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.
Sunday, February 8, 2009
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.
Tuesday, December 30, 2008
Great Depression 2009 - Similarities to 1930's
by Martin Weiss
Q: I see disturbing similarities between this crisis and The Great Depression. Both were triggered by the bursting of massive debt bubbles, for instance. But this time, the government is doing so much more to pump up the economy. So is it safe to assume that this crisis will be a lot less severe than the 1930s?
A: No, it's not safe to make that assumption. True, the government's massive intervention is a major factor. But there are also powerful factors that can offset or even overwhelm the government's impact:
* Broader speculative bubbles. In the years prior to the Crash of 1929, the bubbles were limited primarily to stock speculation and restricted to a minority of the population. This time, the speculation has engulfed not only stocks but also millions of homes, commercial properties, local governments, corporations, and entire nations.
* More household debt. U.S. households are in far greater debt today with much less savings. In the 1930s, mortgages were rarer and less onerous. For all practical purposes, second mortgages, home equity loans, creative financing, and credit cards didn't even exist. Today, they are everywhere in our society.
* U.S. is now a debtor nation. In the 1930s, the U.S. had large surpluses of foreign reserves and was a creditor to the rest of the world. Now, it has minimal reserves and huge foreign debts. As a result, there's ultimately a limit to how much Washington can throw good money after bad to save the U.S. economy before foreign investors rebel, refusing to continue providing abundant credit.
* Derivatives. In the early 1930s, derivatives were virtually unknown — a tiny niche of little consequence. Today there are nearly $600 trillion in notional value derivatives globally, according to the Bank of International Settlements. The forced liquidation of many of these derivatives could frustrate government efforts to revive credit markets, driving the global economy into a deeper decline than would normally be expected.
Q. A major factor that deepened the Great Depression was the Smoot-Hawley Act, which helped set off a global trade war as each nation rushed to protect its own domestic market. But today, it's unlikely we will repeat that mistake. So doesn't that imply a less severe decline?
A: Yes, it does. However, today there's another kind of economic war brewing: The U.S. and much of the world depend much more heavily on international capital than they did in the 1930s. This reliance on foreign capital has not been a major issue as long as we had continuing growth. But in a global economic decline, there's a real danger that each nation will scramble to grab back as much of its capital as possible to help rescue its own sinking economy. If so, we would see an international bidding war for capital, driving real interest rates sharply higher and sending the global economy into a deeper decline.
Bottom line: It's too soon to say if this crisis will be less severe, equally severe, or more severe than the 1930s.
Q. The Fed is now printing money like it was going out of style. Overall, the U.S. Government has now committed $8.5 trillion in bailouts, handouts, and guarantees to stop the crisis. Won't that lead to hyperinflation and the destruction of the U.S. dollar?
A: Only if governments succeed in overcoming the deflationary forces that have gripped the world. However, in our recent Deflation Survival Briefing, we demonstrated that the deflationary forces are now hundreds of times more powerful than the government's attempts to reflate. (Click here for the transcript)
Q. Why are you so pessimistic? Isn't there a silver lining in this crisis?
A: It's those who believe in the destruction of the dollar that are the true pessimists. In contrast, I am very optimistic that Washington will not only fail to overcome the deflation, but it will also …
Fail to reverse the long-overdue liquidation of excess debts,
Fail to stop a much-needed reduction in the cost of living,
Fail to kill the incentive for Americans to work hard and make needed sacrifices,
Fail to stop America from restoring its ability to compete globally,
Fail to sabotage our capitalist free market system,
Fail to trash the dollar or create hyperinflation, and
Fail to ruin our chances for a prosperous post-Depression era.
Q. Investors can't help but notice that Washington views certain companies as “too big to fail.”; Doesn't that create a de-facto government guarantee for their stocks and bonds, making them almost as good as Treasuries?
A: No. Regardless of any government guarantees, most investors recognize they're not nearly as good as Treasuries. They see that bailouts are hotly disputed in Congress, subject to severe conditions, and far from open-ended. They see growing signs of bailout fatigue in Congress and wonder whether or not Washington will be able to fulfill all its bailout promises. That's why investors routinely accept lower yields on Treasuries, while demanding much higher yields on equivalent bank CDs or corporate bonds in bailed out institutions.
Q. This is not a question, just a point of anger. CEOs of failing companies are getting their year-end bonuses, sometimes running into the tens of millions of dollars. And at companies that have benefitted from government bailouts, those bonuses are being paid with MY MONEY!
A: I am equally angered. But this trend will end and do so very abruptly. Even if companies are not trying to qualify for government money, you will soon see their executives either accepting drastic cuts in their compensation or getting canned.
Q: I have an employment question: Which industries are likely to produce the greatest lay-offs? Which kinds of jobs are likely to continue to be reliable for myself and my kids?
A: Lay-offs will be across the board — financial, manufacturing, services, even states and municipalities. Virtually no private-sector or local-government job will be secure. For now, you can rely more on jobs with the federal Government and with companies that provide debt recovery and bankruptcy services. Ultimately, however, the most reliable source of revenues may come from self-employment or extra income you can generate from the kinds of insights you can get here in our publications or from other sources with a track record of anticipating this crisis.
Q. You've written that this depression will be short and severe and that the recovery will come quickly. Elsewhere, you've compared it to the Japanese malaise that has lasted for nearly two decades. Which is it? The answer is crucial to me because it will determine how much extra money I'll need to continue paying the bills and to keep my family secure until this crisis ends.
A: What I've written is that we hope and pray we can get it over with quickly and move on to better times. Unfortunately, the reality is that, to the degree that the government continues to intervene, it can only prolong the agony.
The main reason: Nothing the government can do changes the fact that there are tens of trillions of bad debts that must be liquidated before a sustainable recovery can begin. That debt liquidation can occur either (a) quickly in a severe decline or (b) slowly in a far longer decline. Since it's too soon to say which it will be, I suggest you plan for a minimum of three years and a maximum of ten years.
Q. With unemployment nearly doubling and consumer spending cratering, you'd think we'd be seeing headlines about record numbers of corporate and personal bankruptcies. Why haven't we?
A. It looks like you missed them, and so did a lot of other people. Perhaps it's because the headlines about GM, Chrysler, Citigroup and other disasters were so shocking, they drowned out the news. But in mid-December, the Administrative Office of the U.S. Courts reported that personal bankruptcies in the U.S. surged 30%, while business bankruptcies jumped 49% compared to 2007. Overall, bankruptcies rose 34%. Three other troubling facts:
The trend is accelerating: In the third quarter, bankruptcies were up 60% from the year before.
