by Dr. Ron Paul
Holding gold is protection or insurance against government’s proclivity to debase its currency. The purchasing power of gold goes up not because it’s a so-called good investment; it goes up in value only because the paper currency goes down in value. In our current situation, that means the dollar.
One of the characteristics of commodity money – one that originated naturally in the marketplace – is that it must serve as a store of value. Gold and silver meet that test – paper does not. Because of this profound difference, the incentive and wisdom of holding emergency funds in the form of gold becomes attractive when the official currency is being devalued. It’s more attractive than trying to save wealth in the form of a fiat currency, even when earning some nominal interest. The lack of earned interest on gold is not a problem once people realize the purchasing power of their currency is declining faster than the interest rates they might earn. The purchasing power of gold can rise even faster than increases in the cost of living.
The point is that most who buy gold do so to protect against a depreciating currency rather than as an investment in the classical sense. Americans understand this less than citizens of other countries; some nations have suffered from severe monetary inflation that literally led to the destruction of their national currency. Though our inflation – i.e., the depreciation of the U.S. dollar – has been insidious, average Americans are unaware of how this occurs.
The response in time will drive the dollar down, while driving interest rates and commodity prices up. Already we see this trend developing, which surely will accelerate in the not too distant future. Part of this reaction will be from those who seek a haven to protect their wealth – not invest – by treating gold and silver as universal and historic money. This means holding fewer dollars that are decreasing in value while holding gold as it increases in value.
Historically, paper money never has lasted for long periods of time, while gold has survived thousands of years of attacks by political interests and big government. In time, the world once again will restore trust in the monetary system by making some currency as good as gold.
The economic harm done by a fiat monetary system is pervasive, dangerous, and unfair. Though runaway inflation is injurious to almost everyone, it is more insidious for certain groups. Once inflation is recognized as a tax, it becomes clear the tax is regressive: penalizing the poor and middle class more than the rich and politically privileged. Price inflation, a consequence of inflating the money supply by the central bank, hits poor and marginal workers first and foremost. It especially penalizes savers, retirees, those on fixed incomes, and anyone who trusts government promises. Small businesses and individual enterprises suffer more than the financial elite, who borrow large sums before the money loses value. Those who are on the receiving end of government contracts – especially in the military industrial complex during wartime – receive undeserved benefits.
It’s a mistake to blame high gasoline and oil prices on price gouging. If we impose new taxes or fix prices, while ignoring monetary inflation, corporate subsidies, and excessive regulations, shortages will result. The market is the only way to determine the best price for any commodity. The law of supply and demand cannot be repealed. The real problems arise when government planners give subsidies to energy companies and favor one form of energy over another.
Energy prices are rising for many reasons: Inflation; increased demand from China and India; decreased supply resulting from our invasion of Iraq; anticipated disruption of supply as we push regime change in Iran; regulatory restrictions on gasoline production; government interference in the free market development of alternative fuels; and subsidies to big oil such as free leases and grants for research and development.
Inflation, as exposed by high gold prices, transfers wealth from the middle class to the rich, as real wages decline while the salaries of CEOs, movie stars, and athletes skyrocket – along with the profits of the military industrial complex, the oil industry, and other special interests.
If we care about the financial system, the tax system, and the monumental debt we’re accumulating, we must start talking about the benefits and discipline that come only with a commodity standard of money – money the government and central banks absolutely cannot create out of thin air.
Wednesday, September 30, 2009
Friday, September 25, 2009
From Deflation to Inflation
by Martin D Weiss
The forces of deflation are temporarily receding; and in the meantime, the forces of inflation threaten to roar back with a vengeance.
They are everywhere. They could be overwhelming. They must NOT be ignored …
Inflationary Force #1 Never-Ending, Out-of-Control U.S. Federal Deficits
Through August, the federal deficit hit $1.38 trillion, or three times last year’s all-time record deficit of $454.8 billion. And in September alone, the administration expects another $200 billion in red ink, bringing the total for the year to $1.58 trillion.
The U.S. government’s official debt is now at an all-time high of $11.8 trillion, or over $100,000 for each and every household in America.
Both the administration and its opponents agree that, over the next 10 years, the cumulative federal deficit will be another $9 trillion, driving the burden per household up to $177,000.
The Federal Reserve is also in hock up to its eyeballs, with more than $2 trillion in liabilities on its balance sheet. That brings the total burden up to $194,000 per household.
Perhaps worst of all, the government’s unfunded obligations for Social Security, Medicare, and Federal pension payments are also ballooning higher and now stand at an estimated $104 trillion, or $886,000 per household.
Total burden per household: More than $1 million!
This is, by far, the largest federal deficit in U.S. history — in proportion to household income … in comparison to the nation’s population … or even as a percent of the total economy (other than during major World Wars).
It drives the Fed to print money without restraint. It pumps up demand for scarce goods. And in the months ahead, it’s bound to be the single most powerful pressure point on public policy, financial markets, the U.S. dollar and … inflation.
Inflationary Force #2 New Lows in the U.S. Dollar
Last week, the U.S. dollar sunk to a new, one-year low against a basket of major currencies.
It’s just five points away from its lowest level in history.
And, as Mike Larson detailed this past Friday, the U.S. dollar is now being driven lower by a new, unprecedented factor:
For the first time since 1933, it is now cheaper to borrow dollars than Japanese yen. Indeed, the three-month London Interbank Offered Rate (LIBOR) on the U.S. dollar has slumped to a meager 0.292 percent, while the equivalent rate on the Japanese yen is 0.352 percent.
This means that, instead of using Japanese yen to finance the carry trade — borrowing low-cost money to buy high-yielding investments — international investors will now start using U.S. dollars to finance the carry trade.
It means that, instead of the dollar being a magnet for frightened money, it is becoming precisely the opposite — a source of financing for the risk trade.
Most important, it means that, instead of buying dollars, they have every incentive to borrow dollars and promptly SELL them in order to purchase the higher yielding instruments.
End result: More momentum to the dollar’s decline.
Inflationary Force #3 U.S. Household Wealth Now Expanding Again
For nearly two years, U.S. households were continually losing wealth. They lost trillions in stocks, bonds, insurance policies, real estate. And these losses, in turn, emerged as a major deflationary force, driving consumer price inflation to zero or lower.
Now, however, in the second quarter of 2009, that trend has reversed.
According to the Fed’s Flow of Funds released just last week, in just the last three months, U.S. households have enjoyed wealth gains of
$1.1 trillion common and preferred stocks
$494 billion in mutual funds
$157 billion in real estate
These gains are still far from enough to recoup the peak asset levels of 2007. But the change in trend is enough to rekindle inflation, and that inflation is likely to take most economists by surprise.
Inflationary Force #4 Exploding U.S. Money Supply
Money pouring into the economy and chasing scarce goods is the classic cause of inflation.
But throughout 2007 and much of 2008, there was no growth whatsoever in U.S. money supply (M1).
During that period, despite the Fed’s efforts to shove interest rates down to practically zero, the total amount of money outstanding remained under $1.4 trillion — another deflationary force.
But first, I want to clear up a few basic points. Although we may sometimes disagree on the specific timing and magnitude of particular market moves, we are unanimous in our views about a few fundamental issues:
First, until and unless there is a dramatic change in these inflationary forces, it should be clear that the U.S. dollar’s decline will accelerate in the months ahead.
Second, despite its decline, the U.S. dollar will continue to be a viable, widely traded currency. It will not, as some seem to fear, simply disappear from the face of the earth.
Third, it is both impractical and unreasonable to abandon U.S. Treasury bills and other conservative dollar-denominated investments. They continue to provide U.S. citizens and residents the best safety and liquidity in the world today.
Fourth, the best way to protect yourself from a falling dollar is with contra-dollar investments such as precious metals, natural resources and assets tied to strong foreign currencies.
The forces of deflation are temporarily receding; and in the meantime, the forces of inflation threaten to roar back with a vengeance.
They are everywhere. They could be overwhelming. They must NOT be ignored …
Inflationary Force #1 Never-Ending, Out-of-Control U.S. Federal Deficits
Through August, the federal deficit hit $1.38 trillion, or three times last year’s all-time record deficit of $454.8 billion. And in September alone, the administration expects another $200 billion in red ink, bringing the total for the year to $1.58 trillion.
The U.S. government’s official debt is now at an all-time high of $11.8 trillion, or over $100,000 for each and every household in America.
Both the administration and its opponents agree that, over the next 10 years, the cumulative federal deficit will be another $9 trillion, driving the burden per household up to $177,000.
The Federal Reserve is also in hock up to its eyeballs, with more than $2 trillion in liabilities on its balance sheet. That brings the total burden up to $194,000 per household.
Perhaps worst of all, the government’s unfunded obligations for Social Security, Medicare, and Federal pension payments are also ballooning higher and now stand at an estimated $104 trillion, or $886,000 per household.
Total burden per household: More than $1 million!
This is, by far, the largest federal deficit in U.S. history — in proportion to household income … in comparison to the nation’s population … or even as a percent of the total economy (other than during major World Wars).
It drives the Fed to print money without restraint. It pumps up demand for scarce goods. And in the months ahead, it’s bound to be the single most powerful pressure point on public policy, financial markets, the U.S. dollar and … inflation.
Inflationary Force #2 New Lows in the U.S. Dollar
Last week, the U.S. dollar sunk to a new, one-year low against a basket of major currencies.
It’s just five points away from its lowest level in history.
And, as Mike Larson detailed this past Friday, the U.S. dollar is now being driven lower by a new, unprecedented factor:
For the first time since 1933, it is now cheaper to borrow dollars than Japanese yen. Indeed, the three-month London Interbank Offered Rate (LIBOR) on the U.S. dollar has slumped to a meager 0.292 percent, while the equivalent rate on the Japanese yen is 0.352 percent.
This means that, instead of using Japanese yen to finance the carry trade — borrowing low-cost money to buy high-yielding investments — international investors will now start using U.S. dollars to finance the carry trade.
It means that, instead of the dollar being a magnet for frightened money, it is becoming precisely the opposite — a source of financing for the risk trade.
Most important, it means that, instead of buying dollars, they have every incentive to borrow dollars and promptly SELL them in order to purchase the higher yielding instruments.
End result: More momentum to the dollar’s decline.
Inflationary Force #3 U.S. Household Wealth Now Expanding Again
For nearly two years, U.S. households were continually losing wealth. They lost trillions in stocks, bonds, insurance policies, real estate. And these losses, in turn, emerged as a major deflationary force, driving consumer price inflation to zero or lower.
Now, however, in the second quarter of 2009, that trend has reversed.
According to the Fed’s Flow of Funds released just last week, in just the last three months, U.S. households have enjoyed wealth gains of
$1.1 trillion common and preferred stocks
$494 billion in mutual funds
$157 billion in real estate
These gains are still far from enough to recoup the peak asset levels of 2007. But the change in trend is enough to rekindle inflation, and that inflation is likely to take most economists by surprise.
Inflationary Force #4 Exploding U.S. Money Supply
Money pouring into the economy and chasing scarce goods is the classic cause of inflation.
But throughout 2007 and much of 2008, there was no growth whatsoever in U.S. money supply (M1).
During that period, despite the Fed’s efforts to shove interest rates down to practically zero, the total amount of money outstanding remained under $1.4 trillion — another deflationary force.
But first, I want to clear up a few basic points. Although we may sometimes disagree on the specific timing and magnitude of particular market moves, we are unanimous in our views about a few fundamental issues:
First, until and unless there is a dramatic change in these inflationary forces, it should be clear that the U.S. dollar’s decline will accelerate in the months ahead.
Second, despite its decline, the U.S. dollar will continue to be a viable, widely traded currency. It will not, as some seem to fear, simply disappear from the face of the earth.
Third, it is both impractical and unreasonable to abandon U.S. Treasury bills and other conservative dollar-denominated investments. They continue to provide U.S. citizens and residents the best safety and liquidity in the world today.
Fourth, the best way to protect yourself from a falling dollar is with contra-dollar investments such as precious metals, natural resources and assets tied to strong foreign currencies.
Sunday, June 21, 2009
Why Inflation Isn’t the Danger
by Alan S. Blinder
SOME people with hypersensitive sniffers say the whiff of future inflation is in the air. What’s that, you say? Aren’t we experiencing deflation right now? The answer is yes. But, apparently, for those who are sufficiently hawkish, the recent activities of the Federal Reserve conjure up visions of inflation.
The central bank is holding the Fed funds rate at nearly zero and has created a mountain of bank reserves to fight the financial crisis. Yes, these moves are unusual, but these are unusual times. Concluding that the Fed is leading us into inflation assumes a degree of incompetence that I simply don’t buy. Let me explain.
First, the clear and present danger, both now and for the next year or two, is not inflation but deflation. Using the 12-month change in the Consumer Price Index as the measure, inflation has now been negative for three consecutive months.
It’s true that falling oil prices, now behind us, were the main reason for the deflation. Core C.P.I. inflation, which excludes food and energy prices, has been solidly in the range of 1.7 percent to 1.9 percent for six consecutive months. But history teaches us that weak economies drag down inflation — and ours will be weak for some time. Core inflation near zero, or even negative, is a live possibility for 2010 or 2011.
Ben S. Bernanke, the Fed chairman, is a keen student of the 1930s, and he and his colleagues have been working overtime to dodge the deflation bullet. To this end, they cut the Fed funds rate to virtually zero last December and have since relied on a variety of extraordinary policies known as quantitative easing to restore the flow of credit.
