Stagflation Part 19: Twin Deficits, a Third Inflation Wave, and the Bill for Free-Lunch Politics

deficit spending itself inhibits economic growth by causing the Federal Reserve to monetize the federal debt. The Fed lowering interest rates and increasing the money supply distorts the signal interest rates send to market actors. This distortion causes the boom-bust cycle that plagues the American economy—Ron Paul 

In this issue: 

Stagflation Part 19: Twin Deficits, a Third Inflation Wave, and the Bill for Free-Lunch Politics

I. One Imbalance, Two Record Deficits

II. The Debt That Slowed

III. The Export Boom That Imports Itself

IV. The Financial Repression Behind the Free-Lunch Politics

V. Three Markets, One Signal

VI. October: The Third Wave of the Inflation Cycle Affirmed

VII. Interventions Beget Interventions: From Minimum Wages to Struggling Labor Conditions

VIII. The Peso Rally is a Loan, Not a Fix

IX. Conclusion: The Bill Arrives 

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Stagflation Part 19: Twin Deficits, a Third Inflation Wave, and the Bill for Free-Lunch Politics 

Record deficits, a peso under siege, a banking system steering credit to the favored, and 7.8% inflation. Free-lunch politics wrote the check. The economy is paying it. 

I. One Imbalance, Two Record Deficits 

A country can consume beyond what it produces, but only by drawing on savings, borrowing from abroad, or running down existing resources. Free-lunch (social democratic) politics makes this imbalance politically attractive: subsidies, welfare spending, price controls, transfers, public works, regulatory mandates such as minimum wages, and deficit spending deliver immediate benefits while postponing the costs. The political rewards are immediate; the economic bill arrives later. 

Figure 1

The nine-month fiscal deficit reached a record Php 1.303 trillion, with Q3 alone registering an unprecedented Php 516.4 billion. (Figure 1, topmost and middle windows) 

The nine-month merchandise trade deficit also reached a record $47.158 billion, exceeding the previous 2022 record of $46.207 billion. 

Both deficits are now at record levels. The coincidence is not the argument; the underlying savings-investment imbalance is. 

But the deeper imbalance lies between national saving and domestic investment. 

Government deficits reduce public saving. Unless private saving rises sufficiently to compensate, national saving falls relative to domestic investment. The resulting savings-investment gap must be financed from abroad. This is the underlying connection between the fiscal imbalance and the external imbalance: the economy is absorbing more resources than its national saving can finance. 

The merchandise trade gap is only one side of the external imbalance. Remittances and services offset part of the deficit, but not enough to eliminate the external financing pressure. The current-account balance captures the broader relationship between national saving and investment, while the balance-of-payments (BoP) position, examined in Section VII, reveals the resulting external financing pressures. 

Part 17 documented eight months of twin deficits. One month later, both had widened. The imbalance was no longer merely persistent. It was growing. 

II. The Debt That Slowed 

September's national debt hit a record Php 19.66 trillion, but increased by only Php 53.46 billion during the month. That looks oddly restrained alongside a record Q3 fiscal deficit of Php 516.4 billion. The apparent disconnect deserves closer examination. (Figure 1, lower image) 

The slower monthly increase should not obscure the cumulative borrowing. National debt had increased by Php 1.952 trillion over the first nine months, the second-largest increase since 2021's Php 2.122 trillion. The nine-month fiscal deficit of Php 1.303 trillion was also 14.4% higher than the comparable Php 1.139 trillion figure. Even so, September's debt stock remained slightly below the Development Budget Coordination Committee's (DBCC) Php 19.77 trillion full-year 2026 target. 

A deficit is a flow; debt is a stock. How much of the deficit translates into additional reported debt, and when, depends on the financing mix, cash balances, debt repayments, and valuation adjustments. A smaller monthly increase in debt after a record quarterly deficit is not evidence of fiscal consolidation. It raises a more important question: where did the financing go, and through which channels was the government's borrowing absorbed? 

One place to look is the banking system. Net claims on central government (NCoCG) have been rising for years, reaching a historic Php 6.499 trillion in September, according to BSP data. This growing exposure matters because government financing does not take place in isolation from the rest of the financial system. Banks' expanding claims on government reflect the increasing absorption of financial resources by the sovereign.

Figure 2

Nor is this exposure confined to banks. In Q2 2026, net claims on central government held by other financial corporations (OFC) reached a record Php 3.18 trillion. BSP holdings stood at Php 491 billion, while banks held Php 6.339 trillion. (Figure 2, topmost pane) 

Combined, these positions totaled Php 10.012 trillion. This represented roughly 78% of the Php 12.84 trillion domestic debt stock. The broader point is that sovereign financing increasingly draws on financial resources held across the domestic financial system. 

This brings us to crowding out. As government borrowing competes with private borrowers—mostly elite owned corporations and banks—for domestic savings, it can push up borrowing costs, restrict private-sector access to credit, and divert financial resources from private investment toward government financing. The consequence extends beyond the immediate cost of borrowing: resources absorbed by the sovereign are resources that may otherwise have financed business expansion, productive investment, and capital formation. The government finances present spending demands while potentially constraining the productive capacity needed to support future growth. 

Financial repression can intensify this displacement. When political arrangements channeled through regulatory and monetary policies are redirected to favor sovereign financing or privileged borrowers, credit allocation becomes distorted. The issue is no longer simply how much the government borrows, but how institutional arrangements influence who gets access to credit, at what cost, and at whose expense. 

This concentration of financial-sector claims on the sovereign also creates the conditions for a sovereign-bank feedback loop. 

As financial institutions accumulate government exposure, their balance sheets become deeply intertwined with the government's fiscal position. 

As such, any deterioration in sovereign creditworthiness can transmit stress to financial institutions, potentially restricting private credit and increasing pressure for public support. Such support can further weaken public finances, reinforcing the original fiscal problem. The danger is not that this loop has necessarily reached its terminal stage, but that institutional arrangements are making the financial system have become chronically dependent on sovereign stability. 

Fiscal absorption, crowding out, and financial repression can therefore reinforce one another. The sovereign absorbs financial resources, institutional arrangements privilege its financing, and private capital formation becomes the residual claimant. 

The establishment blames peso depreciation for the record debt. That confuses an accounting consequence with the underlying economic problem. 