That was before the devastating plunge in GDP that has taken place just now in the fourth quarter, estimated at an annual rate of minus 8% or worse.
The level of bankruptcies has not yet hit new records. But that's because most bankruptcies take place toward the end of a recession; and most economists now agree that this decline could continue at least until the end of 2009.
Q. Now I understand why you were pressing me to pay off my debts for all these years! But if I follow your advice now, I won't have any cash reserves left to see my family through. And if I don't pay them off, they will cost me more and more as my dollars become scarcer and more valuable. I'm between a rock and a hard place. What do I do?
A: First, take advantage of this temporary government-inspired decline in fixed 30-year mortgage rates to refinance immediately. Grab this opportunity while you can because it will not last for long. Second, pay off all of your high-interest credit cards. Third, sock away every extra penny you save in interest to build a cash nest-egg in short-term Treasuries or a Treasury-only money market fund.
Q. Everybody agrees that this crisis will eventually end. We'll reach rock-bottom, money will begin moving again, and the recovery will commence. When that happens, what impact will the trillions of dollars Washington has injected into the economy have? Will this great deflation be followed by an even greater wave of inflation? Is there something to do now to prepare for that?
A. It's too soon to prepare for what happens AFTER this crisis. First, let's cope with the deflation. Later, if that changes, you'll have plenty of time to adjust, and we'll be there to warn you with as much advance notice as we can.
Q. A year ago, my retirement nest-egg was in great shape — plenty of money to see me through my golden years. Now, it's a smoking gun and I'm staring down the barrel at — who knows? — years, possibly a decade or more, in which stocks are likely to continue to languish or even plunge. I may never be able to retire. My best friend had already retired; now, he's looking for a job just to survive — so far, no luck. Is there hope for us?
A. Yes! When you or your financial planner estimated how much you'd need for retirement, you assumed a continuation of the highest cost of living in U.S. history, or worse. Now, the cost of many essentials is plunging, and it's very possible that the cost of living will be far lower. Therefore, if you can just preserve what you have left in your nest-egg, you'll probably be much better off than you think. Plus, if you can use some (not all) of that money to generate extra revenues with unique investment strategies that are divorced from the ups and downs of the economy, that could also make a big difference for you.
Q: I see disturbing similarities between this crisis and The Great Depression. Both were triggered by the bursting of massive debt bubbles, for instance. But this time, the government is doing so much more to pump up the economy. So is it safe to assume that this crisis will be a lot less severe than the 1930s?
A: No, it's not safe to make that assumption. True, the government's massive intervention is a major factor. But there are also powerful factors that can offset or even overwhelm the government's impact:
* Broader speculative bubbles. In the years prior to the Crash of 1929, the bubbles were limited primarily to stock speculation and restricted to a minority of the population. This time, the speculation has engulfed not only stocks but also millions of homes, commercial properties, local governments, corporations, and entire nations.
* More household debt. U.S. households are in far greater debt today with much less savings. In the 1930s, mortgages were rarer and less onerous. For all practical purposes, second mortgages, home equity loans, creative financing, and credit cards didn't even exist. Today, they are everywhere in our society.
* U.S. is now a debtor nation. In the 1930s, the U.S. had large surpluses of foreign reserves and was a creditor to the rest of the world. Now, it has minimal reserves and huge foreign debts. As a result, there's ultimately a limit to how much Washington can throw good money after bad to save the U.S. economy before foreign investors rebel, refusing to continue providing abundant credit.
* Derivatives. In the early 1930s, derivatives were virtually unknown — a tiny niche of little consequence. Today there are nearly $600 trillion in notional value derivatives globally, according to the Bank of International Settlements. The forced liquidation of many of these derivatives could frustrate government efforts to revive credit markets, driving the global economy into a deeper decline than would normally be expected.
Q. A major factor that deepened the Great Depression was the Smoot-Hawley Act, which helped set off a global trade war as each nation rushed to protect its own domestic market. But today, it's unlikely we will repeat that mistake. So doesn't that imply a less severe decline?
A: Yes, it does. However, today there's another kind of economic war brewing: The U.S. and much of the world depend much more heavily on international capital than they did in the 1930s. This reliance on foreign capital has not been a major issue as long as we had continuing growth. But in a global economic decline, there's a real danger that each nation will scramble to grab back as much of its capital as possible to help rescue its own sinking economy. If so, we would see an international bidding war for capital, driving real interest rates sharply higher and sending the global economy into a deeper decline.
Bottom line: It's too soon to say if this crisis will be less severe, equally severe, or more severe than the 1930s.
Q. The Fed is now printing money like it was going out of style. Overall, the U.S. Government has now committed $8.5 trillion in bailouts, handouts, and guarantees to stop the crisis. Won't that lead to hyperinflation and the destruction of the U.S. dollar?
A: Only if governments succeed in overcoming the deflationary forces that have gripped the world. However, in our recent Deflation Survival Briefing, we demonstrated that the deflationary forces are now hundreds of times more powerful than the government's attempts to reflate. (Click here for the transcript)
Q. Why are you so pessimistic? Isn't there a silver lining in this crisis?
A: It's those who believe in the destruction of the dollar that are the true pessimists. In contrast, I am very optimistic that Washington will not only fail to overcome the deflation, but it will also …
Fail to reverse the long-overdue liquidation of excess debts,
Fail to stop a much-needed reduction in the cost of living,
Fail to kill the incentive for Americans to work hard and make needed sacrifices,
Fail to stop America from restoring its ability to compete globally,
Fail to sabotage our capitalist free market system,
Fail to trash the dollar or create hyperinflation, and
Fail to ruin our chances for a prosperous post-Depression era.
Q. Investors can't help but notice that Washington views certain companies as “too big to fail.”; Doesn't that create a de-facto government guarantee for their stocks and bonds, making them almost as good as Treasuries?
A: No. Regardless of any government guarantees, most investors recognize they're not nearly as good as Treasuries. They see that bailouts are hotly disputed in Congress, subject to severe conditions, and far from open-ended. They see growing signs of bailout fatigue in Congress and wonder whether or not Washington will be able to fulfill all its bailout promises. That's why investors routinely accept lower yields on Treasuries, while demanding much higher yields on equivalent bank CDs or corporate bonds in bailed out institutions.
Q. This is not a question, just a point of anger. CEOs of failing companies are getting their year-end bonuses, sometimes running into the tens of millions of dollars. And at companies that have benefitted from government bailouts, those bonuses are being paid with MY MONEY!