These policies basically amount to creating new bank reserves by either buying or lending against a variety of assets. But quantitative easing is universally agreed to be weak medicine compared with cutting interest rates. So the Fed is administering a large dose — which is where all those reserves come from.
The mountain of reserves on banks’ balance sheets has, in turn, filled the inflation hawks with apprehension. But their concerns are misplaced. To understand why, start with the basic economics of banking, money and inflation.
In normal times, banks don’t want excess reserves, which yield them no profit. So they quickly lend out any idle funds they receive. Under such conditions, Fed expansions of bank reserves lead to expansions of credit and the money supply and, if there is too much of that, to higher inflation.
In abnormal times like these, however, providing frightened banks with the reserves they demand will fuel neither money nor credit growth — and is therefore not inflationary.
Rather, it’s more like a grand version of what the Fed does every Christmas season. The Fed always puts more currency into circulation during this prime shopping period because people demand it, and then withdraws the “excess” currency in January.
True inflation hawks worry about that last step. (Did someone say, “Bah, humbug”?) Will the Fed really withdraw all those reserves fast enough as the financial storm abates? If not, we could indeed experience inflation. Although the Fed is not infallible, I’d make three important points:
•
The possibilities for error are two-sided. Yes, the Fed might err by withdrawing bank reserves too slowly, thereby leading to higher inflation. But it also might err by withdrawing reserves too quickly, thereby stunting the recovery and leading to deflation. I fail to see why advocates of price stability should worry about one sort of error but not the other.
•
The Fed is well aware of the exit problem. It is planning for it, is competent enough to carry out its responsibilities and has committed itself to an inflation target of just under 2 percent. Of course, none of that assures us that the Fed will hit the bull’s-eye. It might miss and produce, say, inflation of 3 percent or 4 percent at the end of the crisis — but not 8 or 10 percent.
•
The Fed will start the exit process when the economy is still below full employment and inflation is below target. So some modest rise in inflation will be welcome. The Fed won’t have to clamp down hard.
SKEPTICAL? Then let’s see what the bond market vigilantes really think.
The market’s implied forecast of future inflation is indicated by the difference between the nominal interest rates on regular Treasury debt and the corresponding real interest rates on Treasury Inflation Protected Securities, or TIPS. These estimates change daily. But on Friday, the five-year expected inflation rate was about 1.6 percent and the 10-year expected rate was about 1.9 percent. Notice that the latter matches the Fed’s inflation target. I don’t think that’s a coincidence.
But if the inflation outlook is so benign, why have Treasury borrowing rates skyrocketed in the last few months? Is it because markets fear that the Fed will lose control of inflation? I think not. Rising Treasury rates are mainly a return to normalcy.
In January, the markets were expecting about zero inflation over the coming five years, and only about 0.6 percent average inflation over the next decade. The difference between then and now is that markets were in a panicky state in January, braced for financial Armageddon; they have since calmed down.
My conclusion? The markets’ extraordinarily low expected inflation in January was both aberrant and worrisome — not today’s. As long as expected inflation doesn’t rise much further, you should find something else to worry about. Unfortunately, choices abound.
Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve. He has advised many Democratic politicians.
SOME people with hypersensitive sniffers say the whiff of future inflation is in the air. What’s that, you say? Aren’t we experiencing deflation right now? The answer is yes. But, apparently, for those who are sufficiently hawkish, the recent activities of the Federal Reserve conjure up visions of inflation.
The central bank is holding the Fed funds rate at nearly zero and has created a mountain of bank reserves to fight the financial crisis. Yes, these moves are unusual, but these are unusual times. Concluding that the Fed is leading us into inflation assumes a degree of incompetence that I simply don’t buy. Let me explain.
First, the clear and present danger, both now and for the next year or two, is not inflation but deflation. Using the 12-month change in the Consumer Price Index as the measure, inflation has now been negative for three consecutive months.
It’s true that falling oil prices, now behind us, were the main reason for the deflation. Core C.P.I. inflation, which excludes food and energy prices, has been solidly in the range of 1.7 percent to 1.9 percent for six consecutive months. But history teaches us that weak economies drag down inflation — and ours will be weak for some time. Core inflation near zero, or even negative, is a live possibility for 2010 or 2011.
Ben S. Bernanke, the Fed chairman, is a keen student of the 1930s, and he and his colleagues have been working overtime to dodge the deflation bullet. To this end, they cut the Fed funds rate to virtually zero last December and have since relied on a variety of extraordinary policies known as quantitative easing to restore the flow of credit.
These policies basically amount to creating new bank reserves by either buying or lending against a variety of assets. But quantitative easing is universally agreed to be weak medicine compared with cutting interest rates. So the Fed is administering a large dose — which is where all those reserves come from.
The mountain of reserves on banks’ balance sheets has, in turn, filled the inflation hawks with apprehension. But their concerns are misplaced. To understand why, start with the basic economics of banking, money and inflation.
In normal times, banks don’t want excess reserves, which yield them no profit. So they quickly lend out any idle funds they receive. Under such conditions, Fed expansions of bank reserves lead to expansions of credit and the money supply and, if there is too much of that, to higher inflation.
In abnormal times like these, however, providing frightened banks with the reserves they demand will fuel neither money nor credit growth — and is therefore not inflationary.
Rather, it’s more like a grand version of what the Fed does every Christmas season. The Fed always puts more currency into circulation during this prime shopping period because people demand it, and then withdraws the “excess” currency in January.
True inflation hawks worry about that last step. (Did someone say, “Bah, humbug”?) Will the Fed really withdraw all those reserves fast enough as the financial storm abates? If not, we could indeed experience inflation. Although the Fed is not infallible, I’d make three important points:
•
The possibilities for error are two-sided. Yes, the Fed might err by withdrawing bank reserves too slowly, thereby leading to higher inflation. But it also might err by withdrawing reserves too quickly, thereby stunting the recovery and leading to deflation. I fail to see why advocates of price stability should worry about one sort of error but not the other.
•
The Fed is well aware of the exit problem. It is planning for it, is competent enough to carry out its responsibilities and has committed itself to an inflation target of just under 2 percent. Of course, none of that assures us that the Fed will hit the bull’s-eye. It might miss and produce, say, inflation of 3 percent or 4 percent at the end of the crisis — but not 8 or 10 percent.
•
The Fed will start the exit process when the economy is still below full employment and inflation is below target. So some modest rise in inflation will be welcome. The Fed won’t have to clamp down hard.
SKEPTICAL? Then let’s see what the bond market vigilantes really think.
The market’s implied forecast of future inflation is indicated by the difference between the nominal interest rates on regular Treasury debt and the corresponding real interest rates on Treasury Inflation Protected Securities, or TIPS. These estimates change daily. But on Friday, the five-year expected inflation rate was about 1.6 percent and the 10-year expected rate was about 1.9 percent. Notice that the latter matches the Fed’s inflation target. I don’t think that’s a coincidence.
But if the inflation outlook is so benign, why have Treasury borrowing rates skyrocketed in the last few months? Is it because markets fear that the Fed will lose control of inflation? I think not. Rising Treasury rates are mainly a return to normalcy.
In January, the markets were expecting about zero inflation over the coming five years, and only about 0.6 percent average inflation over the next decade. The difference between then and now is that markets were in a panicky state in January, braced for financial Armageddon; they have since calmed down.
My conclusion? The markets’ extraordinarily low expected inflation in January was both aberrant and worrisome — not today’s. As long as expected inflation doesn’t rise much further, you should find something else to worry about. Unfortunately, choices abound.
Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve. He has advised many Democratic politicians.
Wednesday, May 27, 2009
George Soros on The Financial Crisis
by George Soros
There are two features that I think deserve to be pointed out. One is that the financial system as we know it actually collapsed. After the bankruptcy of Lehman Brothers on September 15, the financial system really ceased to function. It had to be put on artificial life support. At the same time, the financial shock had a tremendous effect on the real economy, and the real economy went into a free fall, and that was global.
The other feature is that the financial system collapsed of its own weight. That contradicted the prevailing view about financial markets, namely that they tend toward equilibrium, and that equilibrium is disturbed by extraneous forces, outside shocks. Those disturbances were supposed to occur in a random fashion. Markets were seen basically as self-correcting. That paradigm has proven to be false. So we are dealing not only with the collapse of a financial system, but also with the collapse of a worldview.
That's the situation that President Obama inherited. He's faced with two objectives. One, he must arrest the collapse and, if possible, reverse it. Second, he has to reconstruct the financial system because it cannot be restored to what it was. This is a new situation. When people see this crisis as being the same as previous financial crises, they're making a mistake.
The interesting thing is that what needs to be done in the short term is almost exactly the opposite of what needs to be done in the long term. Obviously the problem was excessive leverage. But when you have a collapse of credit there's only one source of credit that is still credible, and that's the state: the Federal Reserve and the Treasury. Then you have actually to inject a lot more leverage and money into the economy; you have to print money as fast as you can, expand the balance sheet of the Federal Reserve, increase the national debt. And that is, in fact, what has been done, which is the right thing to do. But then once this policy is successful, you have to rein in the money supply as fast as you can.
I would say that policy has generally lagged behind events. We were behind the curve. Now that the free fall is moderating, and the collapse has more or less occurred, I think there is hope that policy will, in fact, catch up with events. The outcome of the stress test of the banks will be important, because that's basically where the policy has been lagging behind—in recapitalizing the banks. And that's where most of the confusion comes from.
There are two features that I think deserve to be pointed out. One is that the financial system as we know it actually collapsed. After the bankruptcy of Lehman Brothers on September 15, the financial system really ceased to function. It had to be put on artificial life support. At the same time, the financial shock had a tremendous effect on the real economy, and the real economy went into a free fall, and that was global.
The other feature is that the financial system collapsed of its own weight. That contradicted the prevailing view about financial markets, namely that they tend toward equilibrium, and that equilibrium is disturbed by extraneous forces, outside shocks. Those disturbances were supposed to occur in a random fashion. Markets were seen basically as self-correcting. That paradigm has proven to be false. So we are dealing not only with the collapse of a financial system, but also with the collapse of a worldview.
That's the situation that President Obama inherited. He's faced with two objectives. One, he must arrest the collapse and, if possible, reverse it. Second, he has to reconstruct the financial system because it cannot be restored to what it was. This is a new situation. When people see this crisis as being the same as previous financial crises, they're making a mistake.
The interesting thing is that what needs to be done in the short term is almost exactly the opposite of what needs to be done in the long term. Obviously the problem was excessive leverage. But when you have a collapse of credit there's only one source of credit that is still credible, and that's the state: the Federal Reserve and the Treasury. Then you have actually to inject a lot more leverage and money into the economy; you have to print money as fast as you can, expand the balance sheet of the Federal Reserve, increase the national debt. And that is, in fact, what has been done, which is the right thing to do. But then once this policy is successful, you have to rein in the money supply as fast as you can.
I would say that policy has generally lagged behind events. We were behind the curve. Now that the free fall is moderating, and the collapse has more or less occurred, I think there is hope that policy will, in fact, catch up with events. The outcome of the stress test of the banks will be important, because that's basically where the policy has been lagging behind—in recapitalizing the banks. And that's where most of the confusion comes from.
Friday, May 15, 2009
Empire of Carbon
by Paul Krugman
I have seen the future, and it won’t work.
These should be hopeful times for environmentalists. Junk science no longer rules in Washington. President Obama has spoken forcefully about the need to take action on climate change; the people I talk to are increasingly optimistic that Congress will soon establish a cap-and-trade system that limits emissions of greenhouse gases, with the limits growing steadily tighter over time. And once America acts, we can expect much of the world to follow our lead.
But that still leaves the problem of China, where I have been for most of the last week.
Like every visitor to China, I was awed by the scale of the country’s development. Even the annoying aspects — much of my time was spent viewing the Great Wall of Traffic — are byproducts of the nation’s economic success.
But China cannot continue along its current path because the planet can’t handle the strain.
The scientific consensus on prospects for global warming has become much more pessimistic over the last few years. Indeed, the latest projections from reputable climate scientists border on the apocalyptic. Why? Because the rate at which greenhouse gas emissions are rising is matching or exceeding the worst-case scenarios.
And the growth of emissions from China — already the world’s largest producer of carbon dioxide — is one main reason for this new pessimism.
China’s emissions, which come largely from its coal-burning electricity plants, doubled between 1996 and 2006. That was a much faster pace of growth than in the previous decade. And the trend seems set to continue: In January, China announced that it plans to continue its reliance on coal as its main energy source and that to feed its economic growth it will increase coal production 30 percent by 2015. That’s a decision that, all by itself, will swamp any emission reductions elsewhere.
So what is to be done about the China problem?
Nothing, say the Chinese. Each time I raised the issue during my visit, I was met with outraged declarations that it was unfair to expect China to limit its use of fossil fuels. After all, they declared, the West faced no similar constraints during its development; while China may be the world’s largest source of carbon-dioxide emissions, its per-capita emissions are still far below American levels; and anyway, the great bulk of the global warming that has already happened is due not to China but to the past carbon emissions of today’s wealthy nations.
And they’re right. It is unfair to expect China to live within constraints that we didn’t have to face when our own economy was on its way up. But that unfairness doesn’t change the fact that letting China match the West’s past profligacy would doom the Earth as we know it.