True, a weaker peso increases the domestic-currency value of foreign-currency-denominated debt, adding to the reported debt stock. But depreciation is a product of deeper external pressures, including the foreign-exchange demand generated by persistent financing requirements, capital-flow dynamics, and deteriorating confidence. Currency weakness is therefore not merely an accounting explanation of the debt problem. It is a symptom of the broader macroeconomic imbalance. 

III. The Export Boom That Imports Itself 

Philippine exports hit a record $9.87 billion in September, up 35.6% year on year. Electronics accounted for $6.92 billion, or 70.1% of total exports. Semiconductor exports likewise registered record year-on-year growth and a record share of total exports. (Figure 2, middle diagram) 

Much of this expansion rides the global AI boom, which has fueled demand for semiconductors, memory chips, and computing infrastructure. The Philippines is benefiting from this external investment cycle, but the concentration of export growth in electronics also exposes the economy to its reversals. 

But electronics were also the country's largest import category, at $5.80 billion, or 38.6% of total imports. The PSA's September tables show electronic exports increasing by $2.894 billion, against a $2.704 billion increase in electronic imports. (Figure 2, lowest tables) 

The export boom brings a substantial import bill with it. The relatively narrow difference between these incremental gross trade flows also underscores the importance of imported inputs in sustaining export expansion, although it should not be mistaken for a measure of domestic value added. 

The crux is: the concentration also creates and fosters vulnerability. If the AI investment cycle reverses, semiconductor orders and export momentum could drastically weaken. 

The current global technology selloff makes that risk harder to dismiss. 

Figure 3 

Meanwhile, consumer goods imports fell 4.25%, suggesting weaker household demand. Manufacturing's S&P PMI fell to 49.1 in October, its second consecutive month of contraction, with output, new orders, and employment all declining. (Figure 3, topmost visual) 

Exports are booming while domestic manufacturing contracts. The economy is riding an externally driven technology boom while its broader domestic production base shows signs of weakness. 

IV. The Financial Repression Behind the Free-Lunch Politics 

The government's financing requirements do not operate independently of the private economy. Financial repression extends crowding out beyond competition for savings. Through captive savings, directed credit, regulatory accommodation, and suppressed financing costs, financial arrangements can steer resources toward government and politically favored borrowers. 

Bank lending grew 11.4% in September, while M3 expanded 9.3% to Php 20.7 trillion. Slower money growth does not mean monetary contraction. M3 is still expanding on an already enlarged base, adding to the outstanding stock of money. 

Bank lending is also a channel of money creation. When commercial banks extend loans, they generally create matching deposit liabilities, expanding deposit money in the economy. Loan repayments, conversely, extinguish deposit money. The resulting purchasing power does not enter every sector equally; it flows through the credit allocation decisions of banks and the institutional arrangements shaping those decisions. The issue is therefore not simply how much money and credit are created, but where the newly created purchasing power goes. 

Electricity, water supply, and transportation and storage continued to register strong credit growth, while household borrowing continues to weaken.(Figure 3, middle chart)  Credit expansion was therefore far from uniform. 

This sectoral concentration becomes more interesting when viewed against the institutional landscape. Electricity and transport are not simply market sectors operating independently of political decisions. Their economics are heavily shaped by regulatory decisions, concessions, pricing arrangements, public policy, and government intervention. 

From power-sector tax relief and corporate deals (e.g., SMC-AEV-MER, Prime Infra-FGEN) to renewable-energy payment arrangements (discussed last year) and transport fare adjustments, political decisions influence the distribution of costs, revenues, and financial risks. The resulting credit expansion deserves examination not just as lending growth, but in terms of the activities and institutional arrangements it finances. 

Consumer lending continues to reveal sustained softening. Growth peaked at 25.63% in May 2024, reached another peak of 23.91% in August 2025, and then decelerated for 13 consecutive months to 16.17% in September 2026. Consumer credit is still expanding, but its growth impulse is weakening. (Figure 3, lowest image) 

The contrast exposes the uneven transmission of liquidity: aggregate credit continues to grow, but household credit is losing momentum while selected politically favored sectors maintain stronger expansion. 

Credit creation is not capital formation. A growing financial system does not automatically mean a growing productive economy. 

V. Three Markets, One Signal 

Emergency policies did not abolish adjustment. They displaced it. EO 110's price suppression, BSP relief measures, and the managed foreign-exchange regime shifted costs among government, corporate, bank, and household balance sheets. 

Those costs are now surfacing in three markets.

Figure 4

The peso repeatedly set new lows, breaking Php 64 to the dollar at the end of October.

BVAL Treasury yields across the 1-to-25-year curve climbed to multi-year highs.

Meanwhile, the PSEi remained within a managed range even as market breadth narrowed. (Figure 4, topmost and middle diagrams) 

The signals differ, but point toward the same underlying pressure: the growing cost of sustaining an economy whose imbalances remain unresolved. 

The BSP raised its policy rate by 50 basis points to 5.5%, an increase described by the media as ‘jumbo’ or ‘aggressive’. Yet with headline inflation at 7.8%, the policy rate remained deeply negative in real terms, at approximately -2.3%. 

The 2022–2023 experience offers a revealing precedent. Despite 350 basis points of rate increases between July 2022 and February 2023, lending growth slowed to 6.65% by September 2023, while M3 growth remained around 6–8%. Lending subsequently resumed its upward trajectory. Higher rates slowed credit expansion but did not reverse the underlying monetary and credit dynamics. (Figure 4, lowest graph) 

Higher interest rates cannot manufacture electricity, fuel, food, or productive capacity. They raise financing costs precisely when manufacturing demand and household credit momentum are weakening. 

The BSP was already behind the inflation curve in 2023. The same question confronts it now: does monetary tightening lead price adjustment, or merely follow it? A central bank reacting to already-established price movements can raise the price of credit, but it cannot retroactively create the goods whose scarcity helped drive inflation. 

The price of credit moved. The supply constraints did not. 

VI. October: The Third Wave of the Inflation Cycle Affirmed 

The monetary expansion examined earlier provides the financial backdrop to this inflation wave. Deficit spending sustains nominal demand, while the twin deficits and peso depreciation raise the domestic cost of imported goods and production inputs. The 2026 oil shock compounds these existing pressures.

