the balance sheet of the Too Big To Fail Banks, Hedge Funds and other major central banks.

A leading financial journal has estimated that “the world had about 30 trillion USD in ghost assets” of which half went up in smoke between September 2008 and March 2009. It is their considered opinion that the balance of this 15 trillion USD ghost assets will “vanish” between July 2011 and January 2012. What I am trying to say is that, all these fake assets that have been shoring up the credibility of the global banks will have to be removed from the balance sheet and marked down as junk, toilet paper.

This will be messy. Imagine banks' balance sheets exposed as worthless!

The problem is compounded by the massive debts of the once mighty USA and that of the United Kingdom and Japan. These three countries will cause more problems than that of Greece, Spain, Portugal, Ireland and Italy (PIIGS) combined. The former debts are in the US$ trillions (minimum US$ 20 trillion) whereas the latter are in the US$ billions. 

Food for thought - why would China expose her financial flanks and jeopardise her exit strategy from moribund dollar assets and massive holdings of US$ toilet papers when the only viable short-term solution / alternative is the Euro? 

QEI, QEII and the inevitable QEIII in whatever form is a recipe for disaster, the likes of which we have never witnessed before! The dynamite that will blow this global casino to smithereens will be the trillions of US toilet papers (digital or otherwise) that have flooded the financial system.

And when 100 or more of the major US cities default in the 2nd half of 2011, there will be blood and social upheaval on Main Street. US$ asset holders will suffer massive heart attacks.

Yet, I have not seen any pre-emptive measures taken by the Barisan Nasional Federal Government and for that matter the Pakatan Rakyat State Governments to prepare the country for this unprecedented financial upheaval. All are too occupied to retain and to seize more power. The country is in a state of delusion.

This is best reflected in the property sector of our economy. There is not one day, that the major newspapers have not advertised glossy advertisements of new housing and commercial developments, with link houses being priced over a RM1 million!

July 2011 when viewed with hindsight in December 2012 will be remembered as the peak in our property bubble. The leading players will suffer irreparable financial losses and most would not be able to recover from the devastation.

Although belated attempts have been made to cool the consumer debt market, especially the credit card market, the problem of consumer debts has been glossed over and there are no viable solutions in sight. Middle-class civil servants will be hit the hardest. They have been living beyond their means. The lower end will also suffer, as they have been seduced to buy the additional car because of cheap hire-purchase finance. But when the crisis descends upon them and they cannot keep up with the installments, there will be massive repossessions.

Why is Malaysia in a state of denial? Why have the Federal and State governments fail to adopt the correct strategy? It is because they have misdiagnosed the economic and financial trends. The so-called experts are of the view that we are in the “recovery trend” post the financial crisis of 2008/2009.

But, the actual trend is that of a secular bear market that will last another decade with occasional short-term “lifts” i.e. the trend is down and we have not reached bottom. Anyone who is investing and borrowing for an uptrend will be slaughtered. Anyone that is preserving his/her wealth (by consolidating and deleveraging / getting out of the market) will survive, but barely.

Corporations on expansion mode are committing Hara Kiri as their cash flow expectations will not be realised. They are all highly geared, enticed to borrow and invest by sophisticated spin. The inevitable bankruptcy will follow with banks screaming for bailouts as non-performing loans in the US$ billions pile up to the ceiling, just when the shits hit the fan!  This is the stark reality.

If you need proof, just examine the price trends for Gold. In spite of massive manipulation by central banks, BIS, IMF and global hedge funds to suppress the price of gold, it has rebounded time after time and continued to gain strength from short term lows. Gold will hit US$2,000 in the near future and will explode in 2012.

The Federal Reserve, the Bank of International Settlements (BIS), the IMF, the World Bank and other central banks will collectively rig the currency and stock markets to create false rallies but they won’t last and if you get sucked in by this ploy, whatever remaining assets that you have will be wiped out.

So my message to all Malaysians – don't be fooled by the political rhetoric and hype by the politicians. Right now, their agenda is to survive and get re-elected and continue to ride on the gravy train.

Go out and confront the politicians, be they from the Barisan Nasional or Pakatan Rakyat. Demand from them answers to your queries and solutions to the coming financial crisis. Demand from them why till now they have not addressed the issues raised in this Red Alert. Demand from them whether there will be massive bailout of financial institutions and the bloated and too big to fail corporations. Demand from them solutions, effective solutions to the impending explosion of food prices.

Do not be fooled by cheap promises and instant patronage by both sides of the political divide. At the end of the day, it is about power. Trust me, I know from experience. For them, the only issue is about power – to retain and grab more power.

Now is the time when you can leverage your demands. Don't sell your vote for crumbs. Now is not the time for elections. Now is the time when you should demand pre-emptive actions to secure your future, your children’s future and your grand-children’s future. When they have the right answers, then and then only they deserve to be elected and form the government. If they don't listen, kick their ass!


[Courtesy Matthias Chang http://futurefastforward.com/feature-articles/5537]

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