Historical injustice aside, the Chinese also insisted that they should not be held responsible for the greenhouse gases they emit when producing goods for foreign consumers. But they refused to accept the logical implication of this view — that the burden should fall on those foreign consumers instead, that shoppers who buy Chinese products should pay a “carbon tariff” that reflects the emissions associated with those goods’ production. That, said the Chinese, would violate the principles of free trade.
Sorry, but the climate-change consequences of Chinese production have to be taken into account somewhere. And anyway, the problem with China is not so much what it produces as how it produces it. Remember, China now emits more carbon dioxide than the United States, even though its G.D.P. is only about half as large (and the United States, in turn, is an emissions hog compared with Europe or Japan).
The good news is that the very inefficiency of China’s energy use offers huge scope for improvement. Given the right policies, China could continue to grow rapidly without increasing its carbon emissions. But first it has to realize that policy changes are necessary.
There are hints, in statements emanating from China, that the country’s policy makers are starting to realize that their current position is unsustainable. But I suspect that they don’t realize how quickly the whole game is about to change.
As the United States and other advanced countries finally move to confront climate change, they will also be morally empowered to confront those nations that refuse to act. Sooner than most people think, countries that refuse to limit their greenhouse gas emissions will face sanctions, probably in the form of taxes on their exports. They will complain bitterly that this is protectionism, but so what? Globalization doesn’t do much good if the globe itself becomes unlivable.
It’s time to save the planet. And like it or not, China will have to do its part.
I have seen the future, and it won’t work.
These should be hopeful times for environmentalists. Junk science no longer rules in Washington. President Obama has spoken forcefully about the need to take action on climate change; the people I talk to are increasingly optimistic that Congress will soon establish a cap-and-trade system that limits emissions of greenhouse gases, with the limits growing steadily tighter over time. And once America acts, we can expect much of the world to follow our lead.
But that still leaves the problem of China, where I have been for most of the last week.
Like every visitor to China, I was awed by the scale of the country’s development. Even the annoying aspects — much of my time was spent viewing the Great Wall of Traffic — are byproducts of the nation’s economic success.
But China cannot continue along its current path because the planet can’t handle the strain.
The scientific consensus on prospects for global warming has become much more pessimistic over the last few years. Indeed, the latest projections from reputable climate scientists border on the apocalyptic. Why? Because the rate at which greenhouse gas emissions are rising is matching or exceeding the worst-case scenarios.
And the growth of emissions from China — already the world’s largest producer of carbon dioxide — is one main reason for this new pessimism.
China’s emissions, which come largely from its coal-burning electricity plants, doubled between 1996 and 2006. That was a much faster pace of growth than in the previous decade. And the trend seems set to continue: In January, China announced that it plans to continue its reliance on coal as its main energy source and that to feed its economic growth it will increase coal production 30 percent by 2015. That’s a decision that, all by itself, will swamp any emission reductions elsewhere.
So what is to be done about the China problem?
Nothing, say the Chinese. Each time I raised the issue during my visit, I was met with outraged declarations that it was unfair to expect China to limit its use of fossil fuels. After all, they declared, the West faced no similar constraints during its development; while China may be the world’s largest source of carbon-dioxide emissions, its per-capita emissions are still far below American levels; and anyway, the great bulk of the global warming that has already happened is due not to China but to the past carbon emissions of today’s wealthy nations.
And they’re right. It is unfair to expect China to live within constraints that we didn’t have to face when our own economy was on its way up. But that unfairness doesn’t change the fact that letting China match the West’s past profligacy would doom the Earth as we know it.
Historical injustice aside, the Chinese also insisted that they should not be held responsible for the greenhouse gases they emit when producing goods for foreign consumers. But they refused to accept the logical implication of this view — that the burden should fall on those foreign consumers instead, that shoppers who buy Chinese products should pay a “carbon tariff” that reflects the emissions associated with those goods’ production. That, said the Chinese, would violate the principles of free trade.
Sorry, but the climate-change consequences of Chinese production have to be taken into account somewhere. And anyway, the problem with China is not so much what it produces as how it produces it. Remember, China now emits more carbon dioxide than the United States, even though its G.D.P. is only about half as large (and the United States, in turn, is an emissions hog compared with Europe or Japan).
The good news is that the very inefficiency of China’s energy use offers huge scope for improvement. Given the right policies, China could continue to grow rapidly without increasing its carbon emissions. But first it has to realize that policy changes are necessary.
There are hints, in statements emanating from China, that the country’s policy makers are starting to realize that their current position is unsustainable. But I suspect that they don’t realize how quickly the whole game is about to change.
As the United States and other advanced countries finally move to confront climate change, they will also be morally empowered to confront those nations that refuse to act. Sooner than most people think, countries that refuse to limit their greenhouse gas emissions will face sanctions, probably in the form of taxes on their exports. They will complain bitterly that this is protectionism, but so what? Globalization doesn’t do much good if the globe itself becomes unlivable.
It’s time to save the planet. And like it or not, China will have to do its part.
Monday, April 6, 2009
Thomas Friedman and Fareed Zakaria on Climate Crisis
Thomas Friedman and Fareed Zakaria, One-To-One
Fareed Zakaria: Your book is about two things, the climate crisis and also about an American crisis. Why do you link the two?
Thomas Friedman: You're absolutely right--it is about two things. The book says, America has a problem and the world has a problem. The world's problem is that it's getting hot, flat and crowded and that convergence--that perfect storm--is driving a lot of negative trends. America's problem is that we've lost our way--we've lost our groove as a country. And the basic argument of the book is that we can solve our problem by taking the lead in solving the world's problem.
Zakaria: Explain what you mean by "hot, flat and crowded."
Friedman: There is a convergence of basically three large forces: one is global warming, which has been going on at a very slow pace since the industrial revolution; the second--what I call the flattening of the world--is a metaphor for the rise of middle-class citizens, from China to India to Brazil to Russia to Eastern Europe, who are beginning to consume like Americans. That's a blessing in so many ways--it's a blessing for global stability and for global growth. But it has enormous resource complications, if all these people--whom you've written about in your book, The Post American World--begin to consume like Americans. And lastly, global population growth simply refers to the steady growth of population in general, but at the same time the growth of more and more people able to live this middle-class lifestyle. Between now and 2020, the world's going to add another billion people. And their resource demands--at every level--are going to be enormous. I tell the story in the book how, if we give each one of the next billion people on the planet just one sixty-watt incandescent light bulb, what it will mean: the answer is that it will require about 20 new 500-megawatt coal-burning power plants. That's so they can each turn on just one light bulb!
Zakaria: In my book I talk about the "rise of the rest" and about the reality of how this rise of new powerful economic nations is completely changing the way the world works. Most everyone's efforts have been devoted to Kyoto-like solutions, with the idea of getting western countries to reduce their carbon dioxide emissions. But I grew to realize that the West was a sideshow. India and China will build hundreds of coal-fire power plants in the next ten years and the combined carbon dioxide emissions of those new plants alone are five times larger than the savings mandated by the Kyoto accords. What do you do with the Indias and Chinas of the world?
Friedman: I think there are two approaches. There has to be more understanding of the basic unfairness they feel. They feel like we sat down, had the hors d'oeuvres, ate the entrée, pretty much finished off the dessert, invited them for tea and coffee and then said, "Let's split the bill." So I understand the big sense of unfairness--they feel that now that they have a chance to grow and reach with large numbers a whole new standard of living, we're basically telling them, "Your growth, and all the emissions it would add, is threatening the world's climate." At the same time, what I say to them--what I said to young Chinese most recently when I was just in China is this: Every time I come to China, young Chinese say to me, "Mr. Friedman, your country grew dirty for 150 years. Now it's our turn." And I say to them, "Yes, you're absolutely right, it's your turn. Grow as dirty as you want. Take your time. Because I think we probably just need about five years to invent all the new clean power technologies you're going to need as you choke to death, and we're going to come and sell them to you. And we're going to clean your clock in the next great global industry. So please, take your time. If you want to give us a five-year lead in the next great global industry, I will take five. If you want to give us ten, that would be even better. In other words, I know this is unfair, but I am here to tell you that in a world that's hot, flat and crowded, ET--energy technology--is going to be as big an industry as IT--information technology. Maybe even bigger. And who claims that industry--whose country and whose companies dominate that industry--I think is going to enjoy more national security, more economic security, more economic growth, a healthier population, and greater global respect, for that matter, as well. So you can sit back and say, it's not fair that we have to compete in this new industry, that we should get to grow dirty for a while, or you can do what you did in telecommunications, and that is try to leap-frog us. And that's really what I'm saying to them: this is a great economic opportunity. The game is still open. I want my country to win it--I'm not sure it will.
Zakaria: I'm struck by the point you make about energy technology. In my book I'm pretty optimistic about the United States. But the one area where I'm worried is actually ET. We do fantastically in biotech, we're doing fantastically in nanotechnology. But none of these new technologies have the kind of system-wide effect that information technology did. Energy does. If you want to find the next technological revolution you need to find an industry that transforms everything you do. Biotechnology affects one critical aspect of your day-to-day life, health, but not all of it. But energy--the consumption of energy--affects every human activity in the modern world. Now, my fear is that, of all the industries in the future, that's the one where we're not ahead of the pack. Are we going to run second in this race?
Friedman: Well, I want to ask you that, Fareed. Why do you think we haven't led this industry, which itself has huge technological implications? We have all the secret sauce, all the technological prowess, to lead this industry. Why do you think this is the one area--and it's enormous, it's actually going to dwarf all the others--where we haven't been at the real cutting edge?
Zakaria: I think it's not about our economic system but our political system. The rhetoric we hear is that the market should produce new energy technologies. But the problem is, the use of current forms of energy has an existing infrastructure with very powerful interests that has ensured that the government tilt the playing field in their favor, with subsidies, tax breaks, infrastructure spending, etc. This is one area where the Europeans have actually been very far-sighted and have pushed their economies toward the future.
Friedman: I would say that's exactly right. It's the Europeans--and the Japanese as well--who've done it, and they've done it because of the government mechanisms you've highlighted. They have understood that, if you just say the market alone will deliver the green revolution we need, basically three things happen and none of them are good: First, the market will drive up the price to whatever level demand dictates. We saw oil hit $145 a barrel, and when that happens the oil-producing countries capture most of the profit, 90% of it. So, some of the worst regimes in the world enjoy the biggest benefits from the market run-up. The second thing that happens is that the legacy oil, gas and coal companies get the other ten percent of the profit--so companies which have no interest in changing the system get stronger. And the third thing that happens is something that doesn't happen: because you're letting the market alone shape the prices, the market price can go up and down very quickly. So, those who want to invest in the alternatives really have to worry that if they make big investments, the market price for oil may fall back on them before their industry has had a chance to move down the learning curve and make renewable energies competitive with oil. Sure, the market can drive oil to $145 a barrel and at that level wind or solar may be very competitive. But what if two months later oil is at $110 a barrel? Because of that uncertainty, because we have not put a floor price under oil, you have the worst of all worlds, which is a high price of dirty fuels--what I call in the book fuels from hell--and low investment in new clean fuels, the fuels from heaven. Yes, some people are investing in the alternatives, but not as many or as much as you think, because they are worried that without a floor price for crude oil, their investments in the alternatives could get wiped out, which is exactly what happened in the 1980s after the first oil shock. That's why you need the government to come in a reshape the market to make the cost of dirty fuels more expensive and subsidize the price of clean fuels until they can become competitive.
Right now we are doing just the opposite. Bush and Cheney may say the oil market is “free,” but that is a joke. It's dominated by the world's biggest cartel, OPEC, and America's biggest energy companies, and they've shaped this market to serve their interests. Unless government comes in and reshapes it, we're never going to launch this industry. Which is one of the reasons I argue in the book, "Change your leaders, not your light bulbs." Because leaders write rules, rules shape markets, markets give you scale. Without scale, without being able to generate renewable energy at scale, you have nothing. All you have is a hobby. Everything we've doing up to now is pretty much a hobby. I like hobbies--I used to build model airplanes as a kid. But I don't try to change the world as a hobby. And that's basically what we're trying to do.
Zakaria: But aren't we in the midst of a green revolution? Every magazine I pick up tells me ten different ways to get more green. Hybrids are doing very well...
Friedman: What I always say to people when they say to me, "We're having a green revolution" is, "Really? A green revolution! Have you ever been to a revolution where no one got hurt? That's the green revolution." In the green revolution, everyone's a winner: BP's green, Exxon's green, GM's green. When everyone's a winner, that's not a revolution--actually, that's a party. We're having a green party. And it's very fun--you and I get invited to all the parties. But it has no connection whatsoever with a real revolution. You'll know it's a revolution when somebody gets hurt. And I don't mean physically hurt. But the IT revolution was a real revolution. In the IT revolution, companies either had to change or die. So you'll know the green revolution is happening when you see some bodies--corporate bodies--along the side of the road: companies that didn't change and therefore died. Right now we don't have that kind of market, that kind of change-or-die situation. Right now companies feel like they can just change their brand, not actually how they do business, and that will be enough to survive. That's why we're really having more of a green party than a green revolution.
Zakaria: One of your chapters is called "Outgreening Al-Qaeda." Explain what you mean.
Friedman: The chapter is built around the green hawks in the Pentagon. They began with a marine general in Iraq, who basically cabled back one day and said, I need renewable power here. Things like solar energy. And the reaction of the Pentagon was, "Hey, general, you getting a little green out there? You're not going sissy on us are you? Too much sun?" And he basically said, "No, don't you guys get it? I have to provision outposts along the Syrian border. They are off the grid. They run on generators with diesel fuel. I have to truck diesel fuel from Kuwait to the Syrian border at $20 a gallon delivered cost. And that's if my trucks don't get blown up by insurgents along the way. If I had solar power, I wouldn't have to truck all this fuel. I could—this is my term, not his—‘outgreen' Al-Qaeda."