Figure 5

October headline inflation reached 7.8%, the highest since February 2023, against just 1.7% a year earlier. Core inflation climbed to 5.4%, its fastest since September 2023, while inflation for the bottom 30% of households reached 9.5%. (Figure 5, topmost chart) 

Transport inflation surged to 20.1%, and rice inflation reached 20.7%, despite the price cap. (Figure 5, middle and lowest graphs) 

The oil shock lit the fuse; accumulated monetary expansion and continued credit creation provided the conditions for broader price pressures to persist. This is no longer simply an energy-price disturbance. The rise in core inflation points to a wider deterioration in purchasing power, extending beyond the immediate effects of higher fuel and food prices. 

The third wave has already surpassed the first wave's 6.7% peak in 2018 and stands just 0.9 percentage points below the second wave's 8.7% peak in January 2023. 

And 7.8% is not the entirety of the household experience. CPI tracks the prices of a defined basket, but cannot fully capture every deterioration in product quantity, quality, or value and even stealth charges. 

Shrinkflation, skimpflation, and sneakflation can erode purchasing power beyond what headline inflation communicates. Nor does the official index necessarily capture unrecorded transactions in informal and black markets. As an aside, authorities deny shrinkflation on some of commodities. 

Here is the thing: the problem extends beyond measurement. 

Official statistics influence monetary policy, government financing costs, indexed liabilities, wage adjustments, and collateral valuations. Governments therefore have powerful incentives to influence not only inflation itself, but also how inflation is measured, represented, and communicated. 

Benchmarkism is not merely about the numbers published nor the market’s headline output, it concerns the institutional incentives surrounding numerical representation and the economic decisions anchored to those benchmarks. Lower reported inflation can ease pressure on interest rates, government financing costs, and collateral valuations. 

Governments therefore have incentives to influence or even ‘manage’ not only economic and market outcomes, but also how those outcomes are measured and communicated. Argentina's statistical manipulation under the Kirchners illustrates that these incentives are not merely theoretical. 

We have been warning about this trajectory for years. 

In 2023, we argued that the slowdown in the second inflation wave would be a transition toward a more potent third wave, anchored in deficit spending and the BSP's priority of maintaining ample liquidity. 

"And yes, we may be seeing peak inflation for this second wave.  The first wave was in 2015-2018.  The cracks in bank lending have emerged while Treasury markets exhibit a sharp tightening.   

Furthermore, both banks and the BSP have scaled down their liquidity interventions.  The BSP has reversed most of the December injections.   

But the coming CPI slowdown may be a transition to a more potent third wave—all of which will be anchored on the path dependency politics of deficit spending by the executive branch and the priority of maintaining and expanding liquidity by the BSP. (Prudent Investor, 2023)" 

In 2025, before the infrastructure scandal and the 2026 oil shock, we warned of a fiscal shock and its stagflationary consequences. 

"As fiscal risks mount, so too does the potential for cross-sectoral contagion and cascading effects. The banking system—already struggling with liquidity depletion—faces heightened exposure due to its expanding claims on sovereign securities (implicit quantitative easing). 

Again, though partially obscured, stagflationary pressures, deteriorating credit quality, and rising funding costs may converge, amplifying broader macro-financial instability. 

In short, the fiscal storm is no longer a distant threat—it is approaching fast, and its first casualties may already be visible in the cracks forming across the financial system. " 

The third wave is no longer a forecast. It is showing up in the price data. 

VII. Interventions Beget Interventions: From Minimum Wages to Struggling Labor Conditions 

Price suppression postpones price adjustment. Subsidies shift the burden. Cheap credit props up claims, while currency defense consumes reserves. Each intervention creates pressures that invite another intervention. The adjustment is displaced, not eliminated. 

Western Visayas is the latest example. A Php 40–45 daily minimum-wage increase takes effect on November 19, following increases in Central Visayas and NCR. It cannot explain October's inflation, which has already been recorded. But it adds another cost to firms already facing dearer inputs, weaker orders, and tighter financing. Wages can be raised by decree; productivity cannot. Businesses absorb the difference through thinner margins, higher prices, reduced investment, or fewer jobs. Consumers ultimately pay part of the bill.

Figure 6

September's labor data reveal the deterioration beneath the employment headlines. (Figure 6, upper image) 

The labor force expanded by 629,000 month on month (MoM) to 53.19 million, but employment increased by only 543,000, while unemployment rose by 96,000 to 2.86 million. The employment rate slipped from 94.7% to 94.6%, while unemployment increased from 5.3% to 5.4%. Year on year, unemployment surged from 1.96 million to 2.86 million, and the employment rate fell from 96.2% to 94.6%. 

Part-time employment, despite retreating in September, has also followed a rising trend since January. (Figure 6, lowest graph) 

Fishing presents another revealing contradiction. Employment expanded by 303,000 in the quarterly comparison, while fisheries production value contracted 8.5% to Php 50.86 billion in Q3. Labor is entering an activity whose economic output is declining. This raises a more important question than the employment headcount: are labor and financial resources being sustained in activities that cannot generate adequate returns? 

These developments expose the deeper problem of capital allocation. Government can sustain economic activity through subsidies, transfers, and credit accommodation, but sustaining activity is not the same as generating wealth. Real savings finance productive investment; productive investment expands the capital base and creates sustainable employment via productivity. 

Hiring depends on expected profitability, precisely what stagflation undermines. Inflation erodes household purchasing power and real savings, while higher financing and operating costs raise the hurdle every new project must clear. Firms facing weaker demand and rising costs postpone investment and hiring. Add minimum wages to this pressure. 

The labor market is not simply adding workers; it is revealing the economy's declining capacity to absorb them productively. 

Employment headcounts cannot substitute for capital formation, and government-supported activity cannot substitute for wealth creation. 

VIII. The Peso Rally is a Loan, Not a Fix 

In response to the peso's record Php 64.17 close on October 27, President Marcos urged Filipinos not to panic. The peso subsequently returned to the Php 63 range, closing the week at Php 63.055. But the exchange-rate rally does not change the underlying balance sheet.

Figure 7

The September balance-of-payments deficit (BoP) reached $3.144 billion, bringing the cumulative January–September deficit to a record $9.087 billion, almost the BSP's entire $9.2 billion full-year projection. (Figure 7, upper chart) 

Meanwhile, Gross international reserves (GIR) fell further from $99.494 billion in September to $97.350 billion in October, a decline of $2.143 billion and a three-year low. (Figure 7, lowest visual) 

The record external deficit echoes the domestic financing imbalance examined earlier: net claims on central government have reached historic highs, reflecting the growing absorption of financial resources by the sovereign. 

