Philippine senators upbeat amid rating cut

The
stand of the senators Drilon and Osmena is highly likely correct, pragmatic and
indicates wisdom amidst a perceived global economic and financial
instability.  

On
the contrary statements coming from some high finance officials need a
re-think.  The downgrade should be
treated by our finance and economic officials with extreme circumspect. We
should stay calm, focused avoid over-reaction and relax. For an unrelaxed mind
would cause us to panic and miscalculate. Highly likely, there may be
significantly deeper plays at work that are beyond our depth and comprehension,
even in the highest levels of our finance and economic hierarchy.

The Philippines’ finance secretary Cesar
Purisima’s call for “an alternative global
reserve currencies and benchmarks that are more stable and as liquid and
convertible” seems to be an amateurish reaction from a nation’s finance
secretary—and this raises a big concern. 
For now, and highly likely decades further, there is no other currency
that could replace the US dollar.  The
euro is volatile as Europe is experiencing economic instability.  The yuan is pegged to the dollar and in the
event it floats its currency to be aligned with market realities and the rules
of the international monetary system, the yuan will appreciate to a level that
would increase the price of its exports, rendering it uncompetitive–and being
an export oriented economy, that condition would wreak its economy that may
lead to unrest and social upheaval, risking political instability and collapse.    

We have to understand that the real strength of a nation and by
extension its financial system and its currency is highly likely founded on
three variables and these are the political-economic-military dimensions.  Realistically, only the US holds the most powerful of these dimensions combined, highly
likely far widely relative to the other global powers.     

China has been reported to have blasted the US for the level of debt. 
Ironically, China is the largest investor in US securities that it believed to be
the safest haven and continues to buy US dollars to control the yuan from
rising against the dollar to protect its exports and investing the money in US
treasuries, which raises the US debt.  The reaction may be
taken as a reactionary fear in that a US economic downturn would be devastating
to China’s economy and by extension its political stability, which is largely
export dependent to the US and other countries–and these other countries are
economically intertwined with the US.  China has invested almost $1.2 Trillion in the US treasuries (many call it US debt) and again a slide or a perceived US economic slide would, among others devalue the dollar and
adversely affect its US treasury holdings.   The China treasury holdings are China’s long term security investments to assure its future.  Where did China’s money that was used in the investment come from?  Largely, it comes from the revenues generated
from selling Chinese made products to the US (borne out of the large trade
surplus it has with the US), including Europe, America and Asia—and many of
these products have US brands after they have been outsourced by US
companies.  Simply stated, it is money
paid to China from the US and other countries that comes back to the US in the
form of investment in US securities—some call these investments, loans, some as
US debt.  The US in turn invests the investments to various endeavors to be able
to make a feasible return and be able to pay back the treasury/bond holders. Some
that have strong environmental and conservationist inclinations may refer this
as “recycling” and “reuse”.  Thus, the so
called China loan may be called more accurately as the China’s “US securities investment security”—meaning China’s investment to secure or protect its future.

To analogize, let us say that Pedro deposits P10M of his money in
Bank A, the most stable bank in the Philippines on a 10-year time deposit with a rate of 5%.  In the event that Bank A encounters a problem arising from extreme
economic instability, Pedro has a big problem as well.  It cannot transfer its money to other banks
since these are experiencing heavier problems. 
Pedro is stuck with Bank A, prays for recovery and complains of the
economic situation, but largely cannot do anything but complain.                                                                                                                                                                                                                              

“There’s an old adage,” LeBas said. “If someone lends you
a thousand dollars, that someone owns you. But if that someone lends you a
million dollars, you own that someone.”

The Philippines should realize that the downgrade may be in the long term a
blessing in disguise that would spur the needed reforms in the US. There are also reports that the seemingly economic turmoil in
the US is likely political in nature and some suspect to be contrived.
 The US elections in November 2012, as some indicated is likely to be one
of the key variables in a highly complex strategic play that may be at work.
 One that is beyond our depth–and our best option may be to stand aside
and learn–and contribute what we can for global economic recovery and
stability–and this may be a safer alternative for amateurs like us.  
             

A Bloomberg article written by Emma Charlton and Wes Goodman (Aug 8, 2011) stated, “Bond
investors from Wall Street banks that trade directly with the Federal
Reserve to policy
makers in China and Russia are
likely to retain their Treasury holdings as they see few alternatives to the
world’s deepest and most liquid market”. 
A massive sell-off of treasury holdings is inferred by many analysts to
be counterproductive and highly likely could adversely self-inflict. 

Now let us game a scenario wherein China, the
largest bond holder sells a large portion of its US
securities or call its loan.  The effect
is that, the US dollar weakens, let us assume by 30%, correspondingly devaluing
the Chinese investment by 30% as well wherein the $ 1.2 Trillion is now worth
$840 Billion, the US exports becomes more competitive as its products in the
world market becomes cheaper because of the devaluation, China’s revenue from
the sale of its exports declines since these are traded in US dollars (the
international trade currency), its products becomes more expensive, its
companies losses money, many will be closed, causing massive unemployment that
could lead to social unrest destabilizing China and its leadership.  As the US dollar devalues many exporting
countries like the Philippines, Singapore, Taiwan, Japan, countries from the
Europe, the Middle East, India, Russia, Brazil will suffer as the price of
their exports rises rendering these uncompetitive, that may lead to factory and
business closures, threatening their economy and risking social upheaval and
consequently conflict and war.  The oil
exporting countries will realize that their real revenues decline and will
likely raise the price of oil.  The stock
market may suffer as the stock prices collapse. 
China becomes
the enemy of all as it becomes severely weakened thus weakening it more as it
collapses one that China cannot
afford to develop.     