A: I am equally angered. But this trend will end and do so very abruptly. Even if companies are not trying to qualify for government money, you will soon see their executives either accepting drastic cuts in their compensation or getting canned.
Q: I have an employment question: Which industries are likely to produce the greatest lay-offs? Which kinds of jobs are likely to continue to be reliable for myself and my kids?
A: Lay-offs will be across the board — financial, manufacturing, services, even states and municipalities. Virtually no private-sector or local-government job will be secure. For now, you can rely more on jobs with the federal Government and with companies that provide debt recovery and bankruptcy services. Ultimately, however, the most reliable source of revenues may come from self-employment or extra income you can generate from the kinds of insights you can get here in our publications or from other sources with a track record of anticipating this crisis.
Q. You've written that this depression will be short and severe and that the recovery will come quickly. Elsewhere, you've compared it to the Japanese malaise that has lasted for nearly two decades. Which is it? The answer is crucial to me because it will determine how much extra money I'll need to continue paying the bills and to keep my family secure until this crisis ends.
A: What I've written is that we hope and pray we can get it over with quickly and move on to better times. Unfortunately, the reality is that, to the degree that the government continues to intervene, it can only prolong the agony.
The main reason: Nothing the government can do changes the fact that there are tens of trillions of bad debts that must be liquidated before a sustainable recovery can begin. That debt liquidation can occur either (a) quickly in a severe decline or (b) slowly in a far longer decline. Since it's too soon to say which it will be, I suggest you plan for a minimum of three years and a maximum of ten years.
Q. With unemployment nearly doubling and consumer spending cratering, you'd think we'd be seeing headlines about record numbers of corporate and personal bankruptcies. Why haven't we?
A. It looks like you missed them, and so did a lot of other people. Perhaps it's because the headlines about GM, Chrysler, Citigroup and other disasters were so shocking, they drowned out the news. But in mid-December, the Administrative Office of the U.S. Courts reported that personal bankruptcies in the U.S. surged 30%, while business bankruptcies jumped 49% compared to 2007. Overall, bankruptcies rose 34%. Three other troubling facts:
The trend is accelerating: In the third quarter, bankruptcies were up 60% from the year before.
That was before the devastating plunge in GDP that has taken place just now in the fourth quarter, estimated at an annual rate of minus 8% or worse.
The level of bankruptcies has not yet hit new records. But that's because most bankruptcies take place toward the end of a recession; and most economists now agree that this decline could continue at least until the end of 2009.
Q. Now I understand why you were pressing me to pay off my debts for all these years! But if I follow your advice now, I won't have any cash reserves left to see my family through. And if I don't pay them off, they will cost me more and more as my dollars become scarcer and more valuable. I'm between a rock and a hard place. What do I do?
A: First, take advantage of this temporary government-inspired decline in fixed 30-year mortgage rates to refinance immediately. Grab this opportunity while you can because it will not last for long. Second, pay off all of your high-interest credit cards. Third, sock away every extra penny you save in interest to build a cash nest-egg in short-term Treasuries or a Treasury-only money market fund.
Q. Everybody agrees that this crisis will eventually end. We'll reach rock-bottom, money will begin moving again, and the recovery will commence. When that happens, what impact will the trillions of dollars Washington has injected into the economy have? Will this great deflation be followed by an even greater wave of inflation? Is there something to do now to prepare for that?
A. It's too soon to prepare for what happens AFTER this crisis. First, let's cope with the deflation. Later, if that changes, you'll have plenty of time to adjust, and we'll be there to warn you with as much advance notice as we can.
Q. A year ago, my retirement nest-egg was in great shape — plenty of money to see me through my golden years. Now, it's a smoking gun and I'm staring down the barrel at — who knows? — years, possibly a decade or more, in which stocks are likely to continue to languish or even plunge. I may never be able to retire. My best friend had already retired; now, he's looking for a job just to survive — so far, no luck. Is there hope for us?
A. Yes! When you or your financial planner estimated how much you'd need for retirement, you assumed a continuation of the highest cost of living in U.S. history, or worse. Now, the cost of many essentials is plunging, and it's very possible that the cost of living will be far lower. Therefore, if you can just preserve what you have left in your nest-egg, you'll probably be much better off than you think. Plus, if you can use some (not all) of that money to generate extra revenues with unique investment strategies that are divorced from the ups and downs of the economy, that could also make a big difference for you.
Wednesday, December 24, 2008
The Rise of US Dollar in Deflation Era
by Martin Weiss (edited by Alex Wong)
Many people believe the 1930s Depression was caused by the failure of the federal government to fight the decline. This time, they say, the government is doing precisely the opposite.
In reality, America's First Great Depression wasn't caused by what the government failed to do to stop it. Rather, it was largely caused by all the wild things the government did do to create the superboom in the Roaring '20s that preceded it. They dished out money to banks like candy. They let banks loan money to brokers without restraint. And they encouraged brokers to hand it off to stock market speculators with 10% margin.
But if you want to see what happens when a government intervenes aggressively after a bust, just look at Japan since 1990. Japan lowered interest rates to zero, just like the Fed is doing today. Japan bailed out banks, brokerage firms and insurance companies, much like the Fed is doing here. Japan embarked on massive public works projects, much like President-elect Obama is proposing now. But it did not end the deflation.
So what's a person to do?
If you don't need something, seriously consider selling it. Real estate. Stocks. Corporate bonds. Even collectibles if you consider them an investment. You don't have to sell everything all at once at any price. Every time the government inspires a rally in the stock market, use that as a selling opportunity. Every time the government stimulates some activity in real estate or in the economy, grab that chance as well. You can afford to wait for a temporary stabilization or recovery. Markets never go straight down. And even in some of the worst markets, there are ways to sell most assets.
As long as your cash is in a safe place, the deeper the deflation, the more your money is worth. My last word: Just make sure you keep it safe!
There is just one thing that always goes up with deflation: The U.S. dollar! By DEFINITION, when the price of investments or goods and services goes down , the value of each dollar goes UP . That's the essence of deflation. And here's the key: When the value of the dollar goes up in the United States, it inevitably goes up abroad as well.
Virtually everything that matters in the global economy — trade, commodities, GDP, debts — is measured in U.S. dollars. The dollar is the world's reserve currency. So just as we see domestically, when your dollar buys more, its value also rises internationally.
A country's currency is never valued based on how well or how poorly that particular economy is doing in isolation. It's always measured against another country's currency. So it is always valued based on how a particular economy is doing relative to another economy.