I argue in the chapter that "outgreening"--the ability to deploy, expand, innovate and grow renewable energy and clean power--is going to become one of the most important, if not the most important, sources of competitive advantage for a company, for a country, for a military. You're going to know the cost of your fuel, it's going to be so much more distributed, you will be so much more flexible, and--this is quite important, Fareed--you will also become so much more respected. I hear from law firms today: one law firm has a green transport initiative going for its staff--they only use hybrid cars--another one doesn't. If some law student out of Harvard or Yale is weighing which law firm to join--many will say today: "I think I'll go with the green one." So there are a lot of ways in which you can outgreen your competition. I think "outgreening" is going to become an important verb in the dictionary - between "outfox" and "outmaneuver."
Zakaria: Finally, let me ask you--in that context--what would this do to America's image, if we were to take on this challenge? Do you really think it could change the way America is perceived in the world?
Friedman: I have no doubt about it, which is why I say in the book: I'm not against Kyoto; if you can get 190 countries all to agree on verifiable limits on their carbon, God bless you. But at the end of the day, I really still believe--and I know you do too--in America as a model. Your book stresses this--that even in a post-American world we still are looked at by others around the world as a role model. I firmly believe that if we go green--if we prove that we can become healthy, secure, respected, entrepreneurial, richer and more innovative by greening our economy, many more people will follow us voluntarily than would do so by compulsion of a treaty. Does that mean Russia and Iran will? No. Geopolitics won't disappear. But I think it will, speaking broadly, definitely reposition us in the world with more people in more places. I look at making America the greenest country in the world like running the Olympic triathlon: if you make it to the Olympics and you run the race, maybe you win--but even if you don't win, you're fitter, healthier, more secure, more respected, more competitive and entrepreneurial, because you have given birth to a whole new clean power industry--which has to be the next great global industry--and put your economy on a much more sustainable footing. So to me, this is a win-win-win-win race, and that's why I believe we, America, need to take the lead in it. In the Cold War we had the space race with Russia to see who could be the first to put a man on the moon. Today we need an earth race with Japan, Europe, China and India--to see who can be the first to invent the clean power technologies that will allow man to live safely and sustainably on earth.
Fareed Zakaria: Your book is about two things, the climate crisis and also about an American crisis. Why do you link the two?
Thomas Friedman: You're absolutely right--it is about two things. The book says, America has a problem and the world has a problem. The world's problem is that it's getting hot, flat and crowded and that convergence--that perfect storm--is driving a lot of negative trends. America's problem is that we've lost our way--we've lost our groove as a country. And the basic argument of the book is that we can solve our problem by taking the lead in solving the world's problem.
Zakaria: Explain what you mean by "hot, flat and crowded."
Friedman: There is a convergence of basically three large forces: one is global warming, which has been going on at a very slow pace since the industrial revolution; the second--what I call the flattening of the world--is a metaphor for the rise of middle-class citizens, from China to India to Brazil to Russia to Eastern Europe, who are beginning to consume like Americans. That's a blessing in so many ways--it's a blessing for global stability and for global growth. But it has enormous resource complications, if all these people--whom you've written about in your book, The Post American World--begin to consume like Americans. And lastly, global population growth simply refers to the steady growth of population in general, but at the same time the growth of more and more people able to live this middle-class lifestyle. Between now and 2020, the world's going to add another billion people. And their resource demands--at every level--are going to be enormous. I tell the story in the book how, if we give each one of the next billion people on the planet just one sixty-watt incandescent light bulb, what it will mean: the answer is that it will require about 20 new 500-megawatt coal-burning power plants. That's so they can each turn on just one light bulb!
Zakaria: In my book I talk about the "rise of the rest" and about the reality of how this rise of new powerful economic nations is completely changing the way the world works. Most everyone's efforts have been devoted to Kyoto-like solutions, with the idea of getting western countries to reduce their carbon dioxide emissions. But I grew to realize that the West was a sideshow. India and China will build hundreds of coal-fire power plants in the next ten years and the combined carbon dioxide emissions of those new plants alone are five times larger than the savings mandated by the Kyoto accords. What do you do with the Indias and Chinas of the world?
Friedman: I think there are two approaches. There has to be more understanding of the basic unfairness they feel. They feel like we sat down, had the hors d'oeuvres, ate the entrée, pretty much finished off the dessert, invited them for tea and coffee and then said, "Let's split the bill." So I understand the big sense of unfairness--they feel that now that they have a chance to grow and reach with large numbers a whole new standard of living, we're basically telling them, "Your growth, and all the emissions it would add, is threatening the world's climate." At the same time, what I say to them--what I said to young Chinese most recently when I was just in China is this: Every time I come to China, young Chinese say to me, "Mr. Friedman, your country grew dirty for 150 years. Now it's our turn." And I say to them, "Yes, you're absolutely right, it's your turn. Grow as dirty as you want. Take your time. Because I think we probably just need about five years to invent all the new clean power technologies you're going to need as you choke to death, and we're going to come and sell them to you. And we're going to clean your clock in the next great global industry. So please, take your time. If you want to give us a five-year lead in the next great global industry, I will take five. If you want to give us ten, that would be even better. In other words, I know this is unfair, but I am here to tell you that in a world that's hot, flat and crowded, ET--energy technology--is going to be as big an industry as IT--information technology. Maybe even bigger. And who claims that industry--whose country and whose companies dominate that industry--I think is going to enjoy more national security, more economic security, more economic growth, a healthier population, and greater global respect, for that matter, as well. So you can sit back and say, it's not fair that we have to compete in this new industry, that we should get to grow dirty for a while, or you can do what you did in telecommunications, and that is try to leap-frog us. And that's really what I'm saying to them: this is a great economic opportunity. The game is still open. I want my country to win it--I'm not sure it will.
Zakaria: I'm struck by the point you make about energy technology. In my book I'm pretty optimistic about the United States. But the one area where I'm worried is actually ET. We do fantastically in biotech, we're doing fantastically in nanotechnology. But none of these new technologies have the kind of system-wide effect that information technology did. Energy does. If you want to find the next technological revolution you need to find an industry that transforms everything you do. Biotechnology affects one critical aspect of your day-to-day life, health, but not all of it. But energy--the consumption of energy--affects every human activity in the modern world. Now, my fear is that, of all the industries in the future, that's the one where we're not ahead of the pack. Are we going to run second in this race?
Friedman: Well, I want to ask you that, Fareed. Why do you think we haven't led this industry, which itself has huge technological implications? We have all the secret sauce, all the technological prowess, to lead this industry. Why do you think this is the one area--and it's enormous, it's actually going to dwarf all the others--where we haven't been at the real cutting edge?
Zakaria: I think it's not about our economic system but our political system. The rhetoric we hear is that the market should produce new energy technologies. But the problem is, the use of current forms of energy has an existing infrastructure with very powerful interests that has ensured that the government tilt the playing field in their favor, with subsidies, tax breaks, infrastructure spending, etc. This is one area where the Europeans have actually been very far-sighted and have pushed their economies toward the future.
Friedman: I would say that's exactly right. It's the Europeans--and the Japanese as well--who've done it, and they've done it because of the government mechanisms you've highlighted. They have understood that, if you just say the market alone will deliver the green revolution we need, basically three things happen and none of them are good: First, the market will drive up the price to whatever level demand dictates. We saw oil hit $145 a barrel, and when that happens the oil-producing countries capture most of the profit, 90% of it. So, some of the worst regimes in the world enjoy the biggest benefits from the market run-up. The second thing that happens is that the legacy oil, gas and coal companies get the other ten percent of the profit--so companies which have no interest in changing the system get stronger. And the third thing that happens is something that doesn't happen: because you're letting the market alone shape the prices, the market price can go up and down very quickly. So, those who want to invest in the alternatives really have to worry that if they make big investments, the market price for oil may fall back on them before their industry has had a chance to move down the learning curve and make renewable energies competitive with oil. Sure, the market can drive oil to $145 a barrel and at that level wind or solar may be very competitive. But what if two months later oil is at $110 a barrel? Because of that uncertainty, because we have not put a floor price under oil, you have the worst of all worlds, which is a high price of dirty fuels--what I call in the book fuels from hell--and low investment in new clean fuels, the fuels from heaven. Yes, some people are investing in the alternatives, but not as many or as much as you think, because they are worried that without a floor price for crude oil, their investments in the alternatives could get wiped out, which is exactly what happened in the 1980s after the first oil shock. That's why you need the government to come in a reshape the market to make the cost of dirty fuels more expensive and subsidize the price of clean fuels until they can become competitive.
Right now we are doing just the opposite. Bush and Cheney may say the oil market is “free,” but that is a joke. It's dominated by the world's biggest cartel, OPEC, and America's biggest energy companies, and they've shaped this market to serve their interests. Unless government comes in and reshapes it, we're never going to launch this industry. Which is one of the reasons I argue in the book, "Change your leaders, not your light bulbs." Because leaders write rules, rules shape markets, markets give you scale. Without scale, without being able to generate renewable energy at scale, you have nothing. All you have is a hobby. Everything we've doing up to now is pretty much a hobby. I like hobbies--I used to build model airplanes as a kid. But I don't try to change the world as a hobby. And that's basically what we're trying to do.
Zakaria: But aren't we in the midst of a green revolution? Every magazine I pick up tells me ten different ways to get more green. Hybrids are doing very well...
Friedman: What I always say to people when they say to me, "We're having a green revolution" is, "Really? A green revolution! Have you ever been to a revolution where no one got hurt? That's the green revolution." In the green revolution, everyone's a winner: BP's green, Exxon's green, GM's green. When everyone's a winner, that's not a revolution--actually, that's a party. We're having a green party. And it's very fun--you and I get invited to all the parties. But it has no connection whatsoever with a real revolution. You'll know it's a revolution when somebody gets hurt. And I don't mean physically hurt. But the IT revolution was a real revolution. In the IT revolution, companies either had to change or die. So you'll know the green revolution is happening when you see some bodies--corporate bodies--along the side of the road: companies that didn't change and therefore died. Right now we don't have that kind of market, that kind of change-or-die situation. Right now companies feel like they can just change their brand, not actually how they do business, and that will be enough to survive. That's why we're really having more of a green party than a green revolution.
Zakaria: One of your chapters is called "Outgreening Al-Qaeda." Explain what you mean.
Friedman: The chapter is built around the green hawks in the Pentagon. They began with a marine general in Iraq, who basically cabled back one day and said, I need renewable power here. Things like solar energy. And the reaction of the Pentagon was, "Hey, general, you getting a little green out there? You're not going sissy on us are you? Too much sun?" And he basically said, "No, don't you guys get it? I have to provision outposts along the Syrian border. They are off the grid. They run on generators with diesel fuel. I have to truck diesel fuel from Kuwait to the Syrian border at $20 a gallon delivered cost. And that's if my trucks don't get blown up by insurgents along the way. If I had solar power, I wouldn't have to truck all this fuel. I could—this is my term, not his—‘outgreen' Al-Qaeda."
I argue in the chapter that "outgreening"--the ability to deploy, expand, innovate and grow renewable energy and clean power--is going to become one of the most important, if not the most important, sources of competitive advantage for a company, for a country, for a military. You're going to know the cost of your fuel, it's going to be so much more distributed, you will be so much more flexible, and--this is quite important, Fareed--you will also become so much more respected. I hear from law firms today: one law firm has a green transport initiative going for its staff--they only use hybrid cars--another one doesn't. If some law student out of Harvard or Yale is weighing which law firm to join--many will say today: "I think I'll go with the green one." So there are a lot of ways in which you can outgreen your competition. I think "outgreening" is going to become an important verb in the dictionary - between "outfox" and "outmaneuver."
Zakaria: Finally, let me ask you--in that context--what would this do to America's image, if we were to take on this challenge? Do you really think it could change the way America is perceived in the world?
Friedman: I have no doubt about it, which is why I say in the book: I'm not against Kyoto; if you can get 190 countries all to agree on verifiable limits on their carbon, God bless you. But at the end of the day, I really still believe--and I know you do too--in America as a model. Your book stresses this--that even in a post-American world we still are looked at by others around the world as a role model. I firmly believe that if we go green--if we prove that we can become healthy, secure, respected, entrepreneurial, richer and more innovative by greening our economy, many more people will follow us voluntarily than would do so by compulsion of a treaty. Does that mean Russia and Iran will? No. Geopolitics won't disappear. But I think it will, speaking broadly, definitely reposition us in the world with more people in more places. I look at making America the greenest country in the world like running the Olympic triathlon: if you make it to the Olympics and you run the race, maybe you win--but even if you don't win, you're fitter, healthier, more secure, more respected, more competitive and entrepreneurial, because you have given birth to a whole new clean power industry--which has to be the next great global industry--and put your economy on a much more sustainable footing. So to me, this is a win-win-win-win race, and that's why I believe we, America, need to take the lead in it. In the Cold War we had the space race with Russia to see who could be the first to put a man on the moon. Today we need an earth race with Japan, Europe, China and India--to see who can be the first to invent the clean power technologies that will allow man to live safely and sustainably on earth.
Tuesday, March 17, 2009
6 Questions On Deflation
by Robert Prechter
Q: Can increased government spending help stop the crisis? Can the government spend our way out of deflation and depression?
