THE Philippines is a fertile oasis in a global financial desert. The barbarians are at the gates. The patients have taken over the mental asylum.
If you read some local and foreign commentators who have been spouting the same dire warnings about the Philippines for the last years, you might notice that they are saying the same negative things that they did in 2010. The sky is going to fall at any moment and it is time to panic.
But every day the sun comes up and every night the stars twinkle in the dark sky. Meanwhile in the rest of the world, life is “normal” unlike in the Philippines. Here is some of the new normal.
How about going down to your local bank, ask about taking out a loan to buy a car and then you ask the bank manager how much the bank is going to pay you to take out the loan? Probably you would be surrounded by the bank security guards as they escort you through the front door. That is what would happen in the Philippines but not in Europe.
In Europe banks are effectively paying people to borrow money.
The Swiss, Swedish and Danish governments and the global food company Nestlé are now borrowing money from lenders who are happy to pay them for the privilege. The Swiss government will borrow your money and you have to pay them, not the other way around.
The corporate bonds of Nestlé S.A., the Swiss multinational food and beverage company, the international petroleum company Royal Dutch Shell, and British natural gas and electric consumer supply company EDF Energy are all paying negative interest. In other words, the lenders are paying to loan money to these companies. And we are told that the sky is falling in the Philippines.
A few weeks ago I wrote about the possibility that the US might also go into negative interest rates on lending and bank deposits. The immediate response I received was that I had no idea what I was talking about and that it could never happen. Except, since then global banking giant JPMorgan has started charging some of their very large corporate clients for depositing money with the bank.
However, we know that the US economy is in great shape with the latest employment report. In fact, your balikbayan classmate visiting the Philippines probably told you all is well and the US is the land of milk and honey. It’s the Philippines that has a jobs problem; not the US.
From February 2008 to February 2015 the US population grew by 16.8 million persons, and on a net basis, not a single one of those 16.8 million persons got a full-time job. What did happen was that a net 2.7 million part-time jobs have been created since 2008. According to the US government agency, the Bureau of Labor Statistics, not a single net full-time job has been created since February 2008.
Those that say the US employment picture is just fine turn to data that shows there is a growing number of people that are no longer interested in working and have dropped out of the labor force. They point to the olds guys like me that have supposedly reached retirement age. But in 2009 the number of the over 55 age group who were still working was 26 million. Now it is 33 million.
Put another way, since 2007, the 55-plus-year-old group population has increased by 17 million and the number of that age working has increased by 7 million. The 25- to 54-year-old working core population is down by 1 million but those working have decreased by 5 million. An economy is in great trouble with a dismal future when the job market is increasing for the old and not for the young as it is here in the Philippines.
However, we are told that the Philippines should be very cautious and perhaps worried if the US Federal Reserve raises interest rates and things go back to “normal.” Yes, there might be a small rate hike in a few months, perhaps as early as June. But it will mean little to the Philippines.
What a rate would mean is that the US government debt service could easily double and they cannot afford that. A return to historical average interest rates would make it absolutely impossible to pay the interest.
With all the problems the Philippines and its economy might have, they are nothing to the chaos going on outside our little gated village.
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter
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