The lesson of history, then, is that even as institutions and policy makers improve, there will always be a temptation to stretch the limits. Just as an individual can go bankrupt no matter how rich she starts out, a financial system can collapse under the pressure of greed, politics, and profits no matter how well regulated it seems to be.—Carmen M. Reinhart & Kenneth S. Rogoff
In this issue
DoF Chief: The Financial Crisis Is Still In Its Early Days (!); Stagflation Ahoy! August CPI Spikes to Two-Year High as Demand-Side Pressure Emerges!
I. Regime Uncertainty from the Onslaught of Interventions a Critical Impediment to a Functioning Economy
II. Two Divergent Labor Surveys; The Importance of Entrepreneurial Investments to Employment
III. Cheerleading Low Base Effect FDI Gains while Discounting Long-Term Trends and Structural Investment Obstacles
IV. Despite the Boom from Low Base Effect, Domestic Production Base in Decay
V. Stagflation Ahoy! The Shift Towards Imports; Growing Sensitivity to Global Prices
VI. Stagflation Ahoy! August CPI Spikes to Two-Year High, Demand-Side Pressure Emerges!
VII. Aside from Supply Dislocation, Rising CPI from BSP’s Zero Bound Policies Weakens the Foundation of Banks
VIII. Stunning Prediction From The Dof Chief: The Financial Crisis Is Still In Its Early Days!!!
DoF Chief: The Financial Crisis Is Still In Its Early Days (!); Stagflation Ahoy! August CPI Spikes to Two-Year High as Demand-Side Pressure Emerges!
I. Regime Uncertainty from the Onslaught of Interventions a Critical Impediment to a Functioning Economy
From the Businessworld, August 31: RETAILERS are asking for expedited vaccine deliveries as the industry is running out of cash reserves after three major lockdowns since March 2020. “The retail industry — stores, fastfood and restaurants — are on a verge of collapse,” Philippine Retailers Association Vice-Chairman Roberto S. Claudio said in an e-mail on Saturday. “Retailers have lost 85-90% of our pre-pandemic levels.” … But Mr. Claudio said the lockdowns and minimal customer foot traffic have depleted cash reserves, noting that online sales have accounted for just 8-15% of total store revenue. “The answer to this problem is not the gamut of selecting on who can enter our establishments (vaccinated or not, 10% or 30% capacity, seniors or children, etc.). We can come out with many suggestions, but this will not address the retailers’ main problem, which is lack of customers,” he said. “For so long as the strict lockdowns persists and customers are not allowed to come out, there is no business for stores and restaurants.”
(All the bold highlights in the news excerpts are mine)
For now, we shall forego discussing the validity of the vaccine as the perceived elixir to the harried economy.
But did you notice the difference between the highlights in the quote above with the "recovery" meme spouted by the media's echo chamber?
Or, despite the recent downgrades, have the public not been bombarded with messages from the mainstream that the economy would restore its lost resplendence soon? How realistic have these been?
Here is an example. Slated to shut its doors permanently is one of the major chains of retail appliance stores.
From the CNN (September 8): After more than seven decades in the business, appliance store chain Automatic Centre will close its doors for good, due to the impact of the COVID-19 pandemic. In a statement on Wednesday, Automatic Centre President and CEO Geoffrey Lim said the company's appliance retail operations will only be running until October 10. "The COVID-19 pandemic has caused tremendous challenges on our business and it is with much regret and trepidation that we share this news with you today," said Lim, addressing the group's partners. He assured partners that the company will work closely with them for a smooth transition and closing.
It is not just the labor force, but the shutdown affects the supply and financing networks directly and indirectly attached to them. And the loss of income and jobs exacerbates the weakening of demand. Thus, the feedback loop amplifies the demand attenuation and deteriorating credit conditions resulting from dislocations in the supply networks.
And are we witnessing a taste of the events to come? Or, is this an appetizer before the main dish?