Answer:
Governments sometimes employ aspects of' 'fiscal policy,' i.e., altering spending or taxing policies, to 'pump up' demand for goods and services. Raising taxes for any reason would be harmful. Increasing government spending (with or without raising taxes) simply transfers wealth from savers to spenders, substituting a short-run stimulus for long-run financial deterioration.
Japan has used this approach for twelve years, and it hasn't worked. Slashing taxes absent government spending cuts would be useless because the government would have to borrow the difference. Cutting government spending is a good thing, but politics will prevent its happening prior to a crisis.
Prior excesses have resulted in a lack of solutions to the deflation problem. Like the discomfort of drug addiction withdrawal, the discomfort of credit addiction withdrawal cannot be avoided. The time to have thought about avoiding a system-wide deflation was years ago. Now it's too late. It does not matter how it happens; in the right psychological environment, deflation will win, at least initially.
Q: In deflation, what's best: to have no debts or preserve capital?
Answer:
Being debt-free means that you are freer, period. You don't have to sweat credit card payments. You don't have to sweat home or auto repossession or loss of your business. You don't have to work 6 percent more, or 10 percent more, or 18 percent more just to stay even. ...the best mortgage is none at all. If you own your home outright and lose your job, you will still have a residence. Of course, one could pay off some debts AND keep some capital - it all depends on an individual's risk appetite and tolerance.
Q: Which news and events can move the market and which can't?
A
nswer:
The subject of the news is almost irrelevant. What IS relevant is the state of investors' collective mood at the time of the news release. If they feel bullish (or bearish), they will interpret just about any news story as bullish (or bearish) too. (Or "dismiss the news," as financial commentators often put it.) The important thing to keep in mind is that while the news can cause short-term price spikes, it has no effect on the longer-term trend; only social mood does.
Q: If this deflation deepens, will the US dollar crash?
Answer:
It's very important to make a distinction between the dollar's domestic and international values. In a deflation, the value of any currency - the U.S. dollar, in this case - rises domestically: As asset prices fall, each unit of currency buys more domestically-available goods and services.
However, the USD's international value (as represented by the U.S. Dollar Index) in a deflation can rise OR fall relative to other currencies. If, for instance, the euro is deflating faster than the dollar, then the dollar's value relative to the euro will rise, and vice versa.
Q: Won't government bailouts turn deflation into inflation?
Answer:
Believers in perpetual inflation think that the government can keep assuming others' bad debts infinitely. But it can't. The only reason that Congress has gotten away with issuing this latest blizzard of new IOUs is that society is still near the top of a Grand Supercycle, so optimism and confidence still have the upper hand.
As pessimism and skepticism continue to wax and the economy contracts, the bond market will figure out that the Treasury will be unable to fund all these obligations with tax collections. Then Treasury bond prices will begin falling as if they were sub-prime mortgages.
A collapsing bond market is deflation; it is a contraction of the outstanding credit supply. Recent bailout schemes will not reverse the deflationary freight train. They will serve only to confuse the marketplace and hinder the efficient retirement of bad debts, thus exacerbating the crisis and aggravating investors' uncertainties and thereby falling right in line with the declining trend of social mood."
Q: When will recession end - and DEPRESSION begin?
Answer:
It took mainstream economists over a year to recognize the "official" start of the recession! Because a depression is a much bigger and rarer event, the delay with its "official" recognition will likely be even greater. Not to mention the fact that, interestingly, there is no "official" definition of a depression. Even if there were one, economists' views would probably differ. Rest assured, though, we intend to update on any "progress" in that direction.
Q: Can increased government spending help stop the crisis? Can the government spend our way out of deflation and depression?
Answer:
Governments sometimes employ aspects of' 'fiscal policy,' i.e., altering spending or taxing policies, to 'pump up' demand for goods and services. Raising taxes for any reason would be harmful. Increasing government spending (with or without raising taxes) simply transfers wealth from savers to spenders, substituting a short-run stimulus for long-run financial deterioration.
Japan has used this approach for twelve years, and it hasn't worked. Slashing taxes absent government spending cuts would be useless because the government would have to borrow the difference. Cutting government spending is a good thing, but politics will prevent its happening prior to a crisis.
Prior excesses have resulted in a lack of solutions to the deflation problem. Like the discomfort of drug addiction withdrawal, the discomfort of credit addiction withdrawal cannot be avoided. The time to have thought about avoiding a system-wide deflation was years ago. Now it's too late. It does not matter how it happens; in the right psychological environment, deflation will win, at least initially.
Q: In deflation, what's best: to have no debts or preserve capital?
Answer:
Being debt-free means that you are freer, period. You don't have to sweat credit card payments. You don't have to sweat home or auto repossession or loss of your business. You don't have to work 6 percent more, or 10 percent more, or 18 percent more just to stay even. ...the best mortgage is none at all. If you own your home outright and lose your job, you will still have a residence. Of course, one could pay off some debts AND keep some capital - it all depends on an individual's risk appetite and tolerance.
Q: Which news and events can move the market and which can't?
A
nswer:
The subject of the news is almost irrelevant. What IS relevant is the state of investors' collective mood at the time of the news release. If they feel bullish (or bearish), they will interpret just about any news story as bullish (or bearish) too. (Or "dismiss the news," as financial commentators often put it.) The important thing to keep in mind is that while the news can cause short-term price spikes, it has no effect on the longer-term trend; only social mood does.
Q: If this deflation deepens, will the US dollar crash?
Answer:
It's very important to make a distinction between the dollar's domestic and international values. In a deflation, the value of any currency - the U.S. dollar, in this case - rises domestically: As asset prices fall, each unit of currency buys more domestically-available goods and services.
However, the USD's international value (as represented by the U.S. Dollar Index) in a deflation can rise OR fall relative to other currencies. If, for instance, the euro is deflating faster than the dollar, then the dollar's value relative to the euro will rise, and vice versa.
Q: Won't government bailouts turn deflation into inflation?
Answer:
Believers in perpetual inflation think that the government can keep assuming others' bad debts infinitely. But it can't. The only reason that Congress has gotten away with issuing this latest blizzard of new IOUs is that society is still near the top of a Grand Supercycle, so optimism and confidence still have the upper hand.
As pessimism and skepticism continue to wax and the economy contracts, the bond market will figure out that the Treasury will be unable to fund all these obligations with tax collections. Then Treasury bond prices will begin falling as if they were sub-prime mortgages.
A collapsing bond market is deflation; it is a contraction of the outstanding credit supply. Recent bailout schemes will not reverse the deflationary freight train. They will serve only to confuse the marketplace and hinder the efficient retirement of bad debts, thus exacerbating the crisis and aggravating investors' uncertainties and thereby falling right in line with the declining trend of social mood."
Q: When will recession end - and DEPRESSION begin?
Answer:
It took mainstream economists over a year to recognize the "official" start of the recession! Because a depression is a much bigger and rarer event, the delay with its "official" recognition will likely be even greater. Not to mention the fact that, interestingly, there is no "official" definition of a depression. Even if there were one, economists' views would probably differ. Rest assured, though, we intend to update on any "progress" in that direction.
Monday, March 9, 2009
Next Up: The Great Disruption
by Thomas Friedman
We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese ...
We can’t do this anymore.
We created a way of raising standards of living that we can’t possibly pass on to our children. We have been getting rich by depleting all our natural stocks — water, hydrocarbons, forests, rivers, fish and arable land — and not by generating renewable flows.
You can get this burst of wealth that we have created from this rapacious behavior. But it has to collapse, unless adults stand up and say, ‘This is a Ponzi scheme. We have not generated real wealth, and we are destroying a livable climate ...’ Real wealth is something you can pass on in a way that others can enjoy.
Over a billion people today suffer from water scarcity; deforestation in the tropics destroys an area the size of Greece every year — more than 25 million acres; more than half of the world’s fisheries are over-fished or fished at their limit.
“Just as a few lonely economists warned us we were living beyond our financial means and overdrawing our financial assets, scientists are warning us that we’re living beyond our ecological means and overdrawing our natural assets,” argues Glenn Prickett, senior vice president at Conservation International. But, he cautioned, as environmentalists have pointed out: “Mother Nature doesn’t do bailouts.”
One of those who has been warning me of this for a long time is Paul Gilding, the Australian environmental business expert. He has a name for this moment — when both Mother Nature and Father Greed have hit the wall at once — “The Great Disruption.”
“When we look back, 2008 will be a momentous year in human history. Our children and grandchildren will ask us, ‘What was it like? What were you doing when it started to fall apart? What did you think? What did you do?’ ” Often in the middle of something momentous, we can’t see its significance. But for me there is no doubt: 2008 will be the marker — the year when ‘The Great Disruption’ began.
We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese ...
We can’t do this anymore.
We created a way of raising standards of living that we can’t possibly pass on to our children. We have been getting rich by depleting all our natural stocks — water, hydrocarbons, forests, rivers, fish and arable land — and not by generating renewable flows.
You can get this burst of wealth that we have created from this rapacious behavior. But it has to collapse, unless adults stand up and say, ‘This is a Ponzi scheme. We have not generated real wealth, and we are destroying a livable climate ...’ Real wealth is something you can pass on in a way that others can enjoy.
Over a billion people today suffer from water scarcity; deforestation in the tropics destroys an area the size of Greece every year — more than 25 million acres; more than half of the world’s fisheries are over-fished or fished at their limit.
“Just as a few lonely economists warned us we were living beyond our financial means and overdrawing our financial assets, scientists are warning us that we’re living beyond our ecological means and overdrawing our natural assets,” argues Glenn Prickett, senior vice president at Conservation International. But, he cautioned, as environmentalists have pointed out: “Mother Nature doesn’t do bailouts.”
One of those who has been warning me of this for a long time is Paul Gilding, the Australian environmental business expert. He has a name for this moment — when both Mother Nature and Father Greed have hit the wall at once — “The Great Disruption.”
“When we look back, 2008 will be a momentous year in human history. Our children and grandchildren will ask us, ‘What was it like? What were you doing when it started to fall apart? What did you think? What did you do?’ ” Often in the middle of something momentous, we can’t see its significance. But for me there is no doubt: 2008 will be the marker — the year when ‘The Great Disruption’ began.
Friday, February 27, 2009
Laying Off Workers During Recessions
by Robert Prechter
During recessions, many businesses make a fatal mistake: They lay off employees. Some businesses have no choice; if the product or service is related more to quantity than quality, then perhaps there is no alternative. But many businesses are far better served by keeping their employees and reducing compensation. That way, they can continue to serve customers with full quality and stand ready to lead the competition when the next economic expansion arrives.
Surely most employees would rather endure an across-the-board salary cut than risk being laid off. In the 1930s, General Electric polled its workers on this very question, and the majority agreed that they would rather endure salary reductions. A few years later, when the economy recovered, GE had all of its employees in place and did not have to spend years recruiting new people. It shot out of the gate in full operating mode.
Moreover, the company had made progress improving designs and making plans during the lull. When business picked up, so did salaries. In the end, it was win-win for everyone.
Take, for example, a news service that needs to reduce costs. Instead of cutting staff by 50 percent, thereby forcing a radical reduction in the scope of the news coverage, it would make more sense to cut salaries by 50 percent and retain full service. If lowering the price of the service would keep the subscriber, viewer or listener base steady, or if reducing the cost of advertising would keep the support base steady, it would be better to make one of those moves rather than cutting staff. Either program would maintain quality and serve to keep the service in the forefront among news providers. Inflexible competitors would go out of business, thereby helping the survivors.
If an airline is in trouble, it should not cut routes and service while holding prices and salaries up. It should cut salaries and prices and continue serving the highest possible number of customers. That way, it will be the carrier of choice for many fliers when the economy returns to expansion mode. Again, everyone wins, including the employees.
This idea would work well for any business that does not have long-term contracts – such as with labor unions or high-level employees – guaranteeing salaries. Even in such a case, negotiating reductions would be smarter than going bankrupt.
This approach could work for many kinds of businesses: airlines, manufacturers, newspapers, shippers and sports teams, to name a few. If you work for a business for which this plan would serve, mention it to those in management. Even they would probably prefer a reduction in income to none at all.
Reducing salaries has another benefit, which is that fewer people would go to the state for “unemployment benefits,” reducing the strain on state budgets and taxpayers. If your business would operate better with all its employees, consider a company-wide salary reduction as opposed to layoffs.
During recessions, many businesses make a fatal mistake: They lay off employees. Some businesses have no choice; if the product or service is related more to quantity than quality, then perhaps there is no alternative. But many businesses are far better served by keeping their employees and reducing compensation. That way, they can continue to serve customers with full quality and stand ready to lead the competition when the next economic expansion arrives.
Surely most employees would rather endure an across-the-board salary cut than risk being laid off. In the 1930s, General Electric polled its workers on this very question, and the majority agreed that they would rather endure salary reductions. A few years later, when the economy recovered, GE had all of its employees in place and did not have to spend years recruiting new people. It shot out of the gate in full operating mode.
Moreover, the company had made progress improving designs and making plans during the lull. When business picked up, so did salaries. In the end, it was win-win for everyone.
Take, for example, a news service that needs to reduce costs. Instead of cutting staff by 50 percent, thereby forcing a radical reduction in the scope of the news coverage, it would make more sense to cut salaries by 50 percent and retain full service. If lowering the price of the service would keep the subscriber, viewer or listener base steady, or if reducing the cost of advertising would keep the support base steady, it would be better to make one of those moves rather than cutting staff. Either program would maintain quality and serve to keep the service in the forefront among news providers. Inflexible competitors would go out of business, thereby helping the survivors.
