Tuesday, March 10, 2009

Discussing on the Stimulus Package

The Malaysian Economy

  1. As most of us already knew, the economy is all about supply and demand of goods and services. Less demands, the price will fall and vice versa.
  2. The next step that we should analyze is where does this demand and our goods comes from. Why is this important ? It is because that by analyzing the source and cause of demand, we can project on the sustainability of the demand. From sustainability, it is possible to make an intelligent assumption to produce certain types of goods or services.
  3. Consider this story :
    Once, there was a man who owns a small coffee shop in a village. One day, a fun fair had opened just nearby his coffee shop. Since the opening of the funfair, his business prosper since the visitors of the fun fair would come and visit his coffee shop afterward. Due to strong demand, the owner decided to take a loan to enlarge his small coffee shop and hire more workers to serve his customers. After months passed, people got tired of the funfair and less people are visiting the fair, thus affecting the coffee shop owner business. Soon the fun fair packed up their tents and move to another village. The coffee shop owner was left alone with his recently upgraded coffee shop and extra pair of hands and his dedicated customer.
  4. Referring to story above, I would like to say that what is happening to our economy resembles to what the coffee shop owner. We have set up many factories churning out electronic products to cater the needs for people in the US, Europe, Japan and other countries. However as their demand weakened, we are suffering from overcapacity. Some people might argue that the demand was genuine and sustainable. But in my point of view, if those people was purchasing the goods that we produce by using money they did not have aka. credit. How was the demand can be deemed sustainable. All those people we're acquiring goods we have produced through credit. All those unsustainable demand was created due to cheap credit due to low interest rate policies. In the current situation, we could see that interest rate is nearly zero and people are finding it hard to make payment. It means that demand will collapse sooner or later. What I meant was, demand will drop to a natural level at what it was supposed to be and not due to the cheap credit.
  5. In the case of the current economic crisis, I think it is evident that the demand created was due to cheap credit.
  6. In order to make all our factories back in business, it is important to restore demand. However, in the current situation, I doubt that demand will come back at its "original" level. The Malaysian market is not big enough to consume all those things our factories can churn out.
  7. Therefore, I think is impossible to restore demand in the short term. What we will see is, demand will fall down to a sustainable level. Thus, layoffs of factory workers and sectors affected will be unavoidable.
  8. In my humble opinion is that we should embrace this recession and get back to the drawing board and plan on how we could get all these people back into the job market. We need to create new jobs from sectors unaffected or mildly affected. By doing this, we could ensure that people could stay employed and they will be able to make their loans and mortgage.
  9. If those people are left without work, it will continue to affect our economy systemically until the economy is halted to a standstill.

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