The question is, “How is the U.S. economy doing compared to the European economy, the U.K. or Australia?” In this environment, it's not a beauty contest. It's a contest of which economy is the least ugly … which leads me to the second reason the dollar is rising: The U.S. is winning the least ugly contest hands down.
The U.S. economy, despite all its troubles, is still the dominant world economy. Militarily, it's the only remaining superpower. Financially, it's still the world's capital. So it's natural that when investors are running from risk, they rush back to the dollar, bidding up its value.
There's one notable exception: The Japanese yen. Japan is the world's second largest economy and also one of the world's largest sources of capital. So when the other currencies go down, a lot of that money goes back to Japan, boosting the yen.
So in the midst of all these bear markets, if you're looking for a big bull market …
You've found it! It's the U.S. dollar. I think the U.S. dollar is in the early stages of a powerful bull market that could last for years. It's the single cleanest way to make windfall profits from the deflation.
The advantage of the currency market is that it's divorced from the stock market. The stock market could be crashing, and it would not interfere with your ability to make large steady profits in the currency market. The U.S. economy could be sinking into a depression, and it would still not interfere with your ability to make nice large steady profits in the currency market. No matter what happens in the global economy or the world's financial markets, there is always at least some major currency that's going up in value.
Currencies are measured against each other. When one is going up, the other is going down, like a seesaw. Therefore, there's always at least one currency going up. There's always a bull market in currencies. I don't recommend them for all of your money. But at a time when nearly all other investments are going down, it's a great place to get away from the disasters and find a whole separate world of investment opportunity.
I also think that it's THE ideal vehicle for average investors to profit from deflation and a rising dollar.
Many people believe the 1930s Depression was caused by the failure of the federal government to fight the decline. This time, they say, the government is doing precisely the opposite.
In reality, America's First Great Depression wasn't caused by what the government failed to do to stop it. Rather, it was largely caused by all the wild things the government did do to create the superboom in the Roaring '20s that preceded it. They dished out money to banks like candy. They let banks loan money to brokers without restraint. And they encouraged brokers to hand it off to stock market speculators with 10% margin.
But if you want to see what happens when a government intervenes aggressively after a bust, just look at Japan since 1990. Japan lowered interest rates to zero, just like the Fed is doing today. Japan bailed out banks, brokerage firms and insurance companies, much like the Fed is doing here. Japan embarked on massive public works projects, much like President-elect Obama is proposing now. But it did not end the deflation.
So what's a person to do?
If you don't need something, seriously consider selling it. Real estate. Stocks. Corporate bonds. Even collectibles if you consider them an investment. You don't have to sell everything all at once at any price. Every time the government inspires a rally in the stock market, use that as a selling opportunity. Every time the government stimulates some activity in real estate or in the economy, grab that chance as well. You can afford to wait for a temporary stabilization or recovery. Markets never go straight down. And even in some of the worst markets, there are ways to sell most assets.
As long as your cash is in a safe place, the deeper the deflation, the more your money is worth. My last word: Just make sure you keep it safe!
There is just one thing that always goes up with deflation: The U.S. dollar! By DEFINITION, when the price of investments or goods and services goes down , the value of each dollar goes UP . That's the essence of deflation. And here's the key: When the value of the dollar goes up in the United States, it inevitably goes up abroad as well.
Virtually everything that matters in the global economy — trade, commodities, GDP, debts — is measured in U.S. dollars. The dollar is the world's reserve currency. So just as we see domestically, when your dollar buys more, its value also rises internationally.
A country's currency is never valued based on how well or how poorly that particular economy is doing in isolation. It's always measured against another country's currency. So it is always valued based on how a particular economy is doing relative to another economy.
The question is, “How is the U.S. economy doing compared to the European economy, the U.K. or Australia?” In this environment, it's not a beauty contest. It's a contest of which economy is the least ugly … which leads me to the second reason the dollar is rising: The U.S. is winning the least ugly contest hands down.
The U.S. economy, despite all its troubles, is still the dominant world economy. Militarily, it's the only remaining superpower. Financially, it's still the world's capital. So it's natural that when investors are running from risk, they rush back to the dollar, bidding up its value.
There's one notable exception: The Japanese yen. Japan is the world's second largest economy and also one of the world's largest sources of capital. So when the other currencies go down, a lot of that money goes back to Japan, boosting the yen.
So in the midst of all these bear markets, if you're looking for a big bull market …
You've found it! It's the U.S. dollar. I think the U.S. dollar is in the early stages of a powerful bull market that could last for years. It's the single cleanest way to make windfall profits from the deflation.
The advantage of the currency market is that it's divorced from the stock market. The stock market could be crashing, and it would not interfere with your ability to make large steady profits in the currency market. The U.S. economy could be sinking into a depression, and it would still not interfere with your ability to make nice large steady profits in the currency market. No matter what happens in the global economy or the world's financial markets, there is always at least some major currency that's going up in value.
Currencies are measured against each other. When one is going up, the other is going down, like a seesaw. Therefore, there's always at least one currency going up. There's always a bull market in currencies. I don't recommend them for all of your money. But at a time when nearly all other investments are going down, it's a great place to get away from the disasters and find a whole separate world of investment opportunity.
I also think that it's THE ideal vehicle for average investors to profit from deflation and a rising dollar.
Thursday, December 18, 2008
Young Graduates of Malaysia
by Salvatore Dali
In highlighting the shortcomings of today's young graduates, the below article is generalized, but I am sure that's pretty much the same conclusion throughout the country in all industries.
1) Rich parents - Parents who are rich, please note. Generally your children will be assholes if you do nothing right when they were young. That's because the over mollycoddling, pandering to their whims and fancies, have shaped their character - which is pathetic.
I have a few rich kids who have OK degrees, but decided to quit their jobs for a couple of months because they wanted to do "something else".
2) Character - Linking onto the above, the same spoilt brats generally have poor character. When I say character, I meant ability to assume responsibility, respect for corporate culture, ability to apply themselves well, work at something, ability to learn and willingness to learn, and general people skills.
3) English - Now we go to quality of graduates. Most, whether they are local or foreign graduates, cannot speak coherent English. I am appalled that the Chinese schools are now clamouring for Science and Maths to be taught in Chinese for the first 6 years of schooling. English is not a glorification of western culture, it is an essential tool for business and global communications. I am not dissing Chinese, Malay or Tamil language, but if you think you can compete in an increasingly globalised world with just your mother tongue, that it is misplaced arrogance of culture. Study English together with whatever other languages you want, not at the expense of English.
