Historic Moment Unfolding in the Philippine Financial System; More Free Lunch Policies

Since the BSP released its June data on domestic liquidity and the banking system’s lending condition, then this would just be an extension of the previous discussion.  [See 2Q and 1H Fiscal Deficit Surges to 2010 Levels! The Risks and Possible Consequences of the Current Fiscal Trend July 30, 2017]

BREAKTHROUGH HISTORY IS IN THE MAKING!

We are on a cusp of history.  The unfolding of an unparalleled process in the Philippine financial system has been happening real time!

The Philippine political economy now faces a TWIN Deficit!

MILESTONE fiscal deficit has now been accompanied by nearly a RECORD trade deficit. The latter represents an offshoot of the former. But since both require financing, the government has dealt these through UNPRECEDENTED monetary policies! 

To bridge the ballooning financing gaps, the BSP has resorted to HISTORIC low-interest rates and the awesome MONUMENTAL program of National Government (NG) debt monetization!

And both these factors have now spurred credit expansion beyond the banking system to include the government. Borrowing for both sectors, namely the banking system and the government which again based on nominal terms are at UNPARALLELED levels!

Yes, BREAKTHROUGH HISTORY is happening, right here, right now!

The BSP absorbed some Php 66.9 billion in NG debt last June. The BSP’s actions practically erased the 5 month slack. Year to date, the BSP acquired some Php 9.8 billion of NG claims. These numbers, which are published by the BSP, is accessible to the public (you and everyone else):  June data here and complete data from BSP’s financial system’s accounts.

Because the BSP’s depository survey data have hardly been discussed in the public, this would seem esoteric. But such activities signify a critical segment of the BSP’s activities.

Current process seems to be the following: NG issues debt to the public (mostly banks and financial institutions) to finance growing fiscal deficit, but such activities drain on the system’s liquidity. At the same time, the BSP buys some of the previously issued papers from the public which offsets the previous liquidity depletion.

At the end of the day, the BSP maneuvered to maintain the incumbent easy money policy IN SPITE of the ongoing crowding out process.

Again, despite the establishment’s overwhelming rhetoric that the Philippines is in good shape, still why the accelerated use of these emergency measures?

Why has the BSP been playing with an inflationary fire?

M3 growth, which spiked to 13.2% in June from 11.3% in May seem as a jump-start response to the BSP’s debt buying in the same month. And perhaps, part of the BSP’s implicit funding of the government may have arrested the recent fall in real economy prices. July’s CPI rose to 2.8% from June’s 2.7%. I am merely using government’s statistics for interpretation and not assuming its accuracy.

The BSP’s reacceleration of the domestic version of Quantitative Easing (QE) appears to have juiced up industry loans which at +17.88% in June was marginally higher from 17.57% in May.

However, growth in consumer loans lurched lower to register 22.54% in June compared to 23.56% in May.

While credit card loans have been in a turbocharged mode (June +16.97% versus May’s +15.63%), car loans dropped (+28.52% in June as against in 30.37% in May). The slowdown in car loans has resonated with car sales over the same period.

Meanwhile, payroll loan growth crashed to 24.51% in June from 40.3% in May. After a reaching a zenith at 63.06%, payroll loan growth continues to fall. So June’s downturn was hardly an anomaly.

Has the lower income spectrum been tapped out? Have financial inclusion or the migration from the informal economy to the formal economy reached a tipping point? Or could part of the payroll loan market have been diverted to the use of credit card? Or has the previous payroll borrowers opted to withhold spending thereby increase savings rate? Savings rate have been reported at all-time highs. Or could it have been a combination of the above?

For credit card, double digit growth rates begun in October. With higher consumer prices, the huge increase in credit card usage could mean that spending at present income levels may have reached its climax for them to resort to credit to augment spending.

Nevertheless, the ramifications of government’s actions have been incrementally percolating into the real economy.

These are truly interesting times!

The Economic Aftermath of Free Tuition Fees

And here’s more.

In defiance of his economic ministers, Philippine President Duterte signed a bill which puts into law the granting of tuition-free education in all state universities and colleges (SUCs).

Since I said that I would refrain from talking politics*, I can only make a prediction: this will blow a gargantuan hole in the government’s budget.