A currency rally does not erase a record external financing deficit or replenish depleted reserves. The peso may recover temporarily, but the demand for dollars generated by the underlying imbalance remains. 

Defending the peso has costs. The BSP can supply dollars from reserves, but that depletes its external buffer. It can rely on foreign borrowing, but that adds liabilities. Foreign-exchange swaps and derivatives can provide temporary liquidity, but creates future obligations. The latter two adds to the “dollar shorts.” 

Alternatively, genuine monetary tightening would attack the debt financed savings-investment imbalance by withdrawing the liquidity that sustains excessive domestic absorption and demand for foreign currency. 

But this is where the debt trap becomes apparent. In an economy dependent on deficit spending, cheap credit, and continued liquidity to sustain politically protected claims, genuine monetary tightening would expose the accumulated malinvestments and debt dependency. Higher financing costs and shrinking liquidity would undermine debt servicing, force spending and investment contractions, and trigger recession or financial crisis. 

This is precisely why free-lunch politics resists genuine monetary restraint: it would expose the savings-investment gap that continued intervention has concealed. Yet postponing adjustment through further borrowing and monetary accommodation only deepens the dependency and increases the eventual cost. 

The country cannot indefinitely defend its currency while ignoring the fiscal, monetary, and external forces generating the demand for dollars. 

A peso rally can buy time. It cannot buy an external adjustment. 

IX. Conclusion: The Bill Arrives 

The third inflation wave is not an isolated statistical event. It is the cumulative outcome of fiscal expansion, monetary accommodation, financial repression, and the suppression of economic price signals. 

The oil shock intensified the process. The corruption scandal exposed its political costs. Neither created the underlying vulnerability. 

We warned of the fiscal shock before either event. 

The bill has arrived. The question is no longer whether the economy must adjust, but how much more real savings, purchasing power, and productive capacity will be sacrificed in the attempt to postpone that adjustment. 

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References: 

Stagflation Part 17: Eight Months of Twin Deficits, Record Debt, and the Bill for Deferred Adjustment, October 4, 2026 

Predictions on 

Fiscal shock… 

Liquidity Under Pressure: Philippine Banks Struggle in Q1 2025 Amid a Looming Fiscal Storm, May 18, 2025 

Third wave of the inflation cycle…

Philippine Core CPI Forged a New 22-year High! Signs of Peak 2nd Wave Inflation: Pullback in Bank Lending and BSP Injections, March 12, 2023

Three Markets, One Signal: How the PSEi, Peso and BVAL Priced Suppression in October

 

Price controls take some time for their flaws and distortions to develop: for the longer they last, the more do their controlled prices diverge from the prices that would be obtaining on the free market—Murray N. Rothbard 

In this issue: 

Three Markets, One Signal: How the PSEi, Peso and BVAL Priced Suppression in October

I. The PSEi’s “Rotation” Is the Cover Story

II. A Floor Is a Price Control

III. GCASH: The IPO With a Subsidy Bid Underneath

IV. “Don’t Panic” Is a Policy

V. The Yield Curve Takes No Orders

VI. Whac-a-Mole Economics

VII. Periphery to Core

VIII. What October Priced: The Cost of Suppressing Adjustment

VIII. Conclusion: October’s Cost of Suppressing Adjustment 

Three Markets, One Signal: How the PSEi, Peso and BVAL Priced Suppression in October 

Every intervention bought stability in one market and billed another. In October, the bill is showing up in bond yields and FX reserves as global liquidity drains from the outside 

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I. The PSEi’s “Rotation” Is the Cover Story

Figure 1

The PSEi 30 ended October almost unchanged month on month (-0.02%). It is still down 6.16% year to date and 4.2% year on year. The headline hides a redistribution of index leadership. (Figure 1, table) 

ICTSI, the largest heavyweight, surrendered 89.54 gross points (-5.84%). The next four largest names (SM +7.84%, BDO +4.42%, BPI +1.08%, SMPH +10.34%) contributed 91.23 points and more than offset it. Breadth tilted positive at 18 advancers against 12 decliners. Yet heavier losses in SCC, DMC and CNPF dragged the simple average change across the 30 members to -0.66%. (Figure 1, middle image) 

The gap between -0.02% and -0.66% comes from free-float market-cap weighting. A handful of names decide the headline. After ICTSI’s drop, the five largest still command 55.24% of the index. (Figure 1, lowest graph) 

Figure 2 

The wider PSE tells the real story. 

Breadth was 1,811 advancers against 2,113 decliners, which extends broad-market selling to eight of the first ten months of 2026. (Figure 2, topmost pane) 

Main Board volume (MBV) rose 20.4% year on year to Php 129.67 billion, but cross transactions took 27.71% of it. (Figure 2, middle diagram) SM’s Php 8.736 billion block alone was about 24% of the month’s cross volume. 

ICTSI’s share of Main Board volume (MBV) climbed from 19% in September to 23.75% in October, while foreigners net sold about Php 1.3 billion of the stock as it fell. Local institutional buying absorbed the selling. (Figure 2, lowest chart) 

The index’s “stability” rests on an engineered domestic support for a heavyweight under foreign liquidation. 

II. A Floor Is a Price Control

Figure 3 

The top 10 brokers averaged 66.8% of daily MBV, and the top 10 issues averaged 72%. That concentration put an implicit floor near 5,600 under the PSEi all month. (Figure 3, topmost visual) 

A floor held by a few brokers and a few issues is a price control, whatever name it goes by. 

The PSEi is a free float market capitalization-weighted benchmark. It does not measure the breadth or health of the equity market. The media and the establishment treat it as if it did, though five issues decide most daily outcomes. Confusing the two is how benchmarkism disguises concentration as stability. 

Leadership rotated in October, but concentration did not go away. It only changed where the support was pointed. Extreme trading concentration, persistent negative breadth and thinning liquidity are the symptoms, and the distorted price signals they produce misallocate capital. 

Ironically, almost no one comments on it—as if it is a taboo. 

III. GCASH: The IPO With a Subsidy Bid Underneath 

The GCash listing offered another illustration of the market's dependence on concentrated liquidity. 

