The presidential candidates continue on their campaigns like children skipping through the grass without a care in the world talking about all the great ways they are going to spend the people’s money. Meanwhile, in the real world, the economic transition that I have been talking about for nearly a year continues.
The transition from “faith” in the public sector to faith in the private sector is not some academic-economic model. It is a continuing cycle that has been going on for several millennia. There have always been two choices—putting your confidence (and money) on the private sector or on the public sector. We are at the beginning of the transition to the private sector.
This past week, we saw an important indication of the loss of confidence in government with the increase in the price of gold. Contrary to the nonsense you may have been told, gold is not an inflation hedge. Global inflation is at its lowest in decades, and gold is going higher. However, gold has always been a “hedge” against a loss of confidence in government. When the government or the currency fails, people convert their wealth to a hard commodity. During times of deflation—or government-induced hyperinflation—that hard commodity is gold.
During times of loss of confidence in government, people start hording money, even in the Philippines. The amount of money in personal savings accounts in Philippine banks reached an all-time high in December 2015 at nearly P4 trillion. But conventional wisdom—which is usually wrong—says that it is only the rich Filipinos who have bank accounts or even save money.
We have been told by the financial gurus that Filipinos do not use banks as much as other countries, and that is true. Of course, most of the gurus are financially supported by the banks. In truth, data from the World Bank shows that even in the lowest 40-percent wealth category of Filipinos, 20 percent have formal bank accounts. The number of Filipinos with bank debit cards has doubled since 2011. Sixty-seven percent of all Filipinos say that they have some money saved, even if it is under the bed.
Rich and poor alike are now hoarding cash, because of people losing their confidence in the government. They look for short-term protection, which is gold. But the alternative to putting faith and funds in government is to look to the private sector. The transition to the private sector—stock markets, corporate debt at real positive interest rates and starting businesses not dependent on government policy—will take time.
When the transition finally comes over the course of this year, it will be like a person leaving a bad relationship and ready to party once again.
And like in that silly example, there will be a great desire for “revenge” on the ex-partner, in this case, the politicians who got the world into the current financial crisis. The year 2016 is only the start of the “purge” of the political class that will come in 2017.
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