4) Communication skills - Oratory skills are mightily lacking in young graduates. The art of persuasion, the ability to project professionalism, and eventually the ability to lead. Just imagine Obama without his oratory skills. I always exhort my friends with kids to forget about the ballet classes, the extra tuition classes... make sure you enroll them in the drama and speech making skills classes, there are a few around.
5) Intellectually not strong - When I come across even those who scored fantastic results or graduated from top foreign universities, I find some of them unable to hold an intellectual argument. If presented with a common question such as why are we now in this global economic crisis. Most won't be able to answer effectively, providing one to two general answers.
A decent answer would have to include examining the crux factors and ascribing proper blame proportionately. You need to examine a complex issue from a few angles. Our education system is such that there is only one answer per question in the exam papers. Hence after giving one answer, they think they have answered the whole question.
Allow your kids to join the Scouts, Drama Clubs, Leos or Interact clubs. To me, these are breeding grounds for future corporate achievers. The interaction, social politics, club politics, camaraderie, application to one's objectives are all critical to encourage one to develop and establish his own identity and personality, and in many ways help them make sense of how the world operates. Most of the street smarts I know who now do well in corporate world, also did remarkably well in those movements and clubs when they were younger.
Parents nowadays have fewer children, so they can spend more resources on them. Don't molly-coddle. Some over protective parents do not allow their kids to join any societies or clubs. They get ferried to and from school and then to and from tuition. When home, they do some homework and play computer games or do internet chats. Time to rethink our influence in our young.
In highlighting the shortcomings of today's young graduates, the below article is generalized, but I am sure that's pretty much the same conclusion throughout the country in all industries.
1) Rich parents - Parents who are rich, please note. Generally your children will be assholes if you do nothing right when they were young. That's because the over mollycoddling, pandering to their whims and fancies, have shaped their character - which is pathetic.
I have a few rich kids who have OK degrees, but decided to quit their jobs for a couple of months because they wanted to do "something else".
2) Character - Linking onto the above, the same spoilt brats generally have poor character. When I say character, I meant ability to assume responsibility, respect for corporate culture, ability to apply themselves well, work at something, ability to learn and willingness to learn, and general people skills.
3) English - Now we go to quality of graduates. Most, whether they are local or foreign graduates, cannot speak coherent English. I am appalled that the Chinese schools are now clamouring for Science and Maths to be taught in Chinese for the first 6 years of schooling. English is not a glorification of western culture, it is an essential tool for business and global communications. I am not dissing Chinese, Malay or Tamil language, but if you think you can compete in an increasingly globalised world with just your mother tongue, that it is misplaced arrogance of culture. Study English together with whatever other languages you want, not at the expense of English.
4) Communication skills - Oratory skills are mightily lacking in young graduates. The art of persuasion, the ability to project professionalism, and eventually the ability to lead. Just imagine Obama without his oratory skills. I always exhort my friends with kids to forget about the ballet classes, the extra tuition classes... make sure you enroll them in the drama and speech making skills classes, there are a few around.
5) Intellectually not strong - When I come across even those who scored fantastic results or graduated from top foreign universities, I find some of them unable to hold an intellectual argument. If presented with a common question such as why are we now in this global economic crisis. Most won't be able to answer effectively, providing one to two general answers.
A decent answer would have to include examining the crux factors and ascribing proper blame proportionately. You need to examine a complex issue from a few angles. Our education system is such that there is only one answer per question in the exam papers. Hence after giving one answer, they think they have answered the whole question.
Allow your kids to join the Scouts, Drama Clubs, Leos or Interact clubs. To me, these are breeding grounds for future corporate achievers. The interaction, social politics, club politics, camaraderie, application to one's objectives are all critical to encourage one to develop and establish his own identity and personality, and in many ways help them make sense of how the world operates. Most of the street smarts I know who now do well in corporate world, also did remarkably well in those movements and clubs when they were younger.
Parents nowadays have fewer children, so they can spend more resources on them. Don't molly-coddle. Some over protective parents do not allow their kids to join any societies or clubs. They get ferried to and from school and then to and from tuition. When home, they do some homework and play computer games or do internet chats. Time to rethink our influence in our young.
Sunday, December 14, 2008
Inflation or Deflation: A Pro-Deflationist's View
by Mike Shedlock
A Practical Look At "Flation"
It depends on your definition of inflation; if it's a growth in money supply, then, yes, this is already extremely inflationary. But so far, this hasn't translated into higher price levels or even higher long-term inflation expectations as measured by the spread of 10 year TIPS versus 10 year Treasury bonds; TIPS are inflation protected Treasuries that provide compensation for increases in the consumer price index (CPI); it is this spread that the Fed is most concerned about when gauging the market's inflation expectations.
Why has it not (yet) been inflationary? Well, the Fed can provide all the money it wants, but it cannot force institutions to lend. Below is a chart of the "excess reserves" in the banking system; these are the reserves banks hold in excess of what they are required to maintain.
Until September, excess reserved hovered at or below about US $2 billion, but have ballooned to over $600 billion as of November 19, 2008. Read in conjunction with our discussion above on the Fed "printing money", the Fed has thrown money at the banking system, but the banks are hoarding the cash, they do not lend. For banks to lend money, two basic conditions must be bet: they must feel strong enough to provide credit; and they must feel their customers - be they consumers or businesses - are creditworthy enough.
That for me is the key issue. And the reason why it has not affected the prices of goods, services, asset prices, or even inflation expectations as measured by TIPs is that banks are not extending credit.
Here is a table of conditions and whether or not one would expect to see those conditions in inflation, deflation, stagflation, hyperinflation, and disinflation. Some expectations are debatable so I left those bank.
*** Current Conditions
** Base Money Supply spiked during Great Depression as one of the previous charts shows
* The Purchasing power of gold is in relation to other commodities
Those using practical definitions have an easy time explaining things. Those lost souls screaming hyperinflation missed the boat completely. Hyperinflationists have had trouble for years explaining falling home prices, and falling treasury yields.
Those screaming stagflation no longer have a case with falling commodity prices, a rising dollar, and falling treasury yields.
Disinflation makes no sense with stock prices down 40% and corporate bond yields soaring. Stocks do best in disinflation. Corporate bond yields drop in disinflation. This is not disinflation by any stretch of the imagination.
Routine inflation makes no sense in light of corporate bond yields priced for bankruptcy, collapsing stocks, plunging commodity prices and a negative CPI.