GCASH’s weekly share of Main Board volume fell from 34.9% to 9.22%. The stock swung -5% on the week of October 23 and +5.42% the following week. It closed at Php 6.61, a hair above the Php 6.60 offer price. The price is where it is because someone is buying it. (Figure 3, middle image) 

UBS, the sole stabilizing agent, bought 786.57 million shares at an average of Php 6.571 in the week ending October 23. That cost about Php 5.17 billion and used up 65% of its maximum stabilization buying capacity in the first trading week. The budget is the 1.204 billion overallotment shares, worth Php 7.95 billion at the offer price. That leaves about 417.5 million shares, roughly Php 2.75 billion. The support window runs about 30 days from the October 20 listing. There is no update on this as of October 30th. 

The mechanism is simple. The agent sells the overallotment shares short at the offer price, then buys them back in the open market to defend it. A bid sits just under Php 6.60 until the money runs out. It is the PSEi’s floor in miniature: a price held by a dedicated buyer and not by savings. 

An IPO can generate enormous turnover and retail participation without leaving behind durable secondary-market liquidity. The question is what happens when the support expires. 

IV. “Don’t Panic” Is a Policy 

The peso is the second signal. 

The peso touched Php 64.17 per dollar on October 27. That was its 33rd record low of 2026, the eighth in October, and the fifth consecutive record session from October 21 to 27. The President then said, “Don’t panic...we have defenses,” and USDPHP retreated to Php 63.74 by the week’s close. 

No leader makes that statement without his agencies behind it. It signals that the political leadership will do what it takes to “stabilize” the peso. The motive is to look stable. The policy is intervention. The effects arrive later… or in other prices. 

A managed retreat does not touch the cause, which is the savings-investment gap. Free-lunch politics and the policies behind it sustain spending beyond what the economy can finance from its own production. 

The USDPHP rose 1.76% in October, taking its gain to 8.42% year to date and 8.31% year on year. That was the second biggest monthly rise of 2026 after March’s 5.35% (from February's 57.665 to March's 60.748). (Figure 3, lowest diagram) 

The external side of the gap is tightening. OFW remittances, tourism, FDI and portfolio inflows have all weakened. BPO and AI-linked electronics exports help but cannot close the gap, and they carry their own exposure. 

A reversal in AI capital spending would move from global markets into Philippine export receipts and widen the deficit. 

Administered prices, regulatory relief, FX management and accommodative monetary measures have postponed the recognition of the imbalance. Postponement is not resolution. The pressure surfaces through other prices, balance sheets and markets. 

With the balance of payments (BoP) under record pressure and reserves falling, the BSP’s quasi-soft peg has given way to a low-volume, low-volatility crawl. The string of records is that adjustment showing up. 

The BSP still has “tools,” but none is free. It can run down reserves, lever up through repos and derivatives, monetize part of its gold, borrow more (via the National Governnment) or turn to trade and price controls. These extend the process, but none creates dollars, domestic savings or productive resources. 

September shows the cost. Gross international reserves fell from $104.846 billion to $99.494 billion, a $5.352 billion drop to a three-year low. 

Figure 4 

The BSP attributes it mainly to its net foreign exchange operations. The composition is the tell. Other Reserve Assets, the bucket that holds net derivative positions, repo assets and investment pools, fell from $15.471 billion to $9.985 billion, about $5.5 billion and 35% in one month. That is larger than the entire decline. Gold valuation took off another $1.287 billion. Total currency and deposits rose about $1.54 billion. The drain came from the derivative and repo positions behind the peso defense, not from the plain securities and deposits the headline suggests. (Figure 4, topmost image) 

The September BOP deficit was a record $3.144 billion, taking the year-to-date deficit to a historic $9.087 billion—which is just a hairline short of the DBCC’s revised 2026 target of US$9.2 billion (1.8 percent of GDP) with a quarter to go. Borrowed support can defer the adjustment. It cannot remove the financing constraint. (Figure 4, middle chart) 

V. The Yield Curve Takes No Orders 

The sovereign bond market supplied the third signal. 

The public watches the PSEi and the peso. It pays little attention to government bonds, and that is where the cost of financing the state shows up. 

More than anything else, these pressures are most clearly reflected in the interest rate environment, as evidenced by the Philippine Treasury's BVAL yield curve. 

The yield curve shifted upward across all tenors in October compared with September, with positive spreads and the largest increases concentrated in the belly of the curve—a bulge. (Figure 4, lowest chart) 

More importantly, from the one-year tenor onward, yields are at or near multi-year highs. Rising yields are the market’s way of repricing inflation, duration risk and the cost of financing the state. 

The fiscal connection is direct. Government borrowing competes with private investment for finite pools of savings. As financing needs rise, the state’s demand for funds presses against the resources available to businesses (and even banks) seeking capital for production and expansion. 

This is the crowding out effect—and it does not require a textbook interest-rate shock to operate. 

Financial repression adds another channel. Directed credit, captive institutional demand and policies that steer savings toward government or favored borrowers can suppress the visible cost of financing while displacing alternative uses of capital. The allocation changes even when the headline rate does not fully reveal the pressure. 

The result is a distorted investment process: financing follows political and institutional priorities rather than the unrestrained signals of market prices, risk and expected returns. 

The rising yield curve is the market pushing back against that arrangement. Government can influence the terms under which savings are mobilized. It cannot command away scarcity.

Figure 5 

Equities hide the weakness through benchmark concentration. The peso absorbs external pressure through intervention. Bonds reprice the cost of the state. As evidence, the Philippine 10-year Treasury yield has climbed to multi-year highs even as the PSEi tests its 2025 lows (Figure 5, topmost window) 

Three markets, one imbalance. 

VI. Whac-a-Mole Economics 

This is the intervention spiral I call Whac-a-Mole Economics. Support the PSEi and the pressure moves to the peso and bonds. Lean on the peso and the valve opens in equities and bonds. Suppress one price and the imbalance resurfaces in another. 

The mechanism is not mysterious. Prices coordinate competing claims over scarce resources. Interfering with their adjustment does not remove the scarcity. It changes where the pressure builds, who absorbs it and when the cost becomes visible. 

The price signal is not the disease. It is the information that reveals scarcity. Suppress the signal and the distortion grows while its symptoms migrate across markets and time. 

VII. Periphery to Core 

The Philippines is not alone in this. 