Perhaps avoiding the perniciousness of politics, the firm attributed its closure, unfortunately, to the pandemic instead of policies.
But political capriciousness has led many to remonstrate.
Here are some recent examples.
From the CNN, September 8: Some members of the restaurant industry and a local official decried the national government's last-minute announcement that Metro Manila will not yet ease to a more relaxed community quarantine status. The retraction led to loss of money, effort, and time, restaurant owner Inchang Mendoza, Vikings Buffet Restaurant marketing consultant Stella Sy, and Manila City Bureau of Permits chief Levi Facundo lamented.
From GMA, September 8: The Makati Business Club (MBC) on Wednesday expressed its support for the reopening of the economy, noting that people are getting frustrated and desperate amid the quarantines.
From the Businessworld, September 9: UNSTABLE government policies such as the last-minute decision to postpone the relaxation of quarantine curbs in Metro Manila is likely to further dampen business and consumer confidence, business leaders and economists said on Wednesday. … “There is a huge financial cost on business enterprises when plans and preparations are dislocated by the last-minute cancellation or postponement of the anticipated relaxation of the quarantine protocols,” Philippine Chamber of Commerce and Industry Acting President Edgardo G. Lacson said in a Viber message. He said the last-minute changes in quarantine rules diminished the credibility of the government’s pandemic response and “could be extremely disastrous” in the future.
In the third week of August, I noted that a crucial obstacle to a functioning economy is the mounting caseloads of arbitrary political interventions that has spawned "regime uncertainty."
Unless bestowed with political privileges, who would invest in a climate where "regime uncertainty" prevails? Or how would destabilizing variability, the fickleness, and the scale of political interventions, which cloud economic calculation that raises the hurdle rate of profitability, become a haven for productive investments?
Regime uncertainty, as per the distinguished Austrian economist Robert Higgs theorized**, represents "a pervasive uncertainty about the property-rights regime—about what private owners can reliably expect the government to do in its actions that affect private owners’ ability to control the use of their property, to reap the income it yields, and to transfer it to others on voluntarily acceptable terms. Will the government simply take over private property? Will it leave titles in private hands, but strip the owners of real control and profitable use of their properties? These questions fall under the rubric of regime uncertainty."
**Higgs, Robert Regime Uncertainty in 1937 and 2008, Independent Institute Blog December 6, 2018
Kaboom!
Authorities are proposing to help rescue about 500,000 of the 7 million registered enterprises with financial aid in 2022. But for as long as these statist interventions exist to handicap, distort, and dis-coordinate the commercial process, such help should signify as money down the drain.
The business compass will remain murky that raises the investment hurdle rates, which in effect reduces it. (more on this below)
And since the government has no wealth on its own, such "aid" will only add to the fiscal burden and extrapolate to economic roadblocks ahead.
So why would escalating interventions not increase the eventuality and risks of a financial crisis?
II. Two Divergent Labor Surveys; The Importance of Entrepreneurial Investments to Employment
Misreading statistics as economics provides a poor comprehension of reality.
And the recent labor conditions serve as further proof that survey-based statistics can lead to vastly different results.
First, the National Government’s outlook.
From the Inquirer, September 7: Fewer Filipinos were jobless in July but partly because also a smaller number looked for work due to lower expectations of landing jobs amid the prolonged pandemic. The results of the Philippine Statistics Authority’s (PSA) quarterly labor force survey (LFS) in July released Tuesday showed that the number of jobless Filipinos dipped to 3.07 million from 4.14 million in April and 4.57 million in July 2020. The unemployment rate dropped to 6.9 percent in July—the lowest since COVID-19 lockdowns were first imposed and bludgeoned jobs in April 2020, and down from 8.7 percent a quarter ago and 10 percent in 2019. However, the labor force—Filipinos aged 15 and above who had jobs or were jobless but looking for employment–dipped to 44.74 million from 47.41 million in April. July’s labor force population was also lower than 2020’s 45.87 million.