Those who think inflation is about prices alone were busy shorting treasuries, and looking the wrong direction for over a year. Only after the stock market fell 50% and gasoline prices crashed did the media start picking up on "deflation". Only those who knew what a destruction in credit would do to jobs, to lending, to retail sales, to the stock market, to corporate bond yields and to treasury yields got it right.
What It's Not
It's Not Disinflation
It's Not Stagflation
It's Not Inflation
It's Not Hyperinflation
What's left looks like a duck, walks like a duck, flies like a duck, and squawks like a duck. And that duck is deflation no matter what others suggest.
Those who stick to a monetary definition of inflation pointing at base money supply are selecting a definition that makes absolutely no practical sense. Worse yet they do it screaming about bond-bubbles at yields of 5% or higher, all because they refuse to see or admit the destruction of credit is happening far faster than the Fed is printing.
And it is that destruction of credit, coupled with the fact that what the Fed is printing is not even being lent that matters, not some Humpty-Dumptyish academic definition that has no real world practical application!
Phooey. I prefer a practical definition of deflation that matches and even predicts what the credit markets and stock markets are going to do, not some definition that is useless for anything but academic debate.
The trick now is to figure out how long deflation will last, not whether we are in it.
A Practical Look At "Flation"
It depends on your definition of inflation; if it's a growth in money supply, then, yes, this is already extremely inflationary. But so far, this hasn't translated into higher price levels or even higher long-term inflation expectations as measured by the spread of 10 year TIPS versus 10 year Treasury bonds; TIPS are inflation protected Treasuries that provide compensation for increases in the consumer price index (CPI); it is this spread that the Fed is most concerned about when gauging the market's inflation expectations.
Why has it not (yet) been inflationary? Well, the Fed can provide all the money it wants, but it cannot force institutions to lend. Below is a chart of the "excess reserves" in the banking system; these are the reserves banks hold in excess of what they are required to maintain.
Until September, excess reserved hovered at or below about US $2 billion, but have ballooned to over $600 billion as of November 19, 2008. Read in conjunction with our discussion above on the Fed "printing money", the Fed has thrown money at the banking system, but the banks are hoarding the cash, they do not lend. For banks to lend money, two basic conditions must be bet: they must feel strong enough to provide credit; and they must feel their customers - be they consumers or businesses - are creditworthy enough.
That for me is the key issue. And the reason why it has not affected the prices of goods, services, asset prices, or even inflation expectations as measured by TIPs is that banks are not extending credit.
Here is a table of conditions and whether or not one would expect to see those conditions in inflation, deflation, stagflation, hyperinflation, and disinflation. Some expectations are debatable so I left those bank.
*** Current Conditions
** Base Money Supply spiked during Great Depression as one of the previous charts shows
* The Purchasing power of gold is in relation to other commodities
Those using practical definitions have an easy time explaining things. Those lost souls screaming hyperinflation missed the boat completely. Hyperinflationists have had trouble for years explaining falling home prices, and falling treasury yields.
Those screaming stagflation no longer have a case with falling commodity prices, a rising dollar, and falling treasury yields.
Disinflation makes no sense with stock prices down 40% and corporate bond yields soaring. Stocks do best in disinflation. Corporate bond yields drop in disinflation. This is not disinflation by any stretch of the imagination.
Routine inflation makes no sense in light of corporate bond yields priced for bankruptcy, collapsing stocks, plunging commodity prices and a negative CPI.
Those who think inflation is about prices alone were busy shorting treasuries, and looking the wrong direction for over a year. Only after the stock market fell 50% and gasoline prices crashed did the media start picking up on "deflation". Only those who knew what a destruction in credit would do to jobs, to lending, to retail sales, to the stock market, to corporate bond yields and to treasury yields got it right.
What It's Not
It's Not Disinflation
It's Not Stagflation
It's Not Inflation
It's Not Hyperinflation
What's left looks like a duck, walks like a duck, flies like a duck, and squawks like a duck. And that duck is deflation no matter what others suggest.
Those who stick to a monetary definition of inflation pointing at base money supply are selecting a definition that makes absolutely no practical sense. Worse yet they do it screaming about bond-bubbles at yields of 5% or higher, all because they refuse to see or admit the destruction of credit is happening far faster than the Fed is printing.
And it is that destruction of credit, coupled with the fact that what the Fed is printing is not even being lent that matters, not some Humpty-Dumptyish academic definition that has no real world practical application!
Phooey. I prefer a practical definition of deflation that matches and even predicts what the credit markets and stock markets are going to do, not some definition that is useless for anything but academic debate.
The trick now is to figure out how long deflation will last, not whether we are in it.
Saturday, December 6, 2008
Inflation or Deflation?
by Jaime E. Carrasco
Inflation or deflation? -- that is the question as to how the US financial mess will unravel. It is extremely important that we understand this debate as its outcome will have serious implications for your financial wellbeing.
My observations and conclusions are that the outcome of this mess will lead to inflation. I believe "the deflationists" are wrong. The main arguments for the deflationists are based upon two premises: first, the fact that deflation was the outcome of the Great Depression of the 1930s and of Japan in the 1990s; second the argument that the levels of debt are so big that the Central Banks could never print as much to offset the deflationary effect of unwinding the debt.
A historical study of these arguments reveals that deflation is a rarity. Furthermore, we have the experience of all other financial storms over the past century (apart from The Great Depression and Japan in the 90s) creating inflation. Inflation has been the historical norm. It is important to understand why so that one can make rational investments decisions.
The ability of Central Banks to create money always leads to inflation. This was not the case during the Great Depression as the US Fed was unable to print money because the currency was pegged to the gold standard; thus it was impossible to inflate the money supply.
It is important to understand that deflation is the Central Banks' greatest fear as it is the one thing they cannot control. Furthermore, one must also understand that the Central Banks' sole aim right now is inflation through their monetary control -- an outcome that is easier to control down the road. In this context the Central Banks will continue to increase the money supply and inflate.
The US Debt
The US debt is the last remaining credit bubble and rates have to climb in the future. This is one more good reason for increasing inflation as the US knows that the only way to deal with this tsunami of debt is to inflate the debts away at the expense of their creditors.
It was done in Russia, Argentina and all other over indebted countries. The simplest way to reduce debt owned by foreigners is to devalue the currency, either overnight or over a longer span of time. Which leads one to conclude that the recent rise of the $US is unsustainable and will reverse sooner than later.
Precious Metals
The world would not find itself in this mess if currencies were pegged to gold, as we would never have been able to create debt of such levels without acquiring the necessary gold to back the obligations. Gold allows us to peg the value of money to a constant, so that the financial system does not get into this kind of situation.