The magnified paroxysm across several equity benchmarks—the Indonesian JKSE, Korea’s AI-heavy KOSPI, and, more recently, Brazil’s Bovespa—exhibits a common denominator.  (Figure 5, middle visual) 

As an aside, in Brazil, Lula's reelection triggered a rout in Brazilian stocks, deepening an already prolonged contraction in Latin America's equity-fund industry, where more than 400 equity funds have disappeared and IPO activity has stalled. (Figure 5, lowest image) 

Yet each crash has a local headline, whether politics or AI, but they share the global liquidity cycle. 

The crashes did not need to arrive on the same day to demonstrate this. Peaks came at different points in the year, and the common condition is liquidity withdrawal. 

I call this periphery-to-core transmission. 

Withdrawal first exposes the weakest links: the markets, sectors, and balance sheets most dependent on cheap financing, leverage, and steady inflows. Rising yields then collide with accumulated malinvestments and balance-sheet mismatches. The war economy, supply disruptions, incumbent monetary policies, and fiscal conditions add further pressure.

Figure 6 

Even gold has become an ATM for liquidity-strapped investors. Its sharp declines alongside Bitcoin reflect forced liquidation and the demand for cash, not a change in its long-term monetary role. (Figure 6, upper chart) 

The core is now under pressure. This week’s AI dumpfest hit the Nasdaq Composite with a 2.0% weekly loss, its third consecutive weekly decline, and a 7.04% slide over three weeks. Friday’s 2.9% drop was its largest one-day percentage decline since June 5, following disappointing results from Intel and Amazon. 

Meanwhile, hyperscalers are financing build-outs in debt markets, adding leverage to an already capital-intensive cycle. AI off balance sheet commitments hits $4.1 trillion: Up 1 trillion in 90 days.  (Figure 6, lower graph) 

When the cost of capital rises, the expected returns on long-duration investments become harder to justify. What starts as an equity repricing can migrate into corporate credit, debt servicing, and investment spending. 

The danger is contagion: falling asset prices, tighter financing, forced deleveraging, and contracting credit. A global recession is the risk embedded in this process, and a broader debt crisis is becoming highly probable. 

The periphery is not insulated from the core, and the core is not immune to the financing constraints already visible at the periphery. 

VIII. Conclusion: October’s Cost of Suppressing Adjustment 

Free lunch politics is NEVER FREE. 

The PSEi is held up by the five biggest market caps, a persistent concentrated broker bid and a stabilizing agent for GCASH. 

The peso crawls to records while the BSP burns reserves and the President says don’t panic.

Yields rise from the one-year tenor outward to multi-year highs. 

The motive behind each intervention is the same: to show stability before the financing gap is closed. The policy is price support, administered relief and reserve burn. The effect is that pressure moves to the next price. Postponement has a cost, and the cost compounds. 

Almost everyone has been programmed to believe that spending drives the economy. Spending is the visible half. Before anyone can spend, someone has to have made something others want: a harvest, a service, a product, an export. A fisherman buys rice with the fish he sold. Money is the claim ticket, and the claim is worth only what stands behind it. What you can buy is set by what you or others produced. Or imagine booking a vacation at a resort on the Moon. There may be demand, but there is no supply. 

So printed money, borrowed money and extended credit can raise spending today. They cannot create the rice, or the dollars, that the spending needs to meet. They only change who gets the existing output and push the bill onto future output. 

That is why the pressure shows up where it does. Dollars come from selling something to the world. Savings come from producing more than you consume. When spending commitments outrun both, the gap appears as a record BOP deficit, a weaker peso and higher yields, because savings are scarce and the state is bidding for them. 

A stock, a peso and a bond are all claims on real output and real savings. A floor can hold a quote, but it cannot create the output behind the claim. Indices, GDP and gross savings add up claims into one number and hide who actually produces and who just holds paper. That is the difference between accounting stability and economic resilience. 

The three markets are not telling three different stories. In October, they converged on one signal: the growing cost of suppressing adjustment. Support the PSEi and the pressure shows up in the peso. Lean on the peso and it shows up in the bond curve. 

Close one valve in a system under rising pressure and the pressure does not disappear. It finds the weakest seam. In October, the seams were the PSE’s market internals, the peso and the bond curve. 

The next one may not be in Philippines’ hands at all. Global liquidity is draining, and the pressure is now being fed from outside.

GCash IPO: Oversubscribed, Underbid

 

A 'sound' banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him—John Maynard Keynes 

In this issue: 

GCash IPO: Oversubscribed, Underbid

I. Blockbuster, by the Numbers

II. Follow the IPO proceeds

III. The Savings-Investment Gap is Not Weather

IV. The IPO Pitch and Its Circles

V. What Digitization Can and Cannot Do

VI. Big Names, Small Incentives

VII. PSEi Benchmarkism

VIII. The State at the GCash’s IPO’s Bell

IX. GCASH IPO: WHY NOW?

X. Benefiting Whose Balance Sheet?

XI. Conclusion: A Record IPO Is Not a Substitute for Savings 

GCash IPO: Oversubscribed, Underbid 

A record IPO met a thin bid: benchmarkism, the saving–investment gap, and whose balance sheet gets the mark 

Disclosure: 

The author has not subscribed to the IPO nor holds its shares as of this writing.

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I. Blockbuster, by the Numbers 

Blockbuster IPO, they say. 

At Php 60.9 billion with the greenshoe (Php 53 billion base), Mynt’s GCASH is the largest IPO in PSE history, ahead of Monde Nissin’s Php 55.9 billion (June 2021), Maynilad’s Php 34.3 billion (November 2025) and Converge ICT’s Php 29.08 billion (October 2020). 

Yet the trading debut disappointed. Shares closed flat at Php 6.60 on day one, then slid to Php 6.27, down 5%, over the first four sessions.

Figure 1

Interestingly, the PSE’s weekly average daily main board volume jumped 17.15%, from Php 5.380 billion to Php 6.303 billion. But that is smaller than the Php 10.722 billion in the week ending September 25 and the Php 7.698 billion in the week ending August 28. (Figure 1, upper chart) 

Ironically, in those four sessions GCASH generated Php 10.996 billion in turnover, or 40.9% of the Php 26.883 billion total. Four pesos of every ten went through GCASH, and that includes cross trades. (Figure 1, lower image) 

The concentration in the PSE manifested a trade-off: volume shifted in support of GCASH and ICTSI at the expense of the general market. Breadth was dominated by sellers, 405 decliners against 474 advancers. 

