World Financial Alarm

The structural problems in the US economy continue to unravel and soon we will be finding out the extent of how this will be playing out or how this will impact on the Philippine economy. The credit rating of the US downgrades according to the opinion of the Standard & Poor’s ( SP), a credit rating agency. Credit rating is about the credit worthiness of a debtor in relation to a debt security or to its financial obligations. The economic problems of the US did not happen overnight. It did not undergo structural adjustment by world financial institutions such as the World Bank or the International Monetary Fund ( IMF) as required of poor countries because of their productive capacity. But, when the US politicians wrangled for a month in the full view of the world that they were divided as to the solutions of their economic problems, this resulted in the downgrade of their credit ratings & a brewing financial mess around the world.

The one thing we know & this the Philippines cannot escape from is that the global economy is interlinked. For now, there is confidence that the Philippines can withstand the changes in the developed economies. But, even if the peso is appreciating, some of our sectors will surely be affected such as the export sector & our OFWs as we expect that there will be less demand for our products & services.
And, as anywhere, when economies are in a mess, the poor suffer even in the US which is the largest economy in the world. The events in the US reaffirm the notion that the socio –economic divide or class divisions inside nations are very important issues that need addressing now. Let me post here a feedback I got from international development lawyer Emelina Quintillan, about my personal US & world economy watch : “All Americans & anyone who relies on the US dollar will be affected. So far, however, social security checks will still be received. There will be a lot of protests if Americans won't get their pension since all retirees have paid into it. It's not an "entitlement" in the sense that it's a freebie from the US government unlike a supplemental income (SSI) is. The Fil-Ams or any immigrant who are used to a third world system & environment will be able to adjust to the U.S. economic crisis better than Americans who were used to the good old times. The ones who suffer most now are those below 62 years old who don't have jobs & still have families to support regardless of their country of origin. That the exchange rate of the dollar to the peso is less now will also discourage Fil-Ams from retiring in the Philippines since they're going to get less peso income to live on. The Republicans are sticking to their guns to the point of sacrificing the benefits of those who rely on their government pay or assistance. The Republican plan gives the rich protection & the burden is still on the poor working man/woman's back. It's true that the US debt should be reduced & the way to do it is to tax the rich & not deprive the poor. President Obama had it right, but the Republicans are just thinking of saving & cutting spending no matter what at the expense of the middle class & the poor. It's true that something has to be done about it, but not the Republican way of protecting the very rich. Government is for the people & its reason for being is for people's general welfare. Where's the welfare when the greater majority suffer & there's no redistribution of wealth of the rich? The government does not have any money except for the taxes that people pay. It's only fair that the government money be given back to the people in terms of benefits & services that they need. Who are the Republicans saving & cutting expenses for? Americans may not understand how their government & how misleading Republicans are screwing them. ”

The globe is interlinked. There is a brewing twin American & European financial mess. The trend is towards Asia becoming the center of the global economy. Our traditional theories in Economics are not working or are not able to solve the economic problems of the world. We also need to revisit some of these theories because some of these are true. On top of these theories is the one about the world economy divide as well as the socio- economic divide inside nation-states. The divide inside nation states ( read : so much Philippine poverty) is an issue that national economies like the Philippines can continually address even as the world economy is undergoing reconfiguration.

The US Debt Limit Issue

There is a colloquial saying that when the US sneezes, we get colds. True enough, while the US Congress was grueling in an ideological debate whether to approve the controversial current ceiling in US debt, the Philippine peso got stronger against the US dollar. The Philippine peso now at P41 and rising against the dollar is at its highest in three years.

The US lower house has just approved raising the debt limit in order for the US not to default on the payment of its loan obligations and financial commitments. Defaulting payment will trigger impacts to the globalized economy. The grueling debate whether to approve the proposed debt ceiling increase took months and when it was approved by the lower house for sending to the US senate it seemed a pyrrhic victory. It was at such great cost because in the meantime, the US lost investor confidence and caused Wall Street stocks to fall and economic conditions to stall. The global market fell as well but it is expected to bounce back.