Next, the SWS survey…
From the CNN, September 9: Around 13.5 million adult Filipinos were jobless in the second quarter of the year, a survey by the Social Weather Stations (SWS) revealed. The latest data is higher than the 12.2 million unemployed Filipinos recorded in the first quarter of 2021. “The national Social Weather Survey of June 23-26, 2021, found adult joblessness at 27.6% of the adult labor force. This is 1.8 points above the 25.8% in May 2021 and 10.1 points above the pre-pandemic level of 17.5% in December 2019,” SWS said. The poll body defines Labor Force as adults aged 18 years old and above currently with a job and those looking for one. Meanwhile, jobless people are those who voluntarily left their previous jobs, are first-time job seekers, or those who had lost their jobs due to economic circumstances beyond their control.
Figure 1
The number of jobless people in June, according to the Philippine Statistics Authority (PSA), was 3.765 million or 7.7% of the workforce. On the other hand, SWS saw about 13.5 million or 27.6% unemployed in the same period.
In fairness, the SWS sees the PSA's data to include its underemployment rate, which narrows the gap. But by definition, this shouldn't be the case. Underemployment, according to the PSA, are those with "expressed the desire to have additional hours of work in their present job or to have additional job, or to have a new job with longer working hours." (Figure 1, upper pane)
Nonetheless, 7.7% against 27.6% jobless rate. What an immense chasm!
Yet, there is no way to know which of the two entities have numbers reflecting the closest to the truth. Aside from the sample sizes and effects, there may be built-in biases that shape the final figures.
Part of the calculation of the GDP derives from the PSA's numbers. With the national elections on the horizon, won't inflating the GDP help the cause of the incumbent running for a new tenure?
There is more. These statistics provide a clouded picture of the actual economic conditions. From what is presented by the media, jobs are mechanically added or subtracted depending on the existing quarantine conditions. There is little understanding of the entrepreneur’s role of savings and investments as the creator of productive jobs.
As Fabrizio Ferrari rightly explains
Entrepreneurs, indeed, are the transmission belt between consumers’ wants (consumptive goods and services) and the means conducive to their satisfaction (production goods). Hence, entrepreneurs are the central cog of the economic choice mechanism. They (1) forecast, or speculate, which wants consumers are eager to satisfy, (2) perform the economic calculation establishing whether such wants can be efficiently satisfied, and (3) employ their own savings—skin in the game—while investing and buying production goods.
Fabrizio Ferrari Mises Explains Why Socialism Fails, November 7, 2020
That said, the sustained whimsical political and economic interventions hinder the business calculations of entrepreneurs that pose as a barrier to investments, erode savings and capital formation, and thus increase joblessness.
Differently put, until the substantial easing of such interventions to manifest a fully functioning economy, the pressures on investments and thus joblessness will continue, regardless of what (national income, jobs) statistics show.
III. Cheerleading Low Base Effect FDI Gains while Discounting Long-Term Trends and Structural Investment Obstacles
The pretense of statistics constitute the gist of the narratives of mainstream economics.
They would facilely interject, but hey, did you not see? Foreign investments continue to grow despite the political response to the pandemic!
From the Businessworld, September 10: FOREIGN INVESTMENT commitments bounced back in the second quarter, ending five straight quarters of decline, signaling country’s attractiveness after the passage of the law that gradually trims corporate income tax. Preliminary data from the Philippine Statistics Authority (PSA) showed approved foreign investments climbed by 45.5% to P22.50 billion in the second quarter from the P15.46 billion recorded a year ago.
To attribute a bounce on the PSA’s approved FDIs on the recently approved tax reform is unconvincing. If so, peso value investments and % change would have been way larger than the quarterly gains in 2020.
That is, even though the headline % change looks impressive on the surface, the improvements appear to be a product of a low base effect. As proof, Q2 2021 numbers are even lower than Q3 and Q4 of 2020! (Figure 1 lowest pane)
FDIs should have ballooned significantly in the 1Q and the 2Q 2021 since the Create Bill was signed into law in March 2021. Lower FDIs numbers than before its enactment do not support this assertion.