Yet despite a 40.9% share of turnover, GCASH could not generate a positive return. 

The data set is the tell: negative breadth, a negative return, an enormous share of turnover and unimpressive main board growth, for a supposedly monumental event. All of it points to a critical shortfall: the paucity of real savings. 

But of course, as a caveat, four days don’t make a trend. 

II. Follow the IPO proceeds 

Look at who got the money. 

Of the Php 53 billion base, only about Php 10.6 billion was new shares sold by Mynt. The other Php 42.4 billion was existing shares sold by private equity funds and other holders, and the greenshoe was secondary too. About one peso in five is new capital. The rest is savings changing hands so someone can exit. 

Savings are supposed to fund capital formation. Here, most of them funded a cash-out. 

Even the new money has a direction. The prospectus plan includes expanding Mynt’s lending business. In an economy short of savings, the one peso in five of fresh capital is meant, in part, to make more credit. 

III. The Savings-Investment Gap is Not Weather 

Some GCash advocates invoke the Philippines' saving–investment gap and prescribe more savings, as if the gap simply appeared in the national accounts. 

That is accounting masquerading as economics. 

The gap reflects the interaction of economic decisions, incentives, and policies. Easy money, deficit financing, and the diversion of resources toward “build and they will come” malinvestments, consumption and politically favored investments or projects affect how much income is saved, where capital flows, and whether investment generates sustainable returns. 

The problem is not merely how to mobilize savings, but how policies shape their creation and allocation. When credit expansion (unbacked by savings) and debt-financed activity distort economic calculation, financial claims proliferate while the underlying capital base weakens. 

Moreover, GDP-based savings-investment gap ratios inherit the limitations of the GDP denominator. Adding foreign income or OFW remittances changes the accounting perimeter; it does not explain the causal forces shaping saving relative to investment. 

Cite a statistic and call it economics. 

Yet, the GCASH IPO didn’t emerge from a vacuum. It is a response to years of easy-money policy and the pandemic lockdown that pushed transactions onto digital platforms. 

Financial mobilization cannot substitute for real savings, and a listing cannot repair capital consumed by distorted allocation. 

IV. The IPO Pitch and Its Circles 

The case for the IPO as a savings vehicle leans on three fallacies. 

The first is appeal to authority: the big names. 

The second is circular reasoning or begging the question: demand is real because the funds came in, and the funds came in because demand is real. 

One banker says strong appetite at Php 6.60 proves solid fundamentals. That is the circle. The same banker expects modest, mature-company returns at a Php 442 billion valuation, which is a growth price for a slowing business. 

The third is appeal to majority: millions of users, so it must be sound. 

V. What Digitization Can and Cannot Do 

Sure, GCASH may be the first major digital platform to list. 

It may help digitize the economy: faster and cheaper payments, less cash drag, more convenience. 

It may reach the informal economy, not just for transactions but for investments (GSave, GFunds, GStocks PH, GBonds, GCrypto, GInsure) and credit (GCredit, GLoan, GGives, GLoan Negosyo). 

But digitization carries its own risks: hacking, system breakdowns, power loss. 

Worse, it can become a political surveillance tool in an increasingly surveillance-driven economy. When every payment is tied to a verified identity, a ledger of conduct is one policy memo away, whatever political label it goes by: war on cash, social credit, infringement of liberty.

Figure 2

GCASH is also subject to the S-curve of technology adoption, assuming consumer conditions stay the same. Adoption peaks, as growth does, and that is another risk. (Figure 2, upper window) 

Take SWS: self-rated poverty ratings reached 55% in September (Q3), up from 49% in June, with another 9% on the borderline. Hunger rates also surged from 20.3% to 22.6% in September (Q3). (Figure 2, lower diagram) 

That doesn’t bode well for GCASH. 

Deepening stagflation—as this series has discussed—not only consumes savings but also undermines consumers’ health. 

Even the IPO’s boosters concede the curve is flattening. The platform has reached nearly every smartphone user, so growth must now come from extracting more revenue from each existing user. Those are the same users reporting 55% self-rated poverty. 

While GCASH may improve the current picture, it remains subject to prevailing economic conditions. If the saving–investment gap keeps draining savings and encourage balance sheet leveraging, GCASH’s source of growth is jeopardized. Sorry. 

A digital platform is only as good as the financial condition of its users. 

The real test is whether digitization improves price discovery, economic calculation, entrepreneurial investment and capital allocation. Faster payments alone don’t show it. 

Besides, first movers alone don’t guarantee a business model. They face competition within the industry and in technology. 

VI. Big Names, Small Incentives 

Many say GCASH has a solid roster of bookrunners and cornerstone investors: foreign funds, the IFC, domestic banks. Proponents say we should ‘trust’ them. 

But a roster of big names does not guarantee corporate viability or the welfare of those who buy alongside it. 

Bear Stearns and Lehman Brothers were big names too, and they vanished in the Great Recession. 

Recently, COA flagged SSS equity losses of Php 40 billion. Big name, big losses. 

After the 2008 crisis, Queen Elizabeth II asked why no one saw it coming. Author and mathematician Nassim Taleb’s answer is that a black swan is relative to the observer. It is a surprise to the dominant majority exposed to it and not to the few who saw the fragility. Crises don’t arrive while everyone is alert to them. 

Easy money feeds herding. Investors chase returns by leveraging up, the crowd defines the acceptable range of opinion, and risks outside it get dismissed as outliers. That is the pattern economist Hyman Minsky described (long calm breeds leverage as lenders extrapolate stability), Kindleberger (manias ride on credit expansion) and Reinhart and Rogoff (every boom is defended with “this time is different”). 

Number crunching is ex post. Theory is ex ante. Past performance doesn’t guarantee future results. 

On the day GCASH listed, South Korea’s data center Elice fell about 32% by the close of its trading debut, despite retail books 400x covered and institutional demand near 389x! 

Book-building demand is rationing, and the free market clears at a different price. 

Should global events bring tighter financial conditions, mass fund redemptions or a liquidity crunch, blessings may morph into a curse and the big names could be the major sellers. About 87% of post-IPO shares are under a 180-day lock-up, so the tradable float stays thin until roughly mid-April 2027. 