The US which
has $ 3.5 Trillion foreign direct investment in the global economy will be
significantly hurt as well.  Interest
rates increase, inflation rise as the prices of goods and services shoot up.  In short, everybody losses and highly likely
the worst to be hit will be China’ Japan and the
other major bond holders.  Thus, the so
called foreign loan may be called more accurately as the foreign “US
securities investment security”—meaning the bond holders’ investment to secure
or protect their future.

It is the interest of all of the world’s exporting countries to see the US recover
and prosper as it is in the US’s
interest to see global recovery and prosperity to protect its $ 3.5 Trillion
dollar global investment and control inflation.   

In the past week, the perceived adverse global economic news have
driven a large number of investors and countries to park their moneys in the US treasuries, whose rates have declined. 
Stock investors, owing to the significant stock value reductions have shifted
to bonds, largely in US treasuries. The relatively low treasury rates, which
mean low borrowing rates, have been interpreted by some to mean that many
investors are paying the US just to park their monies in treasuries, which they consider as
the safest haven in these uncertain times.

The shift of global funds to the US treasuries for investment or
more accurately for safekeeping during today’s perceived condition of global
economic instability means that there is likely less money available for investment
elsewhere that would scare many nations like China, one of the largest if not
the largest recipient of foreign direct investment (FDI) that received more
than $100B FDI in 2010 alone. To compare, the Philippines has been reported to have received more or less $1.4B in 2010.

We have to realize as well that today there are economic
conditions and realities in the global environment that defy the economic books
and theories, and leave many of us, even some of the most schooled
bewildered.  Beginning the 80’s, the US
has shifted from an industrial economy to a knowledge and information economy-and
seems to be still applying and learning then again applying and learning in a
cycle of experiments and applications.  To
go back briefly, there are four stages namely, the stone age, the agricultural
stage, the industrial stage and the knowledge and information stage. Many of
the books and ideas have been based on an industrial economy.  And in the knowledge and information economy the
rules, assumptions, ideas have been made, became outmoded, new ones arise and
are continuing to evolve as we read and write. 
A major shift from one stage to the next takes decades and in the end
the future belongs to the nation/s that has/have executed early and
successfully.  The Philippines is in an advantageous position in that that nation is the one
that we have a 60-year Mutual Defense Treaty with.  We have to maintain and reinforce the
relationship with the US and negotiate with her with our nation’s interests at heart.  Both our nations have our own interests to
protect and advance, but highly likely, our shared and allied core values and
beliefs will assure a mutually beneficial relationship.          

The US shift from the industrial to the knowledge and information
economy requires massive investments in all resources that resulted to the
creation of advanced and cutting edge technology wherein its application as
likely have been gradually applied today resulted in the quantum increase in
productivity while reducing the number of workers required that created a
skills mismatch, which led to relatively high unemployment.  High unemployment is not likely to be the
sole determinant or non-determinant of a recovering and strengthening
economy.  For example, it could be that while
a company/companies within the country has/have already started to recover
financially, it still holds back from hiring workers for fear that there may be
another round of crises.  Meanwhile,
staff and employees are asked to multi-task and do more.  Companies have adopted and applied more and
better technology to increase productivity, meaning producing more with less
workers.  Thus, it is theorized that as
companies and firms recover, employment remains to be high.  Companies are likely to start hiring when the
uncertainties have generally subsided and when they believe that they are
financially secure and have well recovered already, a condition that could
indicate that the US may have well recovered already, as well before hiring starts to
pick up and unemployment truly declines. 
In the meantime, while US unemployment remains high, it can highly likely be inferred that
it is already on its way to full recovery. 
As the US side-shifts to high end manufacturing, while maintaining its
focus on the knowledge and information economy, unemployment could likely start
to decline.

A massive investment in education and advanced and cutting edge technology
to address this mismatch requires massive expenditures, which some suspect is
one of the reasons for the rise of the US fiscal budget.  While causing
difficulties at present, these investments highly likely could lead to the
strong dominance of the future.  The
Philippine long term strategic planning should align with this highly likely future
scenario or development.  We should
invest in education and infrastructure and address corruption that undermines
our investments forcefully and have the will to neutralize those that need to
be for the future of our country.         
        

For the Philippines, it will serve our interest to do the best we can to attract
foreign direct investment (FDI) and raise the stakes of the US and other countries as high as we can in our soil.  Then they will have a stake in us, our
economy and by extension our security. 

what commodities of the Philippines were traded to the US? minerals? bananas and pineapples? furniture and handicrafts? coconut oil and sugar? not much i guessed. 

the Philippines have nothing to worry because OFW’s are there. And BPO is keep on growing too. 

countries like China will only buy minerals and also bullying your country to get oil from Spratlys. So you have nothing to trade to china except getting very cheap imports of toxicated infant toys. 

no to shift of trading to China!!! let us find somewhere else…