Mainstream media has a penchant for reasoning backward or explaining the changes of the ticker tape. And to justify inherent biases, they use the most convenient, available, and relevant information that easily appeals to their readers. Sadly, responsible journalism seems to escape today's audiences.
Besides, there are no guarantees that the approved FDIs will translate into actual investment flows.
Figure 2
From the CNN, September 10: Foreign direct investment (FDI) inflows rose in the first half of 2021 amid higher debt instrument investments, the Bangko Sentral ng Pilipinas (BSP) said Friday. In a statement, the central bank reported $833 million in FDIs in June - a 60.4% increase. The highest since January, this figure brought total inflows during the first semester of the year to $4.3 billion.
Again, cheerleading based on a single month of performance may be misleading.
While it may be true that the reported FDI inflows of the BSP looked strong on the surface, the growth seemed tilted more towards the low-base effect. (Figure 2, upmost window)
Nevertheless, FDI inflows have steadily been in decline since peaking in April 2016. Because the bounce in the 1H falls within its range, it has not changed the FDI’s overall trend.
Further, instead of equity investments, debt inflows have dominated the share of FDIs since 2012. Debt accounted for a 75.6% share of the FDI in June. (Figure 2 middle pane)
Though reported as part of the investment package to authorities, the use of debt flows may be for other purposes than investments.
So there is no guarantee that such FDIs would add to the overall employment conditions. Besides, mounting debt flows are likely to increase the systemic leverage risks.
The low appetite for domestic investments from foreigners has been demonstrated by the above.
Meanwhile, the falling gross domestic savings rate limits the capacity for the locals to invest. Furthermore, increasing regulations, mandates, and centralization of the economy further cramp the investment climate. (Figure 2, lowest window)
And one more thing, with the path towards centralization, investments have become increasingly politically based.
IV. Despite the Boom from Low Base Effect, Domestic Production Base in Decay
The muted investments translate to subdued production levels.
Figure 3
From the BusinessMirror, September 10: THE country’s manufacturing output posted another three-digit growth, the fourth consecutive level of increase this year, according to the Philippine Statistics Authority (PSA). Based on the results of the Monthly Integrated Survey of Selected Industries (MISSI), the Volume of Production Index (VoPI) surged 537.9 percent in July 2021. This is the highest growth recorded for VoPI this year. The three-digit growth streak started in April with a growth of 156.2 percent, followed by 267.5 percent in May and 459 percent in June 2021.
Quite a three-digit growth. Sure, compared to the epic shutdown of 2020, even a partial reopening represents a boom. But the nominal levels of this three-digit growth in July remain lower than the pre-pandemic levels: it was still 21.7% down from the peak in October 2018. And manufacturing output and value has been on a downtrend since! (Figure 3, topmost window)
Needless to say, July’s three-digit growth is a product of a low base effect and has little to do with the overall dynamic!
Follow the money, as they say. How is the sector funding itself? Not through banks, though. Bank lending to the sector has been in deflation since August 2019. Yes, that's almost two years ago. It was -2.6% in July 2021. (Figure 3, middle window)
The peak in bank lending to this sector was in October 2018, coinciding with the zenith in the output and value. And despite the recent % boom, even the nominal 2Q GDP of this sector had slumped to Q3 2018 levels!
Sure, while the rate of credit deflation has ebbed, unless supported by savings or non-bank credit, it shows that the sector has not been generating significant investments, which explains its declining trend in output.
So the recent barrage of arbitrary regulations has escalated the nation’s decreasing supply base.
V. Stagflation Ahoy! The Shift Towards Imports; Growing Sensitivity to Global Prices
The dampened local output has led to increased reliance on imports for supply.