If an airline is in trouble, it should not cut routes and service while holding prices and salaries up. It should cut salaries and prices and continue serving the highest possible number of customers. That way, it will be the carrier of choice for many fliers when the economy returns to expansion mode. Again, everyone wins, including the employees.
This idea would work well for any business that does not have long-term contracts – such as with labor unions or high-level employees – guaranteeing salaries. Even in such a case, negotiating reductions would be smarter than going bankrupt.
This approach could work for many kinds of businesses: airlines, manufacturers, newspapers, shippers and sports teams, to name a few. If you work for a business for which this plan would serve, mention it to those in management. Even they would probably prefer a reduction in income to none at all.
Reducing salaries has another benefit, which is that fewer people would go to the state for “unemployment benefits,” reducing the strain on state budgets and taxpayers. If your business would operate better with all its employees, consider a company-wide salary reduction as opposed to layoffs.
Friday, February 20, 2009
Calm Like A Bomb: The 2nd Great Depression
by Raju M Mathew
This is the Great Depression II - The crisis that we are now facing can rightly be called The Great Depression II of 2009 . And it is several times severe than the Great Depression I of 1929. It is not mere a financial meltdown; not mere a credit crisis. It is not a recession to disappear within two years. The dimensions and intensities of the Great Depression II are quite different from the early one.
Threat to Peace and Democracy
History teaches us that every major crisis or revolution is followed by dictatorship or war. Fascism was the offspring of the Great Depression I of 1929. Crisis in the Old France led to the French Revolution; October Revolution was the consequence of the socio-economic crisis in the Czarist Russia.
Unless the present crisis are dealt immediately, millions of hard hit and unemployed people, besides the angry debtors will march towards the streets and the capitals and capture the power that invariably leads to dictatorship and then the war. It will also lead to clashes between people of different regions or interest groups and ultimately civil wars. Mass burglary or looting will become the rule and billions will die out of hunger, epidemics and civil wars.
The Great Depression II shall be the greatest threat to peace, democracy and rule of law.
Time to Act
Now we are in the early stage of the Great Depression II and as such the people and the governments are in a riddle or puzzle to grasp the crisis. In the next stage they will be in an absolute shock to realize the losses and damages that they have to encounter; over 80 per cent of the jobs will be wiped out; a good majority of trade and business people will turn bankrupts. . At that stage, so many people will commit suicide or reach on the verge of mental brake down. This is the stage of total crisis of faith; people will loose faith in every thing and they will be ready to anything. This is the most dangerous situation that will lead to revolutions, mass crimes and lootings and even civil war.
In order to avoid all these situations, we have to act urgently; the governments, international agencies, governmental and non-governmental and world religions must work together to deal with it in order to avoid greater miseries.
This is the Great Depression II - The crisis that we are now facing can rightly be called The Great Depression II of 2009 . And it is several times severe than the Great Depression I of 1929. It is not mere a financial meltdown; not mere a credit crisis. It is not a recession to disappear within two years. The dimensions and intensities of the Great Depression II are quite different from the early one.
Threat to Peace and Democracy
History teaches us that every major crisis or revolution is followed by dictatorship or war. Fascism was the offspring of the Great Depression I of 1929. Crisis in the Old France led to the French Revolution; October Revolution was the consequence of the socio-economic crisis in the Czarist Russia.
Unless the present crisis are dealt immediately, millions of hard hit and unemployed people, besides the angry debtors will march towards the streets and the capitals and capture the power that invariably leads to dictatorship and then the war. It will also lead to clashes between people of different regions or interest groups and ultimately civil wars. Mass burglary or looting will become the rule and billions will die out of hunger, epidemics and civil wars.
The Great Depression II shall be the greatest threat to peace, democracy and rule of law.
Time to Act
Now we are in the early stage of the Great Depression II and as such the people and the governments are in a riddle or puzzle to grasp the crisis. In the next stage they will be in an absolute shock to realize the losses and damages that they have to encounter; over 80 per cent of the jobs will be wiped out; a good majority of trade and business people will turn bankrupts. . At that stage, so many people will commit suicide or reach on the verge of mental brake down. This is the stage of total crisis of faith; people will loose faith in every thing and they will be ready to anything. This is the most dangerous situation that will lead to revolutions, mass crimes and lootings and even civil war.
In order to avoid all these situations, we have to act urgently; the governments, international agencies, governmental and non-governmental and world religions must work together to deal with it in order to avoid greater miseries.
Sunday, February 8, 2009
Pakatan's Own Medicine?
by Hannah Yeoh
To those who argue that the political crisis in Perak now is a taste of Pakatan’s own medicine (referring to the Sept 16 takeover plan), they have failed to see the key differences between the two.
If you remember what happened when Dato’ Seri Anwar Ibrahim claimed to have the numbers to form the new federal government, he wrote to PM Datuk Seri Abdullah Ahmad Badawi requesting him to convene an emergency sitting of Parliament. This was rejected by the PM.
The next constitutional option is to press for the dissolution of Parliament to make way for fresh new elections. That was also not entertained. Anwar Ibrahim exhausted the constitutional means that were available to him. So you can’t say that Najib’s coup and Pakatan’s plan were one and the same.
Some may also say, well what about the earlier defection of Bota assemblyman, Datuk Nasarudin Hashim? Why did Pakatan Rakyat accept him? Why not force his seat to be vacated for a by-election?
Let’s keep things in perspective here. His defection was that of an opposition lawmaker to a governing lawmaker. His defection did not alter the balance of power in the State Assembly. Pakatan Rakyat remained as government, and BN as opposition. Status quo. Logically and intelligently, anyone can safely assume that Pakatan Rakyat didn’t need a defection from BN. Thus, he defected on his own accord and on his own will. There was no need for Pakatan Rakyat to force him to vacate his seat as he did not win the seat on a Pakatan ticket. The Pakatan government really has no standing in forcing him to vacate a seat which wasn’t earned by Pakatan in the first place!
I must say that I had great respect for Sultan Azlan Shah, until recently. I wonder how he could possibly consent to the formation of a new BN state government when constitutionally, a government is still in place. And to even approve to a new Menteri Besar when the existing one is still in office? How can any state have 2 heads of government at any one time? There can only be one Menteri Besar of Perak. This is a mockery.
The Menteri Besar can only be removed by the State Assembly via a vote of no-confidence or via the dissolution of the assembly. And none of these two constitutional means has been requested by BN. How can anyone claim that Najib and Anwar are one and the same?
Next, the Sultan called for a “unity” government to be formed by BN and the Independents. Let’s be clear about this. The Independents are in no way legally bound to represent BN.
All that the Sultan and Najib has from them is a verbal assurance that “we will be friendly to BN”. And just by appearing in a press conference with Najib, it justifies the change of government? What if next week these Independents were to be seen in a press conference with Pakatan?
A real “unity” government envisioned by the Sultan should have been an all-inclusive government of Pakatan, BN, and the Independents. Pakatan and BN each have 28 seats, and the Independents 3. Thus, no single party or coalition has a commanding majority.
If there is to be a “unity” government, it calls for a new coalition of PR-BN-Ind which is impossible. Thus, what the Sultan has called for is simply a name without substance. What “unity” if it’s going to consist of only single-minded representatives - all “friendly to BN”? That’s not a “unity” government, it’s a BN government. This is a mockery of the intelligence of Malaysians. A beginning of what is to come with this PM-to-be.
To those who argue that the political crisis in Perak now is a taste of Pakatan’s own medicine (referring to the Sept 16 takeover plan), they have failed to see the key differences between the two.
If you remember what happened when Dato’ Seri Anwar Ibrahim claimed to have the numbers to form the new federal government, he wrote to PM Datuk Seri Abdullah Ahmad Badawi requesting him to convene an emergency sitting of Parliament. This was rejected by the PM.
The next constitutional option is to press for the dissolution of Parliament to make way for fresh new elections. That was also not entertained. Anwar Ibrahim exhausted the constitutional means that were available to him. So you can’t say that Najib’s coup and Pakatan’s plan were one and the same.
Some may also say, well what about the earlier defection of Bota assemblyman, Datuk Nasarudin Hashim? Why did Pakatan Rakyat accept him? Why not force his seat to be vacated for a by-election?
Let’s keep things in perspective here. His defection was that of an opposition lawmaker to a governing lawmaker. His defection did not alter the balance of power in the State Assembly. Pakatan Rakyat remained as government, and BN as opposition. Status quo. Logically and intelligently, anyone can safely assume that Pakatan Rakyat didn’t need a defection from BN. Thus, he defected on his own accord and on his own will. There was no need for Pakatan Rakyat to force him to vacate his seat as he did not win the seat on a Pakatan ticket. The Pakatan government really has no standing in forcing him to vacate a seat which wasn’t earned by Pakatan in the first place!
I must say that I had great respect for Sultan Azlan Shah, until recently. I wonder how he could possibly consent to the formation of a new BN state government when constitutionally, a government is still in place. And to even approve to a new Menteri Besar when the existing one is still in office? How can any state have 2 heads of government at any one time? There can only be one Menteri Besar of Perak. This is a mockery.
The Menteri Besar can only be removed by the State Assembly via a vote of no-confidence or via the dissolution of the assembly. And none of these two constitutional means has been requested by BN. How can anyone claim that Najib and Anwar are one and the same?
Next, the Sultan called for a “unity” government to be formed by BN and the Independents. Let’s be clear about this. The Independents are in no way legally bound to represent BN.
All that the Sultan and Najib has from them is a verbal assurance that “we will be friendly to BN”. And just by appearing in a press conference with Najib, it justifies the change of government? What if next week these Independents were to be seen in a press conference with Pakatan?
A real “unity” government envisioned by the Sultan should have been an all-inclusive government of Pakatan, BN, and the Independents. Pakatan and BN each have 28 seats, and the Independents 3. Thus, no single party or coalition has a commanding majority.
If there is to be a “unity” government, it calls for a new coalition of PR-BN-Ind which is impossible. Thus, what the Sultan has called for is simply a name without substance. What “unity” if it’s going to consist of only single-minded representatives - all “friendly to BN”? That’s not a “unity” government, it’s a BN government. This is a mockery of the intelligence of Malaysians. A beginning of what is to come with this PM-to-be.
Saturday, February 7, 2009
What happened, Tuanku?
by Wong Choon Mei
What hurt the nation was not Najib, for Malaysians know his limitations and do not expect better from him.
But they did from Sultan Azlan Shah, a very popular top judge in the late 1970s and 80s, almost revered for standing up for the people against the oppressive regime of former premier Mahathir Mohamad.
Sultan Azlan’s controversial decision - which also included a further unprecedented one of sacking Nizar as Menteri Besar - has sparked a slew of consipracy theories among the masses.
The favourite topics at the ubiquitous coffee shops across the nation include ones about Umno’s planted Trojan horse, and alleged plots between Najib and certain members of the royal family.
Nevertheless, experts and civil groups have been just as hard on the Perak Ruler and the BN.
Said Abdul Aziz Bari, law professor at the International Islamic University: “The problem in Malaysia is that the law is not allowed to take its course. I think the Sultan has made a mistake.”
Said Malaysia’s human rights body: “Suhakam noted that the Sultan of Perak has not consented to the dissolution of the state legislative assembly.”
Said KeADILan information chief Tian Chua: “Given that the Sultan previously wrote in his own book that a Ruler’s role is purely formal and that he should follow the recommendations of his Menteri Besar, that His Majesty himself could now chose to reject Nizar’s request for a snap election is surprising.
“If this was because the people of Perak were against Nizar, if this was to protect Perak against oppression, then there is cause for argument. But here, very clearly, the people of Perak want a snap election. They are not against Nizar either. So obviously, the question ‘why’ arises.
Now the way forward for Perak and its Ruler may have to be through a morass of legal battles and land mines.
It is tough for the Pakatan to back down, for it is no longer a question of losing the Perak state government, but at stake now is its entire national agenda of bringing justice and social reform to all Malaysians.
From Najib and Umno, most Malaysians believe there is nothing much to expect other than more mis-information, manipulation, plotting and intrigue that cannot be seen by the light of day.
“Najib has only confirmed what everyone thinks of him, but has not said out loud,” said a veteran party observer.
“He is not a fit leader for the country, and he knows this is the public feeling. This is why as far as possible, he will suppress any election anywhere in the country. Because he knows it is almost a certainty that he will lose, and he cannot afford anymore losses after Kuala Terengganu and Permatang Pauh.”
As for the Perak Ruler, it remains to be seen if his Majesty will heed the call of his subjects, his critics and his peers.
Said the political analyst: “Right now, the perception is that Najib and Umno are hiding behind the royal house. There are 13 states in this country and the Perak Ruler is considered to be the most enlightened because of his qualification as a federal court judge.
“If the Pakatan doesn’t chase up, the feelings of boldness in Najib and Umno to further encroach on the other royal houses will increase. Instead of growing transparency and better governance, Malaysians might end with greater oppression.”
Said a royal counterpart from the Kelantan house Tengku Razaleigh Hamzah: “Only the answer of the assembly counts, regardless of how many sworn statements, defections, press conferences and declarations, or what forms of advertisement, display, inducement or force you bring to bear on the question.
“The question must either be put to the people through state election, or to assemblymen through a formal vote in the state assembly.”