The article notes of budget estimates at Php 20 billion to Php 43 billion to Php 100 billion. I’d say that these numbers will be surmounted over time.

Reason? Basic Economics!

AT ZERO PRICE, DEMAND WILL OVERWHELM SUPPLY SUCH THAT SHORTAGES WILL OCCUR!

From the Revision Guru: (see chart in the lower pane above)

Zero pricing is an extreme form of maximum pricing; the maximum price is zero!  This means that goods and services are provided free of charge. This shows that, at a price of zero, there will be a shortage (excess demand) equal to QD QS.  This shortage will remain unless the price is raised to the equilibrium of Pe.

*I wrote about these before: I Am Not Alone: Economic Cabinet Members REJECT the Free Tuition Program! February 12,2007 and Wow, BSP Chief Sees The Rise of Populist Politics/Retreat from Multilateralism as Scary Developments, Scary Stuff for 2017! December 18, 2016

Let me just give a hint that the impact from free tuition will diffuse not only into fiscal balances but likewise to sociology to the government’s bureaucratic structures to other forms of social welfare.

And pray that free education won’t transform into an education crisis ala Venezuela.

Since one thing leads to another, expect more free lunch policies to be advanced.

Yet free lunch policies only assure the strangulation of the economy!

Finally, the Philippine peso posted its biggest (+.81%) rally since the week of April 14 (+1.3%). The USD peso closed at 50.16 from the other week’s 50.57.

However, such rally would not assume away the deleterious effects of the BSP’s inflationary policies as well as the expanding the free lunch populist politics.

To my mind, the peso merely responded to the US dollar’s general weakness. In short, a countercyclical rally. The peso has already been weak even as the US dollar has fumbled globally.

What happens more once the USD regains part of its legs even for just a bounce?

Use the current US dollar weakness to take a long USD-Php.

Quote of the Day: Liberalism’s trifecta

The industry was liberalism’s trifecta: newspapers, television networks, and the school system. Two are bleeding red ink. The third soon will be, as online education enables students to live at home, take courses online, graduate with accredited degrees, and pay $15,000 in tuition, total. A widely accepted estimate is that half of all American universities will go under over the next five decades. It won’t take anywhere near that long. The no-name private colleges will go under first, Cutbacks in tax funding will complete the procedure. Legislators will figure out that they can fire two-thirds of the faculty and replace them with online lectures and low-paid, untenured professors and graduate students to grade written exams.

All that liberalism will have left is the public school system, K-12. This dinosaur has been caught trapped in the tar pit ever since 1963, when SAT scores peaked. Online education is invading today. The American Federation of Teachers is on the defensive. In 50 years, the suburban schools will be online. Competition will demonstrate that the public school bureaucracies cannot compete.

Liberalism made entrepreneurial decisions on where the future was headed. The World Wide Web is taking the world in a different direction. It is leaving liberalism behind.

Liberals call this process of ideological decentralization “Balkanization.” I call it the break-up of a cartel that can no longer compete on the free market.

This is from Austrian economist Gary North at the lewrockwell.com. Decentralization will likewise erode the 20th century top-down political institutions.

Classroom-less World: The World is your Classroom

The information age will be more about disruptive innovations or reconfiguring specific social activities via decentralized platforms. 

This should apply to education where online classes may be a transition towards a more decentralized paradigm: ‘Socialstructed learning’ or the world as your classroom.

Socialstructed learning as defined by Ms. Marina Gorbis writing at fastcoexist.com “is an aggregation of microlearning experiences drawn from a rich ecology of content and driven not by grades but by social and intrinsic rewards. The microlearning moment may last a few minutes, hours, or days (if you are absorbed in reading something, tinkering with something, or listening to something from which you just can’t walk away). Socialstructed learning may be the future, but the foundations of this kind of education lie far in the past.”

How the possible transition will go about, again Ms. Gorbis

Today’s obsession with MOOCs is a reminder of the old forecasting paradigm: In the early stages of technology introduction we try to fit new technologies into existing social structures in ways that have become familiar to us.