Figure 4
From the Businessworld, September 10: THE COUNTRY’S trade-in-goods deficit widened in July as merchandise import growth outpaced the increase in exports, the Philippine Statistics Authority (PSA) reported on Thursday. Preliminary PSA data showed the value of merchandise exports jumped by 12.7% year on year to $6.42 billion. … Meanwhile, the country’s import bill rose by 24% to $9.71 billion in July. This marked a reversal from the 20.8% contraction in July 2020 but was slower than the 43.4% import growth in June 2021.
While it may be true that imports have steamrolled into the pre-pandemic levels, that is partly because of export demand, responding to a spike in global trade, and importantly, the implicit import substitution from the deteriorating domestic production base. But that also means that domestic prices have become anchored on global prices too. (Figure 3, lowest pane)
For instance, spiraling prices of food prices abroad will likely influence domestic price levels of food imports. (Figure 4, topmost window)
Remember the 2018 rice and the 2020 pork crisis? Because of inefficiencies of production predicated on protectionism, the industry became vulnerable to exogenous factors as Asian Swine Flu (ASF) or output declines from typhoons. Thus, authorities shifted their policies from quota-based to tariff-based, allowing more imports to resolve supply strains.
These are the embodiment of the production base conditions here.
In the same context, since many other goods and services (including asset flows) are dependent on liquidity flows, the significant downshift in the global credit impulse may affect their prices and production levels. (Figure 4, middle window)
Constraints on supply and logistics in the face of concerted credit easing from global central banks have spurred a surge in inflation in an increasing number of emerging markets. Responding to these, a growing number of emerging market central banks have started to raise rates. Central banks of advanced economies have also started to rein liquidity injections. (Figure 4, lowest pane)
The point being, with a domestic production base shackled by stifling regulations that induced significant deficiencies in investments, the increased dependency on imports amplifies the sensitivity of supply issues to global production and prices.
More examples.
From Markit, September 1: "The re-introduction of Enhanced Quarantine Measures (ECQ) in Metro Manilla forced factory and business closures in one of the Philippines largest manufacturing regions in August. Output and new orders fell sharply, although the rates of decline were not as severe as those seen during the first lockdown in March-May 2020. Nevertheless, weak demand led to cost saving efforts and the consequent reduction in inventory levels and employment in August. Meanwhile, virus-related restrictions weighed heavily on lead times with port congestions and material shortages again a key theme in the latest survey period. On the price front, cost pressures showed signs of easing with output and input price inflation moderating slightly from that in July. The IHS Markit Philippines Manufacturing PMI® fell sharply from 50.4 in July to 46.4 in August, registering below the 50.0 no-change threshold that separates expansion from contraction. The latest decline indicated a renewed contraction in operating conditions in the Philippines manufacturing sector, and one which was the steepest since May 2020… Employment levels at Filipino goods-producers fell at a sharp and accelerated pace in August. This was largely attributed to factory shutdowns which meant employees were unable to work, leading to reports of resignations and layoffs. The relatively weak demand environment combined with sufficient capacity allowed firms to clear their backlogs and at an unchanged rate to that seen in July. Global raw material shortages and delivery delays continued to feed through in the form of higher input prices. Average cost burdens rose for the sixteenth month in a row, and with a rate of inflation that was sharp by historical standards. That said, there were signs of moderation with costs rising at the softest pace in seven months."
In short, the present combination of domestic policies of mobility curbs and massive regulations aggravates supply shocks that have hampered demand—a manifestation of the disruption of Say's Laws of Markets.
Global factors (inflation) also contribute to the present economic dis-coordination and maladjustments.
Aside from the financial aspects, these factors promote the economic landscape of stagflation, defined by rising prices in the face of low output and high unemployment.
VI. Stagflation Ahoy! August CPI Spikes to Two-Year High, Demand-Side Pressure Emerges!
This labor and supply-side discourse lead to the treatise on the inflation statistics of the government.