In a world where we have endless amounts of money we will have to re-evaluate what things are really worth. I see the changes to take place and from a financial perspective gold will increase as we re-define the value of money.
From a fundamental perspective wealthy individuals around the world have been buying gold and today we find ourselves with global shortages for the physical metal. Once again gold is signaling a very different picture than deflation.
Summary
Going forward we will see the global banking system normalize. The banking system will solve the illiquidity issues through global money creation.
Central Banks now know what deflation means and will do whatever they can to prevent it: they will inflate. And who better at the helm than the inflation expert himself Chairman Bernanke?
The US dollar will resume its decline and within the next three to nine months we will see prices rising and inflation returning to the headlines--this inevitable as the US needs a lower dollar.
Supply destruction of the things we need will have worked itself into the system, further supporting rising prices. Deflation, which always appears prior to an inflationary wave, will be a thing of the past and those who position themselves appropriately will be very well rewarded.
Inflation or deflation? -- that is the question as to how the US financial mess will unravel. It is extremely important that we understand this debate as its outcome will have serious implications for your financial wellbeing.
My observations and conclusions are that the outcome of this mess will lead to inflation. I believe "the deflationists" are wrong. The main arguments for the deflationists are based upon two premises: first, the fact that deflation was the outcome of the Great Depression of the 1930s and of Japan in the 1990s; second the argument that the levels of debt are so big that the Central Banks could never print as much to offset the deflationary effect of unwinding the debt.
A historical study of these arguments reveals that deflation is a rarity. Furthermore, we have the experience of all other financial storms over the past century (apart from The Great Depression and Japan in the 90s) creating inflation. Inflation has been the historical norm. It is important to understand why so that one can make rational investments decisions.
The ability of Central Banks to create money always leads to inflation. This was not the case during the Great Depression as the US Fed was unable to print money because the currency was pegged to the gold standard; thus it was impossible to inflate the money supply.
It is important to understand that deflation is the Central Banks' greatest fear as it is the one thing they cannot control. Furthermore, one must also understand that the Central Banks' sole aim right now is inflation through their monetary control -- an outcome that is easier to control down the road. In this context the Central Banks will continue to increase the money supply and inflate.
The US Debt
The US debt is the last remaining credit bubble and rates have to climb in the future. This is one more good reason for increasing inflation as the US knows that the only way to deal with this tsunami of debt is to inflate the debts away at the expense of their creditors.
It was done in Russia, Argentina and all other over indebted countries. The simplest way to reduce debt owned by foreigners is to devalue the currency, either overnight or over a longer span of time. Which leads one to conclude that the recent rise of the $US is unsustainable and will reverse sooner than later.
Precious Metals
The world would not find itself in this mess if currencies were pegged to gold, as we would never have been able to create debt of such levels without acquiring the necessary gold to back the obligations. Gold allows us to peg the value of money to a constant, so that the financial system does not get into this kind of situation.
In a world where we have endless amounts of money we will have to re-evaluate what things are really worth. I see the changes to take place and from a financial perspective gold will increase as we re-define the value of money.
From a fundamental perspective wealthy individuals around the world have been buying gold and today we find ourselves with global shortages for the physical metal. Once again gold is signaling a very different picture than deflation.
Summary
Going forward we will see the global banking system normalize. The banking system will solve the illiquidity issues through global money creation.
Central Banks now know what deflation means and will do whatever they can to prevent it: they will inflate. And who better at the helm than the inflation expert himself Chairman Bernanke?
The US dollar will resume its decline and within the next three to nine months we will see prices rising and inflation returning to the headlines--this inevitable as the US needs a lower dollar.
Supply destruction of the things we need will have worked itself into the system, further supporting rising prices. Deflation, which always appears prior to an inflationary wave, will be a thing of the past and those who position themselves appropriately will be very well rewarded.
Thursday, December 4, 2008
Calm Like A Bomb: 3-stage Crisis
by Sean Rakhimov
Basically we're in a situation that we've long expected. We all anticipated a big financial crisis, all sorts of problems, an end-of-the-world type of scenario—not literally, but the world as we know it. And I think we're there. This is the big one and it's for real. Where we go from here is largely a function of what the powers-that-be will do. We have some idea of what they will do; they will do all the things that will make it worse. I go by the theory that they will always do the right thing, but only after they exhaust all other options.
The economic crisis, I think, is going to last for a generation. I foresee a twofold crisis here, or maybe three stages. The first one is what we're going through right now - a debt crisis.
At some point down the line we're going to have a currency crisis, where the dollar will stop being the reserve currency of the world. I don't know how long before that happens. It's a matter of whoever runs first to the door, basically. I was just reading some articles. Iran is converting their foreign exchange reserves into gold. China is trying to do some of that. It only takes a few of these until there's a domino effect and when that happens, things should play out quickly.
This crisis, I think, has been a good example, where within three months we ended up in a completely different environment. If the dollar stops being the reserve currency of the world tomorrow, I expect things to happen quickly. It may take a decade until it gets started, but once it starts, I expect things to unravel quickly. The reason for that is we have maybe 20 to 30 major players in the world that can make a difference. I'm talking about countries and maybe some other entities such as sovereign funds. And I believe it's going to be very difficult to bring everybody to the table and get them to agree on a plan that everybody would sign on to. Even if they did sign on, I think it's going to be very difficult to make sure everybody sticks with it.
As soon as they break ranks, I think within six months the whole thing is going to break apart. Whatever accord they come up with, if it's going to be Russia or China or somebody of that size, things are going to happen even quicker. If it's going to be a smaller player like Iran or Venezuela, that may take a bit longer. The significance of it may be downplayed for a period of time. But ultimately I think most people understand the dire straits we're in. At some point it's going to be "everybody for themselves" and that's when I think the current system is going to fall apart.
I foresee maybe several stages of this crisis unraveling and that's why I say it's going to take about a generation. As I said, the first one is the big debt crisis we have now. Maybe an extension of it will be some sort of a currency crisis. It's not just a dollar that won't be worth anything, but most other currencies as well. And then I believe what's going to really, really change the environment and exacerbate the situation will be an oil crisis. I do expect oil to hit a new all-time high, say, by 2011. So within two to three years I would think that's going to happen.