MOOCs today are our equivalents of early TV, when TV personalities looked and sounded like radio announcers (or often were radio announcers). People are thinking the same way about MOOCs, as replacements of traditional lectures or tutorials, but in online rather than physical settings. In the meantime, a whole slew of forces is driving a much larger transformation, breaking learning (and education overall) out of traditional institutional environments and embedding it in everyday settings and interactions, distributed across a wide set of platforms and tools. They include a rapidly growing and open content commons (Wikipedia is just one example), on-demand expertise and help (from Mac Forums to Fluther, Instructables, and WikiHow), mobile devices and geo-coded information that takes information into the physical world around us and makes it available any place any time, new work and social spaces that are, in fact, evolving as important learning spaces (TechShop, Meetups, hackathons, community labs).

We are moving away from the model in which learning is organized around stable, usually hierarchical institutions (schools, colleges, universities) that, for better and worse, have served as the main gateways to education and social mobility. Replacing that model is a new system in which learning is best conceived of as a flow, where learning resources are not scarce but widely available, opportunities for learning are abundant, and learners increasingly have the ability to autonomously dip into and out of continuous learning flows.

The good news is that the radical decentralization of the educational process will translate to its democraticization. With learning resources becoming more “abundant”, this means prices will fall towards zero bound— yes free education. And this means that education will span to cover greater number of people who will have access to specialized learning. This will also mean lesser politicization of the industry.

On the other hand, education service providers will have to discover other sources of revenues.

Also traditional education institutions will need to redraw their business models in order to adapt with the current changes otherwise face extinction.

Online Education: Movement for College Credits Gain Momentum

One of the main objections to online education has been in the aspect of credentials, i.e. it is not recognized by traditional universities and or colleges which makes them less appealing to prospective employers.

I’ve been saying that the deepening of information age will radically transform people’s lifestyle which should include education.

This will happen for many reasons; such as cost efficiency (more profitable), increasing network (more online graduates percolating the job markets will become future bosses, thus will likely decrease resistance; an estimated 4 million students are enrolled online in the US), better performance, greater specialization and or simply more tolerance for online graduates or a combination of all these and perhaps more unidentified factors.

In his defense essay at Cato Unbound on the online education debate, George Mason University Professor and Marginal Revolution blogger Alex Tabarrok (who along with colleague Professor Tyler Cowen has their own free online learning platform university called MR University)  notes of the other advantages:

1. Leverage of the best professors teaching more students.

2. Large time savings from less repetition in lectures (students in control of what to repeat) and from lower fixed costs (no need to drive to university). 

3. Greater flexibility in when lectures are consumed (universities open 24 hours a day) and in the lecture format (no need to limit to 50 minutes).

4. Greater scope for productivity improvements as capital substitutes for labor and greater incentive to invest in productivity when the size of the market increases.

5. Greater scope for randomized controlled trials of educational strategies thus more learning about what works in education.

Read the insightful arguments on the online education here.

Academicians can debate the merits or demerits of online education but the world has been moving forward: traditional colleges are now considering to give credit to online courses.

Notes the USA Today:

The American Council on Education, a non-profit organization that represents most of the nation's college and university presidents, is preparing to weigh in on massive open online courses — MOOCs, for short — a new way of teaching and learning that has taken higher education by storm in recent months.

A stamp of approval from the organization could enhance the value of MOOCs to universities and lead to lower tuition costs for students, who could earn credit toward a college degree for passing a particular course. At issue is whether the quality of the courses offered through MOOCs are equivalent to similar courses offered in traditional classrooms.

The popularity of MOOCs, which have been around for barely a year, has intensified quickly. Top faculty at dozens of the world's most elite colleges and universities are teaching hundreds of online courses in a variety of disciplines to millions of students around the world. The courses are free, but they don't count toward traditional degree programs

Online education will pop the government inflated education bubble and democratize ‘education’ via the competitive free markets. 

In the future I envision the proliferation of domestic graduates of Mises Academy, Coursera, Khan Academy, Academic Earth, MIT-Harvard, MR University, Stanford, University of People and more.

Traditional universities will either have to adapt or perish.

Free Online Education: 100k Signs Up for Harvard’s Offer; Minnesota’s Aborted Ban

One of the top universities of the world, Harvard University, has joined the bandwagon in offering free online education.