Figure 5
From the BSP, September 7: Headline inflation rose to 4.9 percent year-on-year in August from 4.0 percent in the previous month and was at the high end of the BSP’s monthly forecast range of 4.1-4.9 percent for the month. The resulting year-to-date average inflation rate of 4.4 percent was above the Government’s annual inflation target of 3.0 percent ± 1.0 percentage point for the year. Similarly, core inflation, which excludes selected volatile food and energy items to depict underlying demand-side price pressures, also increased to 3.3 percent year-on-year in August from 2.9 percent in July. On a month-on-month seasonally adjusted basis, inflation rose to 0.6 percent in August from 0.4 percent in the previous month. The increase in headline inflation was driven mainly by higher price increases of key food items, particularly vegetables and fish. Vegetable inflation rose in August due to supply disruptions from damage caused by monsoon rains in parts of the country. Adverse weather conditions also hampered fishing and port operations, which led to higher fish inflation. Meanwhile, increased electricity rates due to higher generation and transmission charges along with increased prices of liquefied petroleum gas (LPG) contributed to the rise in year-on-year non-food inflation.
Back in March, I wrote why a price surge should be expected, which I have repeated time and again in this space.
But again, the mainstream sees only statistics but neglects the interrelationship of money, demand and supply.
Undergirded by massive dislocations from the supply shock, even a slight pick-up in demand, most likely from fiscal policies is likely to combust street inflation at runway rates, thereby causing unintended consequences or defeating the BSP’s goals.
Be careful what you wish for.
Nota bene: This author does not believe in the accuracy of the CPI simply because averaging different goods as potatoes, cars, laptops, and Netflix subscription fees represent a ridiculous and impractical exercise, and thus, do not reflect a realistic demonstration of price changes experienced by individuals writ large (community). Furthermore, since the CPI is a political-economic sensitive number, as per the PSA, "it is a major statistical series used for economic analysis and as a monitoring indicator of government economic policy", hence to advance the political-economic agenda of the incumbent such statistics are vulnerable to interventions. But anyway, using the lens of the mainstream, we extrapolate this data alongside the others to arrive at some clues of the political economy heading forward.
The headline inflation of 4.9% in August broke above the February 2020 high of 4.7%. This breakthrough reinforces the uptrend since 2019 on the back of the long-term trend, which originated in 2015. Following a 5-month lull, this breakout builds on the upside momentum. (figure 5, upmost pane)
After a trend breakdown, core CPI bounced strongly to 3.33% from 2.9% a month ago, but still lower than the February 2021 high of 3.54%. Has the recent bounce become a new base for its 2015 trend line?
Widening treasury spreads have accurately been pointing to the sustained rise in the CPI. (figure 5, middle pane)
Interestingly a product of mainstream interactions at the capital markets, such spreads has served as a forerunner of the CPI. Also, as predictors of inflation, such yield differentials operate on a time lag.
That is to say, institutional treasury traders barely agree with their respective analysts about the latter’s inflation outlook. Curiously, none of the pin the tail on the donkey analysts even got close in their estimates of the August CPI. They should consult their treasury traders than rely on their econometric models.
But based on the recent reactions of emerging market central banks, will the BSP follow in their footsteps?
VII. Aside from Supply Dislocation, Rising CPI from BSP’s Zero Bound Policies Weakens the Foundation of Banks
But here is the thing.
Figure 6
In reality, by keeping rates at historic lows, the BSP has imposed financial repression through the inflation tax.
At the expense of the savers, the BSP continues to invisibly redistribute, transfer or subsidize primarily the elite-owned banking system and the political bureaucracy, as well as the plutocracy, as evidenced by swelling debt loads of PSEi 30 firms.
Such inflation tax is manifested by the record spread between the CPI and 1-year treasury yield, indicating (unprecedented) negative real rates. (figure 5, lowest pane)
But the authorities and their institutional privately owned cohorts operate in the wonderland of free lunches. They believe that monetary inflation would do wonders and bail the economy out of the drudges from their cumulative policy failures.
In this respect, though bank lending deflation continued in July, the rates of decline have been slower. Production loans even registered a surprising .8% growth in July!