I remember there was a time when the economists said that if nation - state borrowers default on payments, the markets will collapse. They say that is not true anymore. Still, for the US, given its near default, its credit rating falls. And accordingly, there will be deficit cuts for ten long years or so. President Obama is seen as having caved in to Republican party pressure which demanded compromises such as not increasing taxes which to them is crucial given that this is an election year. But, that it could also be regarded as a pragmatic and practical solution to the debt crisis. In turn, the Democrats got a commitment to honor the health benefit package. There is talk that the next bubble to burst is the US college education and it will be very expensive to contract student loans as prohibitive interests make payoff prospects not worth it. So, the President Obama agenda of the American community college and the goal of the highest proportion of college educated in the world now hang in the balance.

We are also sad that perhaps the projected investments in positive energy or the clean energy breakthrough in clean energy sources in the years to come will not happen.

What are the implications for the Philippines? I have been in touch with Filipino friends & economists in the US and I am sharing here the drift of the conversation. There could be shifts away from the dollar assets and these shifts can have a bigger impact on the Philippines. The Philippines will have to continue to diversify into the emerging markets in Asia and elsewhere in order to add financial and capital flows into the Philippines. In all probability, there will be less foreign direct investments from the United States as has been the case now. Of course, all these will be puny from the point of view of the American economy because the Philippine market is way much smaller.

The Filipino Americans ( Fil-Ams) may want to change their dollar denominated assets into pesos. So, our Fil-Am relatives and friends may want to buy property here. They say our competition for this is the Singapore dollar but then again it is expected that our relatives will prefer cultural and convenience considerations and so they will still prefer to invest in the Philippine peso over the Singapore dollar.
What about the Chinese economy as one of the leading economies? The Chinese yuan could rise as the global reserved currency. And, in relation to the current Spratly issue, a Filipino economist said both jokingly & seriously, “ it could mean that Philippines may be amenable to use the Chinese Yuan currency for trade settlement, and use that as part of sweeteners for the Chinese in the Spratly's resolution! “

Lessons in London’s Looting

After the fairy tale wedding of a few moonlights ago, the world watched in shock & disbelief as anonymous looters rapaciously ravaged UK stores stealing shoes, clothes & electronic devices.

I have walked through these high streets looted in Croydon & Clapham in south London & I also felt the outrage at this senseless brutality & mayhem. I used to window shop in these stores and eat in some of the restaurants lining the streets now turned to ashes.

The rioting looters wearing ski masks & bonnets burned buildings & attacked defenseless working class neighborhoods, too. The looters did not belong to any one pigmentation & color or racial background: they were just kids which were either middle class & wealthy. There was no statement of ownership or signature to the riot; there was no unifying ideology except that these looters were self driven and acted as a mob.

The rioters were called a mob because they were not organized & their participation was instantaneous. But, a mob is also part of the larger society and it is an indictment that something is deeply wrong in Great Britain now.

For now, the causes of this mayhem can be attributed to a conflation of many things. But, the framing of things or theories to explain all these is addressed to the big society not just the governance apparatus. In short, the solutions are indicated for all social institutions.

For instance, is it the primary role of government or is it the role of family to make sure that our children are able to distinguish between right & wrong? Surely, the discipline of children & the re-establishing of a new system of values are clearly the role of both the educational system & family.

London residents waited uneasy & were quick to blame the London police whose tactics proved inadequate as the riots were initially treated as a public disorder issue rather than as an issue of criminality. It is said that it was not about the number of the police responding to the riot but it was about the way the police were deployed.

Police tactics are different for crimes against public order such as rebellion & illegal assemblies because these crimes must be conflated with civil & political rights or the right to petition government for redress of grievances. Also, the riots with looting were sparked allegedly by an incident of police brutality that resulted in the killing of a young boy in the north of the United Kingdom. Still, everyone was in consensus that no police brutality can ever justify the breakdown of order that shortly followed.

The parliamentarians from all political parties immediately huddled in the wake of the riots & resolved to start somewhere in addressing order & the breakdown of discipline. The magistrates are now swamped with hearing the cases of the more than a thousand youth arrested. The oft repeated query by the judges was, “Where are your parents?” Prime Minister David Cameroon is now urged to look at his social policy & scale up his “inner city” small project from the periphery and make it a national central project for working class neighborhoods & defenseless minorities.

The Prime Minister is also proposing for a national citizen service. In turn, the Labour Party was heard as saying that these instant and simple judgments will lead to wrong solutions. So, there is a call for a deep inquiry into this social problem manifesting as riots & looting & breakdown of discipline & the corresponding restoration of responsibility by various social institutions so that this mayhem may not happen again – especially that the eyes of the world will be focused to London again for the Olympics in 2012.