Besides, big names are involved for different reasons: some for profit, some for connections, some for exposure to a country or more. Naturally, there will be no evidence for personal affairs. Everything else is sold to the public as skin-in-the game. 

Buy-side and sell-side institutions (fees, commissions) also have different incentives from clients (returns). That is the principal–agent problem: the agent is paid on the transaction while the client bears the outcome. 

Relying on big names for the security of one’s portfolio is gambling, banking on appeal to authority and begging the question is a recipe for investment losses. 

VII. PSEi Benchmarkism 

Figure 3 

As of October 22, ICTSI carried 25.39% of PSEi weight and the top five (ICTSI, SM, BDO, BPI, SMPH) carried 55.06%, against under 3% and 42% in January 2020.  (Figure 3, upper pane) 

Trading, liquidity and broker activity are concentrated the same way. The pattern looks very much like coordination, and since nobody publishes the minutes, inference is all anyone has. 

Benchmarkism is the engineered substitution of index performance for the condition of the market beneath it. 

The PSE’s 2025 investor profile shows its unintended consequence: record enrollment, yet a historic low participation of only 11.8% of accounts active (institutions 14.6%, retail 11.7%). More registrations are not more capital. (Figure 3, lower visual) 

Concentration is the symptom. Benchmarkism is the disease. 

VIII. The State at the GCash’s IPO’s Bell 

Why has government been involved in promoting GCASH? The President rang the opening bell and said the timing mattered because the stock market needs renewed investor interest. The DTI cited MSME gains. Will they promote all IPOs? 

The President attended the last big one, Maynilad in November 2025, which also closed its debut slightly under its offer price—but closed at Php 16.9 (October 23rd) above its offered price at 15. 

Yet, note what the President conceded: the market is short of investors. If real demand existed, government’s say would not matter. 

Let there be no mistake: benchmarkism is happening at the political margins. 

The rules were also rewritten around the deal. 

The SEC lowered the minimum float for giant listings (MC 11, s. 2026), and GCASH was the first to use it, at 12%. In July, the PSE cut the PSEi float requirement from 20% to 15% for market caps of Php 250 billion and above, clearing the way for index entry. 

The PSE has since rewritten its index rules so a stock with a float this small can qualify for the PSEi. If Mynt gets in, every fund that tracks the index must buy it, whatever the price. 

Mandatory demand meeting thin supply is benchmarkism by design: the index mechanics set the price, and the price then passes for confidence. 

IX. GCASH IPO: WHY NOW? 

The biggest question is WHY NOW. 

Globe had teased the listing in 2024 and 2025, and the board and shareholders approved it on June 17, 2026, when the PSEi stood at 6,404. Given a depressed (bear) market, why even list? 

Three answers. 

The rules were ready, as above. 

Mynt’s growth is decelerating: net income rose 56% in 2025 but only 7.3% in the first half of 2026, so a listing at the top of the S-curve sells the growth, not the future. 

And the window: the maximum price filed in June was Php 10, and the final price was Php 6.60, a 34% cut that took valuation from about Php 669 billion to about Php 442 billion. A discount that size sits oddly beside a “super oversubscribed” book.

Figure 4 

As an aside, from June 17 (GCASH IPO announcement) to October 23 the PSEi returned -6.3%, AC +35% and GLO -14.32%. All things equal, that tells us the listing benefited Ayala Corp most. (Figure 4) 

Why not Globe? 

X. Benefiting Whose Balance Sheet?

Figure 5 

Globe’s Q2 revenue rose 8.02% to Php 46.954 billion, but income rose only 0.43% to Php 5.485 billion. Debt stood at a record Php 261.67 billion, up 5.56%, while interest expense and financing costs surged 16.7% to a record Php 4.67 billion. Cash was Php 19.7 billion, against Php 42.353 billion in Q1. (Figure 5) 

Globe’s equity share in Mynt’s net income was Php 3.7 billion in the first half, slightly below Php 3.8 billion a year earlier, and about 28% of its pre-tax income. 

The sale-leaseback of some 7,500 cell sites (2022–2025, Php 96.4 billion) didn’t stop debt from rising. 

Notice what the IPO did not do: Globe sold no shares, so no IPO cash reached it. This is not a cash bailout. The benefit runs through the value of what Globe already owns. 

Start with the 28%. Globe’s Php 3.7 billion share of Mynt’s first-half profit is a bookkeeping entry. The cash stays inside Mynt unless Mynt pays it out as a dividend. 

Now the stake. Globe holds about a third of Mynt. At the final price of Php 6.60, the market values all of Mynt at about Php 442 billion, so Globe’s third is worth roughly Php 145–150 billion on paper. Until the listing, that stake had no daily market price. Now it does, and a quoted price lets Globe borrow against the stake, sell part of it later, and record accounting gains. 

Globe’s own results show how much that matters. Its first-half profit fell 11% to Php 11.04 billion, and Globe blamed mainly a smaller “dilution gain” from Mynt than last year’s. A dilution gain is a paper gain Globe books when Mynt sells new shares at a higher price. Globe ends up with a smaller slice, but each slice is worth more. No cash comes in, yet reported profit moves, and the IPO’s new shares may generate another such gain. 

Now set the stake against the debt. Globe owes about Php 261.7 billion. Lenders watch a ratio: gross debt divided by EBITDA, which is roughly how many years of operating earnings it would take to repay what the company owes. Globe’s is 2.68x, and its loan agreements cap it at 3.5x. 

Our estimates suggest that this leaves room for roughly Php 80 billion more debt at today’s earnings. So this is not yet distress. It is collateral engineering: a bigger, quoted number on one side of the balance sheet to carry the debt on the other. 

Whose welfare? The one whose balance sheet gets the quoted mark. 

XI. Conclusion: A Record IPO Is Not a Substitute for Savings 

A record IPO needs a record bid. Instead, it got a rationed one: a price 34% under the filing ceiling, a flat debut, a slide to Php 6.27, four of every ten pesos of four-day turnover pulled from the rest of the market, four-fifths of the base deal an exit, and a President at the bell saying the market needs participants. 

That isn’t demand discovering a price. It’s a fixed pool of savings being re-sorted toward the issue the establishment needed priced. 

The platform may digitize payments. It cannot digitize savings into existence. A record listing is a financial event. A deeper capital market is an economic achievement. Collateral is not capital, and a listing is not a saving.