So many firms from select sectors with continued access to bank credit as utilities, real estate, construction, IT, and transport have been more liquid than the rest. Increases in liquidity for them, as well as the bureaucracy have spurred the demand side increases, which the BSP admits as contributing to the higher CPI. (!)
Banks may have used their surplus liquidity from the BSP to pump up member issues of the main equity benchmark! Rocketing growth of their financial assets has coincided with the elevation of the PSEi 30. The beneficiaries of these seemingly coordinated pumps are also contributors to the demand side CPI. (Figure 6, lowest pane)
Oh, by the way, this again is the third time since 2013 the CPI broke above 4%. And in this cycle, there isn’t a single factor like rice or pork dominating the increases in the CPI.
Finally, again, seeds of stagflation have been sowed and nurtured not just by supply issues but by the BSP’s inflation tax.
But because of the intense focus of policymakers on the short-term, the unintended consequences from these are being ignored.
Higher CPI contributes to the enervation of the banking system’s balance sheets by draining deposit liabilities growth. Deposits are the elemental source of funding for banks. (Figure 6, upmost pane)
And because of increasing rates spurred by rising CPI, unproductive debt is being affected. Net non-performing loans have been ascendant since 2015, which coincides with the start of this CPI cycle. (Figure 6, middle pane)
There is no such thing as a free lunch forever.
After repeated denials, we hear something new.
VIII. Stunning Prediction From The Dof Chief: The Financial Crisis Is Still In Its Early Days!!!
I’d like to cap this outlook with this stunning quote from the chief of the Department of Finance.
This CNN article entitled the "BSP: Banking industry 'still sound and resilient' despite increase in bad loans" on September 9th was supposed to assure the public of the salutary conditions of the banking system.
The central bank chief also said that no bank has so far availed of the Financial Institutions Strategic Transfer (FIST) Law, a measure which allows them to sell soured loans to asset management firms.
“I used to say the FIST Law is some kind of protection…in the eventuality that there will be an increase in non-performing loans which are unmanageable," Diokno said.
"But I don't see that happening at least from our point of view at the moment,” he added.
Soured loans in the banking system reached ₱482.99 billion as of June, yielding an NPL ratio of 4.48%.
“The financial crisis is still in its early days," Finance Secretary Carlos Dominguez III said. "We hope it will not be so bad that there will be a lot of bad accounts that will require the availment of the FIST Law.”
To Repeat: THE FINANCIAL CRISIS IS STILL IN ITS EARLY DAYS (!!!)
First of all, is this a misquote or a slip of a tongue, or a tongue-in-cheek remark? I doubt. The context, predicated on the use of FIST, appears to be consistent with the prediction. It would seem that the DoF chief candidly spoke of the likely increase usage of FIST in reaction to the emergence of a Financial Crisis (which is on its early state!).
Next, a crisis is a product of an UNSEEN buildup of imbalances ignored by the mainstream.
Here is a quote from Carmen M. Reinhart & Kenneth S. Rogoff
The essence of this-time-is-different syndrome is simple. It is rooted in the firmly held belief that financial crises are things that happen to other people in other countries at other times; crises do not happen to us here and now. We are doing things better, we are smarter, we have learned from our past mistakes. The old rules of valuation no longer apply. Unfortunately, a highly leveraged economy can unwittingly be sitting with its back at the edge of a financial cliff for many years before chance and circumstance provokes a crisis of confidence that pushes it off.”
Carmen M. Reinhart & Kenneth S. Rogoff, This Time is Different (2009)
Third, the premises of explanations of a crisis are from a mishmash of ex-post events leading to it, the event itself, and or its aftermath.
Fourth, parallel to the unforeseen buildup of imbalances leading to the crisis, which represents a process, the scale and speed of the unraveling, which in itself is a process, are likely unpredictable.
Or, if a crisis is predictable, then it won’t be a crisis.
Lastly, hope is NOT a strategy.
Yours in liberty,
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