Suppose three of us represent countries. One has oil, the other has wheat, and I have copper. If I want to buy your oil, I go back to my printer and print up as much money as I can and buy your oil. Well, the one with the wheat will do the same thing, print up as much money as possible and try to buy your oil. At some point people will stop accepting these currencies, whatever they are, because there's no limit to them. Money is printed like leaflets. There's no backing to it. When we get to the stage where there isn't enough to go around—like you go to a gas station and you can't get all the gas you need—the reevaluation will be forced on the market and will be forced on all the players. So, unless you have something else to offer, something of substance other than your paper money, I don't think you're going to get any of whatever it is you're looking for.
Right now the supply and demand is about 85 million barrels a day supply against 87 million roughly in consumption. Suppose those numbers get to 90 and 95 (million barrels a day of consumption). At some point the shortage will become so severe that it's going to wreak havoc in the marketplace. Those who have the oil will start to choose who they sell it to and in exchange for what. And I don't think it's going to be paper. That's my longer term outlook.
As for precious metals, the trick here is gold and silver markets are not based on large amounts of buying. Let's say tomorrow Warren Buffet says he's going to buy $10 billion worth of gold. Immediately the supply is going to dry up. People who have gold will say, “Wait a minute, we're not selling. The price is going up.” So the effect of a single event like that in the gold and silver space can reach far beyond what it would in any other market.
It is important to remember you don't want to be in and out of assets of this type on a whim. Even if it takes a year, even if you have corrections like this, for my investment strategy I do not believe that gold and silver are amenable to buying and selling as are assets in other markets. Better to treat them like insurance, where you have it in good times and bad times. It won't take a lot of buying to push these metals back up. And even though the metal prices have come down, if anything, demand for gold and silver has increased.
Today's metals prices are absolutely bogus, as is the price for oil. Yes, you can buy it at that price, but that is not what it's worth. Right now oil is trading much, much cheaper than water, maybe one-third of the price of water. It should not be possible. I don't believe in the rational market theory. I think the market is always wrong in the short term.
If you can get bullion at anything close to spot prices, you should buy as much as you plan to buy. I don't endorse investors paying 50% premium, but I do believe in percentage terms the premiums will shrink at some point.
Basically we're in a situation that we've long expected. We all anticipated a big financial crisis, all sorts of problems, an end-of-the-world type of scenario—not literally, but the world as we know it. And I think we're there. This is the big one and it's for real. Where we go from here is largely a function of what the powers-that-be will do. We have some idea of what they will do; they will do all the things that will make it worse. I go by the theory that they will always do the right thing, but only after they exhaust all other options.
The economic crisis, I think, is going to last for a generation. I foresee a twofold crisis here, or maybe three stages. The first one is what we're going through right now - a debt crisis.
At some point down the line we're going to have a currency crisis, where the dollar will stop being the reserve currency of the world. I don't know how long before that happens. It's a matter of whoever runs first to the door, basically. I was just reading some articles. Iran is converting their foreign exchange reserves into gold. China is trying to do some of that. It only takes a few of these until there's a domino effect and when that happens, things should play out quickly.
This crisis, I think, has been a good example, where within three months we ended up in a completely different environment. If the dollar stops being the reserve currency of the world tomorrow, I expect things to happen quickly. It may take a decade until it gets started, but once it starts, I expect things to unravel quickly. The reason for that is we have maybe 20 to 30 major players in the world that can make a difference. I'm talking about countries and maybe some other entities such as sovereign funds. And I believe it's going to be very difficult to bring everybody to the table and get them to agree on a plan that everybody would sign on to. Even if they did sign on, I think it's going to be very difficult to make sure everybody sticks with it.
As soon as they break ranks, I think within six months the whole thing is going to break apart. Whatever accord they come up with, if it's going to be Russia or China or somebody of that size, things are going to happen even quicker. If it's going to be a smaller player like Iran or Venezuela, that may take a bit longer. The significance of it may be downplayed for a period of time. But ultimately I think most people understand the dire straits we're in. At some point it's going to be "everybody for themselves" and that's when I think the current system is going to fall apart.
I foresee maybe several stages of this crisis unraveling and that's why I say it's going to take about a generation. As I said, the first one is the big debt crisis we have now. Maybe an extension of it will be some sort of a currency crisis. It's not just a dollar that won't be worth anything, but most other currencies as well. And then I believe what's going to really, really change the environment and exacerbate the situation will be an oil crisis. I do expect oil to hit a new all-time high, say, by 2011. So within two to three years I would think that's going to happen.
Suppose three of us represent countries. One has oil, the other has wheat, and I have copper. If I want to buy your oil, I go back to my printer and print up as much money as I can and buy your oil. Well, the one with the wheat will do the same thing, print up as much money as possible and try to buy your oil. At some point people will stop accepting these currencies, whatever they are, because there's no limit to them. Money is printed like leaflets. There's no backing to it. When we get to the stage where there isn't enough to go around—like you go to a gas station and you can't get all the gas you need—the reevaluation will be forced on the market and will be forced on all the players. So, unless you have something else to offer, something of substance other than your paper money, I don't think you're going to get any of whatever it is you're looking for.
Right now the supply and demand is about 85 million barrels a day supply against 87 million roughly in consumption. Suppose those numbers get to 90 and 95 (million barrels a day of consumption). At some point the shortage will become so severe that it's going to wreak havoc in the marketplace. Those who have the oil will start to choose who they sell it to and in exchange for what. And I don't think it's going to be paper. That's my longer term outlook.
As for precious metals, the trick here is gold and silver markets are not based on large amounts of buying. Let's say tomorrow Warren Buffet says he's going to buy $10 billion worth of gold. Immediately the supply is going to dry up. People who have gold will say, “Wait a minute, we're not selling. The price is going up.” So the effect of a single event like that in the gold and silver space can reach far beyond what it would in any other market.
It is important to remember you don't want to be in and out of assets of this type on a whim. Even if it takes a year, even if you have corrections like this, for my investment strategy I do not believe that gold and silver are amenable to buying and selling as are assets in other markets. Better to treat them like insurance, where you have it in good times and bad times. It won't take a lot of buying to push these metals back up. And even though the metal prices have come down, if anything, demand for gold and silver has increased.
Today's metals prices are absolutely bogus, as is the price for oil. Yes, you can buy it at that price, but that is not what it's worth. Right now oil is trading much, much cheaper than water, maybe one-third of the price of water. It should not be possible. I don't believe in the rational market theory. I think the market is always wrong in the short term.
If you can get bullion at anything close to spot prices, you should buy as much as you plan to buy. I don't endorse investors paying 50% premium, but I do believe in percentage terms the premiums will shrink at some point.
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