COMMENTS
Ironically, Sultan Azlan Shah, author of ‘Constitutional Monarchy, Rule of Law and Good Governance’, wrote this in his book:
“Under normal circumstances, it is taken for granted that the Yang di Pertuan Agong would not withhold his consent to a request for the dissolution of Parliament.
“His role is purely formal.”
COMMENTS FROM VARIOUS EXPERTS:
Abdul Aziz Bari, law professor at the International Islamic University
“The problem in Malaysia is that the law is not allowed to take its course. I think the Sultan has made a mistake.”
Bari said while it is the Sultan’s prerogative whether or not to dissolve the state assembly and allow fresh elections, the Sultan should not insist on the resignation of his appointed Menteri Besar, until it was clear he no longer held the majority support of the state’s lawmakers.
Malik Imtiaz Sarwar, human rights lawyer
“It could be said there is no situation of no-confidence here because of the dispute over the two seats (Behrang and Changkat Jering). A vote of no-confidence can only be taken by people who are legitimately entitled to vote, meaning people who are still assemblymen.
“As such, the legal basis of the Sultan’s directive may not be found.”
P Ramakrishnan, Aliran
“Legally there exist no doubts as to the vacancies of these two seats but there are clearly doubts as to why the Election Commission chose to take this decision which is without doubt ultra vires.”
“Aliran would also like to appeal to His Royal Highness, the Sultan of Perak, in all humility, to kindly consent to the dissolution of the state assembly as a way to overcome this deadlock.”
James Chin, political analyst from Monash University, KL wing
“According to the old British system, a monarch should always follow the advice of the Prime Minister, regardless of personal preference.
“The Sultan should know the law better than any of us, as he was formerly the Lord President of the Supreme Court
Tengku Razaleigh Hamzah, Gua Musang MP
“The Constitution makes no provision for his removal by any other means, including by petitions or instructions from any other authority,” said Razaleigh in a statement, adding that Nizar is lawfully the Menteri Besar until he resigns of his own accord, or is removed by a vote of no-confidence in a formal sitting of the assembly.
“Defections are not the basis for the formation of a government. Elections are. Governments are formed after citizens have expressed their choice through free and fair elections. Our constitution specifies a formal process for the formation of a government.”
”The two assemblymen (Behrang and Changkat Jering) whose allegiance we have suddenly gained are under investigation for corruption, while the Bota assemblyman’s justification for his record-breaking 10-day double-hop is an insult to the public’s intelligence and nauseating in its insincerity.”
Mahathir Mohammad, former prime minister
“Is Umno so desperate that it cannot wait for the criminal court decision against them before accepting them,” Mahathir wrote in his blog, referring to the Feb 10 corruption trial awaiting the Behrang and Changkat Jering assemblymen.
“If they are accepted now and then found not guilty, the so-called Umno-led government will be accused of influencing the court. True or not does not matter as the public’s perception is such. It will have an effect in the 13th general election.”
Khoo Kay Peng, political analyst
“Umno should prove to Malaysians that it is willing to change its ways. Accepting the two assemblymen, who are facing corruption charges, into its fold only shows it is digging in keep its old habits.”
Lim Si Pin, Gerakan Youth chief
“You are cheating the people as you think the voters are stupid. You are the representative of the people, how can you defect so easily.
“This is an abuse of the democratic process. Gerakan is against the party hopping culture and we do not support BN’s method of taking control of the Perak government by dubious means.
Lim Si Boon, Malaysian International Chamber of Commerce and Industry, Perak
“Elections are the prerogative of the (state) government.”
What hurt the nation was not Najib, for Malaysians know his limitations and do not expect better from him.
But they did from Sultan Azlan Shah, a very popular top judge in the late 1970s and 80s, almost revered for standing up for the people against the oppressive regime of former premier Mahathir Mohamad.
Sultan Azlan’s controversial decision - which also included a further unprecedented one of sacking Nizar as Menteri Besar - has sparked a slew of consipracy theories among the masses.
The favourite topics at the ubiquitous coffee shops across the nation include ones about Umno’s planted Trojan horse, and alleged plots between Najib and certain members of the royal family.
Nevertheless, experts and civil groups have been just as hard on the Perak Ruler and the BN.
Said Abdul Aziz Bari, law professor at the International Islamic University: “The problem in Malaysia is that the law is not allowed to take its course. I think the Sultan has made a mistake.”
Said Malaysia’s human rights body: “Suhakam noted that the Sultan of Perak has not consented to the dissolution of the state legislative assembly.”
Said KeADILan information chief Tian Chua: “Given that the Sultan previously wrote in his own book that a Ruler’s role is purely formal and that he should follow the recommendations of his Menteri Besar, that His Majesty himself could now chose to reject Nizar’s request for a snap election is surprising.
“If this was because the people of Perak were against Nizar, if this was to protect Perak against oppression, then there is cause for argument. But here, very clearly, the people of Perak want a snap election. They are not against Nizar either. So obviously, the question ‘why’ arises.
Now the way forward for Perak and its Ruler may have to be through a morass of legal battles and land mines.
It is tough for the Pakatan to back down, for it is no longer a question of losing the Perak state government, but at stake now is its entire national agenda of bringing justice and social reform to all Malaysians.
From Najib and Umno, most Malaysians believe there is nothing much to expect other than more mis-information, manipulation, plotting and intrigue that cannot be seen by the light of day.
“Najib has only confirmed what everyone thinks of him, but has not said out loud,” said a veteran party observer.
“He is not a fit leader for the country, and he knows this is the public feeling. This is why as far as possible, he will suppress any election anywhere in the country. Because he knows it is almost a certainty that he will lose, and he cannot afford anymore losses after Kuala Terengganu and Permatang Pauh.”
As for the Perak Ruler, it remains to be seen if his Majesty will heed the call of his subjects, his critics and his peers.
Said the political analyst: “Right now, the perception is that Najib and Umno are hiding behind the royal house. There are 13 states in this country and the Perak Ruler is considered to be the most enlightened because of his qualification as a federal court judge.
“If the Pakatan doesn’t chase up, the feelings of boldness in Najib and Umno to further encroach on the other royal houses will increase. Instead of growing transparency and better governance, Malaysians might end with greater oppression.”
Said a royal counterpart from the Kelantan house Tengku Razaleigh Hamzah: “Only the answer of the assembly counts, regardless of how many sworn statements, defections, press conferences and declarations, or what forms of advertisement, display, inducement or force you bring to bear on the question.
“The question must either be put to the people through state election, or to assemblymen through a formal vote in the state assembly.”
COMMENTS
Ironically, Sultan Azlan Shah, author of ‘Constitutional Monarchy, Rule of Law and Good Governance’, wrote this in his book:
“Under normal circumstances, it is taken for granted that the Yang di Pertuan Agong would not withhold his consent to a request for the dissolution of Parliament.
“His role is purely formal.”
COMMENTS FROM VARIOUS EXPERTS:
Abdul Aziz Bari, law professor at the International Islamic University
“The problem in Malaysia is that the law is not allowed to take its course. I think the Sultan has made a mistake.”
Bari said while it is the Sultan’s prerogative whether or not to dissolve the state assembly and allow fresh elections, the Sultan should not insist on the resignation of his appointed Menteri Besar, until it was clear he no longer held the majority support of the state’s lawmakers.
Malik Imtiaz Sarwar, human rights lawyer
“It could be said there is no situation of no-confidence here because of the dispute over the two seats (Behrang and Changkat Jering). A vote of no-confidence can only be taken by people who are legitimately entitled to vote, meaning people who are still assemblymen.
“As such, the legal basis of the Sultan’s directive may not be found.”
P Ramakrishnan, Aliran
“Legally there exist no doubts as to the vacancies of these two seats but there are clearly doubts as to why the Election Commission chose to take this decision which is without doubt ultra vires.”
“Aliran would also like to appeal to His Royal Highness, the Sultan of Perak, in all humility, to kindly consent to the dissolution of the state assembly as a way to overcome this deadlock.”
James Chin, political analyst from Monash University, KL wing
“According to the old British system, a monarch should always follow the advice of the Prime Minister, regardless of personal preference.
“The Sultan should know the law better than any of us, as he was formerly the Lord President of the Supreme Court
Tengku Razaleigh Hamzah, Gua Musang MP
“The Constitution makes no provision for his removal by any other means, including by petitions or instructions from any other authority,” said Razaleigh in a statement, adding that Nizar is lawfully the Menteri Besar until he resigns of his own accord, or is removed by a vote of no-confidence in a formal sitting of the assembly.
“Defections are not the basis for the formation of a government. Elections are. Governments are formed after citizens have expressed their choice through free and fair elections. Our constitution specifies a formal process for the formation of a government.”
”The two assemblymen (Behrang and Changkat Jering) whose allegiance we have suddenly gained are under investigation for corruption, while the Bota assemblyman’s justification for his record-breaking 10-day double-hop is an insult to the public’s intelligence and nauseating in its insincerity.”
Mahathir Mohammad, former prime minister
“Is Umno so desperate that it cannot wait for the criminal court decision against them before accepting them,” Mahathir wrote in his blog, referring to the Feb 10 corruption trial awaiting the Behrang and Changkat Jering assemblymen.
“If they are accepted now and then found not guilty, the so-called Umno-led government will be accused of influencing the court. True or not does not matter as the public’s perception is such. It will have an effect in the 13th general election.”
Khoo Kay Peng, political analyst
“Umno should prove to Malaysians that it is willing to change its ways. Accepting the two assemblymen, who are facing corruption charges, into its fold only shows it is digging in keep its old habits.”
Lim Si Pin, Gerakan Youth chief
“You are cheating the people as you think the voters are stupid. You are the representative of the people, how can you defect so easily.
“This is an abuse of the democratic process. Gerakan is against the party hopping culture and we do not support BN’s method of taking control of the Perak government by dubious means.
Lim Si Boon, Malaysian International Chamber of Commerce and Industry, Perak
“Elections are the prerogative of the (state) government.”
The Perak Crisis - an unsolicited legal opinion
by Art Harun
On last year's disagreement between the Terengganu palace and the BN's leadership over the choice of the Menteri Besar, I wrote:
"The notion that the Rulers are a part of check and balance mechanism to the wide powers of the executives is to me, wishful at best. The reality is the Rulers are not part of the administration of the country.
The check and balance mechanism embedded into our system (and every democracy with a constitutional monarch) only consists of the executive, legislative and of course, the judiciary .
To adopt a literal approach would vest a certain level of absolute power in the Ruler where such power does not exist in the first place. Can we imagine a situation where the Ruler may decide mid-term to change an MB because he thinks that MB does not command the confidence of the majority anymore?
We are now riding the populist wave of a political reform yet unseen before. It is a result of deep rooted anger against the BN government. But lets not allow our emotion to colour our judgement by creating, or allowing to create, a dangerous precedent, a precedent which we all may live to regret later."
The looming constitutional crisis in Perak now underscores my sentiment exactly.
Article 16 of the Perak Constitution says that the Sultan shall appoint the Executive Council ("EC"). He must first appoint as Menteri Besar from the members of the Legislative Assembly who "in his judgment is likely to command the confidence of the majority of the members of the Assembly." Then on the advice of the MB, the Sultan shall appoint other members of the EC.
We stop at this juncture to consider this provision. The Sultan did not have to ensure that the potential MB does command the confidence of the majority. The word "likely" in the above provision gives a certain level of subjectivity to the whole process. And quite how the Sultan was to perform that function is not spelt out.
Article 16 (6) is very important. It says:
"If the MB ceases to command the confidence of the majority of the members of the Legislative Assembly, then, unless at his request His Royal Highness dissolves the Legislative Assembly, he shall tender the resignation of the Executive Council."
If we could now look at this provision closely. There is no subjectivity here. It does not say, for example, "if the Sultan is of the opinion that the MB ceases to command the confidence of the Assembly", or "if it is likely that the MB has ceased to command the confidence of the Assembly". It says clearly that "if the MB ceases to command". That means this provision kicks in only and only if, it could be factually proven that the MB has ceased to command the confidence of the Legislative Assembly. In other word, the Sultan is not imbued with the power to make his own subjective judgment over this fact and matter . For this provision to operate, it must be established as a fact that the MB has ceased to command the confidence of the Assembly.
How is that fact established then? In countries practising the Westminster typed democracy, this fact is established with a vote of no confidence on the floor of the Assembly.
Next to be examined is Article 16 (7). It says:
"Subject to Clause (6) a member of the Executive Council other than the MB shall hold office at His Royal Highness' pleasure, but any member of the Council may at any time resign his office."
It is of paramount importance to note that only the MB does not hold office at the pleasure of the Sultan. From a literal reading of this article, it is clear that the Sultan may therefore sack any member of the Executive Council BUT NOT THE MB.
Can the Sultan Ask the MB to Resign?
With all due respect to HRH the Sultan of Perak, I don't think the Sultan has the power to ask for the resignation of the MB. It has been argued elsewhere that the provision of the Interpretation Act 1948 would give the power to the Sultan to dismiss the MB. While I concede that section 94 of that Act gives the power to dismiss in every instant where a power to appoint exists, it must be remembered that the Interpretation Act does not apply "where there is something in the subject or context inconsistent with or repugnant to the application" of the Interpretation Act.
Where is the context inconsistent with the application of the Interpretation Act here? The answer lies with Article 16 (7) above. It is clear that the MB does not hold office at the pleasure of the Sultan as opposed to the other members of the Assembly. Had it been intended that the Sultan should have the power to dismiss the MB as well as the other members of the Executive Council, Article 16 (7) would not have made such a glaring and clear exception so as to expressly preclude the MB from the operation of that Article.