From Boston.com 

About 100,000 students have signed up for Harvard University’s first free online courses — computer science and an adaptation of the Harvard School of Public Health’s classes in epidemiology and biostatics. The online courses, part of a joint venture called edX, begin Monday, according to Harvard.

The university’s provost, Alan Garber, said Friday that the free courses are part of an effort to educate people worldwide and that the effort will help improve education on Harvard’s own campus.

“We really think that the first courses we offer will be great, but long term, the payoff is going to come from a better understanding about how people learn,” Garber said.

Harvard and the Massachusetts Institute of Technology established edX, a nonprofit organization, in the spring, and the University of California Berkeley joined the effort over the summer.

Courses offered through edX are branded MITx, HarvardX, and BerkeleyX. Anant Agarwal, president of edX, said interest has been equally high for the courses offered by all three schools: 155,000 students registered for a course in circuits and electronics that MIT offered through edX in the spring.

Students taking the online courses hail from around the world, but Agarwal said most of those in the spring course were in the United States, India, Britain, and Colombia.

Students can take as many courses as they wish through edX, and when they demonstrate mastery of a course they can receive a certificate of completion.

Graduates of online courses will eventually challenge those of the traditional courses on the job markets. And this will ultimately pop the current education bubble and radically alter current classroom based paradigms—which have been designed from 20^th century—as well as reduce  state indoctrination, diminish the welfare state, promote competition and lay emphasis on individualization/personalization of education (one teacher per student), expand knowledge specialization and democratize knowledge--yes, education for all willing to be educated. 

Free online education, thus, represents the diffusion and acceleration of the great F. A. Hayek’s knowledge revolution.   

The knowledge revolution will undermine justifications for government interference traditionally channeled through the politicization of the "poor" and "uneducated".

Meanwhile on a related field, politicians who pretentiously claim that they are for “education for all”, and the quack “education is a right” has shown their true colors by an attempted ban on free online education for specious reasons: legal technicalities or the enforcement of a state law that requires authorization from the state government

Notes the conservative Heritage Foundation

Lifelong learners, students wanting supplemental courses, professionals, and Americans across the country interested in enrolling in physics, history, music, and a variety of other courses can do so for free from the open-source provider Coursera. But Minnesota has just informed its residents that they are now prohibited by law from furthering their own education for free through courses offered on Coursera by the likes of Stanford, Duke, Princeton, and more than a dozen other universities.

As several reports have noted, the Chronicle of Higher Education first reported the following:

Notice for Minnesota Users:

Coursera has been informed by the Minnesota Office of Higher Education that under Minnesota Statutes (136A.61 to 136A.71), a university cannot offer online courses to Minnesota residents unless the university has received authorization from the State of Minnesota to do so. If you are a resident of Minnesota, you agree that either (1) you will not take courses on Coursera, or (2) for each class that you take, the majority of work you do for the class will be done from outside the State of Minnesota.

While students who enroll in a Coursera class cannot get college credit (although they can request that a professor send an email to a prospective employer, for instance, confirming that they took the course and reporting their success), models like Coursera are beginning to change the way Americans think about higher education and provide a huge opportunity to reduce costs and improve access.

Coursera—and others such as EdX (a Harvard/MIT online collaboration), Udacity, and Udemy—represent a shift in higher education toward credentialing content knowledge. Such a shift lays the groundwork for a revolution in higher education, allowing students to attain various credentials by demonstrating content and knowledge mastery from a variety of course providers. But that (literally) free pursuit of knowledge for their own personal edification or skill attainment is no longer available to Minnesota residents.

Politicians have obviously been feeling the heat from the internet whom threatens their longstanding privileges.

Cato’s Andrew Coulson wry but relevant commentary on the ban,

One of the classes you can take at Coursera is “Principles of Macroeconomics.” Maybe the folks who lobbied for and enacted the state’s education regulations are afraid that free learning and economic literacy would threaten their phony-baloney jobs. 

Fortunately, the snowballing forces of decentralization which has been enabled and substantially facilitated and buttressed by the internet has forced the Minnesota government to backtrack.

More signs of the deepening of the information-digital age