Excersise of the Sultan's Powers
There are 2 broad categories of powers which the Sultan is vested with. The first type are powers which the Sultan shall act in accordance with the advice of the Executive Council. There is no discretionary power here. Whenever the Sultan is advised to exercise these powers, the Sultan has no choice but to exercise that power in accordance with the advice given.
Secondly there are powers which the Sultan may exercise in his discretion. These powers include:
power to appoint the MB
power to withhold his consent to a request for the dissolution of the Assembly.
Here lies the problem. The MB has requested the Sultan to dissolve the Assembly but the Sultan has refused to do so and had asked the MB to resign instead.
Was the Sultan Right?
A case law, decided by our Court in 1966 bears important resemblance to the crisis in Perak now. In Stephen Kalong Ningkan v. Tun Abang Haji Openg and Tawi Sli [1966] 2 MLJ 187, the Governor of Sarawak received a letter signed by 21 members of the Council Negri (equivalent to the Legislative Assembly) expressing no confidence in Stephen Kalong Ningkan as the Chief Minister. The Governor then asked Stephen to resign. Stephen refused to resign. The Governor then declared that Stephen and all the members of the Supreme Council (equivalent to the Executive Council) as having ceased to hold office. A new Chief Minister was then appointed by the Governor. The case ended up in the High Court where among others, a declaration that the purported dismissal of Stephen as the Chief Minister was ultra vires the Constitution and was therefore null and void.
The Sarawak Constitution contain provisions which are almost identical to the provisions of the Perak Constitution.
On last year's disagreement between the Terengganu palace and the BN's leadership over the choice of the Menteri Besar, I wrote:
"The notion that the Rulers are a part of check and balance mechanism to the wide powers of the executives is to me, wishful at best. The reality is the Rulers are not part of the administration of the country.
The check and balance mechanism embedded into our system (and every democracy with a constitutional monarch) only consists of the executive, legislative and of course, the judiciary .
To adopt a literal approach would vest a certain level of absolute power in the Ruler where such power does not exist in the first place. Can we imagine a situation where the Ruler may decide mid-term to change an MB because he thinks that MB does not command the confidence of the majority anymore?
We are now riding the populist wave of a political reform yet unseen before. It is a result of deep rooted anger against the BN government. But lets not allow our emotion to colour our judgement by creating, or allowing to create, a dangerous precedent, a precedent which we all may live to regret later."
The looming constitutional crisis in Perak now underscores my sentiment exactly.
Article 16 of the Perak Constitution says that the Sultan shall appoint the Executive Council ("EC"). He must first appoint as Menteri Besar from the members of the Legislative Assembly who "in his judgment is likely to command the confidence of the majority of the members of the Assembly." Then on the advice of the MB, the Sultan shall appoint other members of the EC.
We stop at this juncture to consider this provision. The Sultan did not have to ensure that the potential MB does command the confidence of the majority. The word "likely" in the above provision gives a certain level of subjectivity to the whole process. And quite how the Sultan was to perform that function is not spelt out.
Article 16 (6) is very important. It says:
"If the MB ceases to command the confidence of the majority of the members of the Legislative Assembly, then, unless at his request His Royal Highness dissolves the Legislative Assembly, he shall tender the resignation of the Executive Council."
If we could now look at this provision closely. There is no subjectivity here. It does not say, for example, "if the Sultan is of the opinion that the MB ceases to command the confidence of the Assembly", or "if it is likely that the MB has ceased to command the confidence of the Assembly". It says clearly that "if the MB ceases to command". That means this provision kicks in only and only if, it could be factually proven that the MB has ceased to command the confidence of the Legislative Assembly. In other word, the Sultan is not imbued with the power to make his own subjective judgment over this fact and matter . For this provision to operate, it must be established as a fact that the MB has ceased to command the confidence of the Assembly.
How is that fact established then? In countries practising the Westminster typed democracy, this fact is established with a vote of no confidence on the floor of the Assembly.
Next to be examined is Article 16 (7). It says:
"Subject to Clause (6) a member of the Executive Council other than the MB shall hold office at His Royal Highness' pleasure, but any member of the Council may at any time resign his office."
It is of paramount importance to note that only the MB does not hold office at the pleasure of the Sultan. From a literal reading of this article, it is clear that the Sultan may therefore sack any member of the Executive Council BUT NOT THE MB.
Can the Sultan Ask the MB to Resign?
With all due respect to HRH the Sultan of Perak, I don't think the Sultan has the power to ask for the resignation of the MB. It has been argued elsewhere that the provision of the Interpretation Act 1948 would give the power to the Sultan to dismiss the MB. While I concede that section 94 of that Act gives the power to dismiss in every instant where a power to appoint exists, it must be remembered that the Interpretation Act does not apply "where there is something in the subject or context inconsistent with or repugnant to the application" of the Interpretation Act.
Where is the context inconsistent with the application of the Interpretation Act here? The answer lies with Article 16 (7) above. It is clear that the MB does not hold office at the pleasure of the Sultan as opposed to the other members of the Assembly. Had it been intended that the Sultan should have the power to dismiss the MB as well as the other members of the Executive Council, Article 16 (7) would not have made such a glaring and clear exception so as to expressly preclude the MB from the operation of that Article.
Excersise of the Sultan's Powers
There are 2 broad categories of powers which the Sultan is vested with. The first type are powers which the Sultan shall act in accordance with the advice of the Executive Council. There is no discretionary power here. Whenever the Sultan is advised to exercise these powers, the Sultan has no choice but to exercise that power in accordance with the advice given.
Secondly there are powers which the Sultan may exercise in his discretion. These powers include:
power to appoint the MB
power to withhold his consent to a request for the dissolution of the Assembly.
Here lies the problem. The MB has requested the Sultan to dissolve the Assembly but the Sultan has refused to do so and had asked the MB to resign instead.
Was the Sultan Right?
A case law, decided by our Court in 1966 bears important resemblance to the crisis in Perak now. In Stephen Kalong Ningkan v. Tun Abang Haji Openg and Tawi Sli [1966] 2 MLJ 187, the Governor of Sarawak received a letter signed by 21 members of the Council Negri (equivalent to the Legislative Assembly) expressing no confidence in Stephen Kalong Ningkan as the Chief Minister. The Governor then asked Stephen to resign. Stephen refused to resign. The Governor then declared that Stephen and all the members of the Supreme Council (equivalent to the Executive Council) as having ceased to hold office. A new Chief Minister was then appointed by the Governor. The case ended up in the High Court where among others, a declaration that the purported dismissal of Stephen as the Chief Minister was ultra vires the Constitution and was therefore null and void.
The Sarawak Constitution contain provisions which are almost identical to the provisions of the Perak Constitution.
Friday, February 6, 2009
Misinterpretation of Words in Perak Constitution
by Kim Quek
Is it possible that a slight difference in wordings between the state constitution of Perak and the federal constitution pertaining to the loss of confidence of Mentri Besar/prime minister has misled the Sultan of Perak into thinking that the constitutional requirement necessitating the Mentri Besar to resign has been fulfilled?
Judging from the Sultan’s statement explaining his decision to appoint a new mentri besar that seems to be the case. Let me quote the relevant paragraph of the Sultan’s statement explaining why Mentri Besar Nizar Jamaluddin must step down:
After meeting all the 31 assemblymen, DYMM Paduka Seri Sultan of Perak was convinced that YAB Datuk Seri Mohammad Nizar Jamaluddin had ceased to command the confidence of the majority of the State Assembly members.
This statement would have been a correct interpretation of the constitution if applied to the Prime Minister, but an incorrect interpretation, if applied to the Mentri Besar. This is because the loss of confidence of the majority is prescribed differently in the two constitutions (relevant parts of the constitutions are shown at the end of this article).
Under the federal constitution, the loss of confidence refers to members of the House of Representatives whereas under the state constitution, it refers to the Legislative Assembly. This means that while the ascertainment of loss confidence can conducted outside Parliament (such as collective appearance before the Agung) in the federal case, it cannot be repeated in state case.
In the Perak state constitution, the loss of confidence must be ascertained within the state assembly, meaning through a vote of no confidence in the state assembly.
The reason why I said the Sultan could have been misled is that in his official statement, he mentioned the confidence of the majority of the State Assembly members. Notice the statement refers to State Assembly members, and not to State Assembly.
Under the circumstances, the Mentri Besar was right when he said that he was legally obliged to step down only when a motion of no confidence on him has been passed in the state assembly, but not otherwise.
And since the Mentri Besar has not resigned, any appointment of another Mentri Besar will be ultra vires the state constitution.
Perhaps His Royal Highness should have spared more than a few minutes to take another look at the two constitutions, so as to avert a major constitutional crisis?
The relevant extracts from the two constitutions are as follows:
Federal constitution: Article 43 (4): If the Prime Minister ceases to command the confidence of the majority of the members of the House of Representatives, then, unless at his request the Yang di-Pertuan Agong dissolves Parliament, the Prime Minister shall tender the resignation of the Cabinet.
Perak state constitution: Artikel XVI(6): If the Mentri Besar ceases to command the confidence of the majority of the Legislative Assembly, then unless at his request His Royal Highness dissolves the Legislative Assembly, he shall tender the resignation of the Executive Council.
Remark by Sakmongkol:
Reading these two clauses, we would come to the assertions like Tengku Razaleigh did. That this whole business of political coup d’état is inherently wrong. I shall be writing on this at another time. Reading the Perak state constitution, being an ex ADUN myself, I would have thought the term Legislative Assembly would mean, the Dewan must called to order and then decide the MB’s fate.
Hence like Tengku Razaleigh said, "Defections are not the basis for the formation of a government. Elections are." And further in his article:
Similarly, the Constitution provides for a definitive way to test if the Chief Minister or the Prime Minister commands a majority in the dewan or in Parliament, as the case may be. We put the question to a vote of confidence on the floor of the Dewan. Only the answer of the assembly counts. It doesn’t matter how many sworn statements, defections, press conferences, and declarations you have, nor what forms of advertisement, display, inducement or force you bring to bear on the question.
Is it possible that a slight difference in wordings between the state constitution of Perak and the federal constitution pertaining to the loss of confidence of Mentri Besar/prime minister has misled the Sultan of Perak into thinking that the constitutional requirement necessitating the Mentri Besar to resign has been fulfilled?
Judging from the Sultan’s statement explaining his decision to appoint a new mentri besar that seems to be the case. Let me quote the relevant paragraph of the Sultan’s statement explaining why Mentri Besar Nizar Jamaluddin must step down:
After meeting all the 31 assemblymen, DYMM Paduka Seri Sultan of Perak was convinced that YAB Datuk Seri Mohammad Nizar Jamaluddin had ceased to command the confidence of the majority of the State Assembly members.
This statement would have been a correct interpretation of the constitution if applied to the Prime Minister, but an incorrect interpretation, if applied to the Mentri Besar. This is because the loss of confidence of the majority is prescribed differently in the two constitutions (relevant parts of the constitutions are shown at the end of this article).
Under the federal constitution, the loss of confidence refers to members of the House of Representatives whereas under the state constitution, it refers to the Legislative Assembly. This means that while the ascertainment of loss confidence can conducted outside Parliament (such as collective appearance before the Agung) in the federal case, it cannot be repeated in state case.
In the Perak state constitution, the loss of confidence must be ascertained within the state assembly, meaning through a vote of no confidence in the state assembly.
The reason why I said the Sultan could have been misled is that in his official statement, he mentioned the confidence of the majority of the State Assembly members. Notice the statement refers to State Assembly members, and not to State Assembly.
Under the circumstances, the Mentri Besar was right when he said that he was legally obliged to step down only when a motion of no confidence on him has been passed in the state assembly, but not otherwise.
And since the Mentri Besar has not resigned, any appointment of another Mentri Besar will be ultra vires the state constitution.
Perhaps His Royal Highness should have spared more than a few minutes to take another look at the two constitutions, so as to avert a major constitutional crisis?
The relevant extracts from the two constitutions are as follows:
Federal constitution: Article 43 (4): If the Prime Minister ceases to command the confidence of the majority of the members of the House of Representatives, then, unless at his request the Yang di-Pertuan Agong dissolves Parliament, the Prime Minister shall tender the resignation of the Cabinet.
Perak state constitution: Artikel XVI(6): If the Mentri Besar ceases to command the confidence of the majority of the Legislative Assembly, then unless at his request His Royal Highness dissolves the Legislative Assembly, he shall tender the resignation of the Executive Council.
Remark by Sakmongkol:
Reading these two clauses, we would come to the assertions like Tengku Razaleigh did. That this whole business of political coup d’état is inherently wrong. I shall be writing on this at another time. Reading the Perak state constitution, being an ex ADUN myself, I would have thought the term Legislative Assembly would mean, the Dewan must called to order and then decide the MB’s fate.
Hence like Tengku Razaleigh said, "Defections are not the basis for the formation of a government. Elections are." And further in his article:
Similarly, the Constitution provides for a definitive way to test if the Chief Minister or the Prime Minister commands a majority in the dewan or in Parliament, as the case may be. We put the question to a vote of confidence on the floor of the Dewan. Only the answer of the assembly counts. It doesn’t matter how many sworn statements, defections, press conferences, and declarations you have, nor what forms of advertisement, display, inducement or force you bring to bear on the question.
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