It is the absolute right of the State to supervise the formation of public opinion. If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State—Joseph Goebbels, German propaganda minister
In this issue
BSP’s Balance Sheet Explodes Higher in August! Bank Downgrades by S&P, Justifying Debt with Inflated Statistics
I. Shaping Public Opinion through Disinformation?
II. Philippine Gov’t on Taxes: Cognitive Dissonance, Opaque Plans and Fluid Goalposts
III. Can Popular Opinion Overrule The Economic Ramifications of Centralization Trends?
IV. Justifying Debt with Inflated Statistics: No Doomsday for OFW Remittances and Record GIRs
V. S&P Global Downgrades Some Major Banks; DoF Telegraphs MOAR BSP QE in 2021!
VI. BSP’s Balance Sheet Explodes Higher in August!
VII. Revamping the BSP’s Balance Sheet with Treasury Assets! Greater Risks, More Fuel for the USD
BSP’s Balance Sheet Explodes Higher in August! Bank Downgrades by S&P, Justifying Debt with Inflated Statistics
I. Shaping Public Opinion through Disinformation?
Below are some samples from the latest media reports depicting the quality of information disseminated to the public…
From GMA News (October 5): President Rodrigo Duterte scored the highest approval rating among the five highest government officials amid the COVID-19 pandemic, according to the results of a recent Pulse Asia survey released on Monday. The survey, conducted on September 14 to 20, showed Duterte having a 91% approval rating, up from his 87% rating in September 2019. It also showed 5% disapproved of him while 5% were undecided.
From the Inquirer (October 8): An overwhelming majority of Filipino adults — 86 percent — have admitted that they have been stressed over the prevalence of the COVID-19 pandemic, the latest Social Weather Stations (SWS) survey showed. In its report released on Thursday, SWS noted that the 86 percent mark, which consists of 58 percent of the respondents saying that they had “great stress” and 27 percent “much stress,” is one percentage point higher than the results they obtained last July.
From the Inquirer (October 5): SWS said on Monday that adult joblessness rates for the month of September are at 39.5 percent, which amounts to around 23.7 million Filipino adults. While this is lower than the previous numbers that correspond to 27.3 million adults, it remains in the very high range. But more importantly, the latest survey also revealed that 14 percent of Filipinos had lost their jobs amid the COVID-19 pandemic, which means that approximately 9.243 million (39 percent) of the 23.7 unemployed Filipinos went jobless while the health crisis was ongoing.
From the Inquirer (October 12): The Philippines cannot revert to stringent COVID-19 lockdowns if it wanted to save jobs and lift more out of poverty when the pandemic ends, according to economic managers as two weeks of strict quarantine in Metro Manila and four provinces last August weighed down infrastructure spending and foreign trade. Finance Secretary Carlos G. Dominguez III on Monday (Oct. 12) said the economic team had repeatedly warned about the impact of lockdowns — which, in turn, resulted in millions of job losses — on poverty incidence.
So extensive job losses, mounting poverty incidences, and increased mental stress lead to a high approval rating for the leadership? Or have popular ratings been about cult-like following from the populace, or "sacrifice is necessary to appease our supreme leader"?
The SWS adds, the public sees the NG's COVID policies as adequate, except for jobs! But haven’t all of the above been bundled? Or are mental stress, not only an outcome of isolation, but also brought about by financial hardships from income and job loss?
From Asia Times (September 30): The ongoing crackdown on fake accounts has also exposed China’s expanding “sharp power” operations to disrupt democracies, including the Philippines, which is heading towards its own presidential elections in 2022. Last week, Nathaniel Gleicher, head of Facebook’s Security Policy, announced the shutting down of various accounts in the Philippines as well as China which have been allegedly been engaged in “coordinated inauthentic behavior.” The Facebook executive warned of clusters of online activities, which adopt “deceptive methods” to sow disinformation and hide their real identity and agenda. “So we regularly see these networks using pages that don’t fully disclose who’s behind them. The patterns of engagements that they may have with these accounts aren’t just the fact that they’re fake, but it’s how they use the accounts to boost their contents,” Gleicher added. The targeted Filipino network reportedly consisted of 57 Facebook and 20 Instagram accounts and as many as 31 Facebook public pages which have been traced to the country’s security services. “This network consisted of several clusters of connected activity that relied on fake accounts to evade enforcement, post content, comment and manage Pages. This operation appeared to have accelerated between 2019 and 2020… Although the people behind this activity attempted to conceal their identities, our investigation found links to Philippine military and Philippine police,” warned Facebook in a statement. The suspicious activities allegedly involved special social media units within the Philippine National Police (PNP) and military, which have been engaged in psychological warfare against communist rebel outfits and progressive, left-leaning groups.
What limits the spread of misinformation if conducted by the authorities? If the idea is to promote the popular ratings for the administration, especially with elections coming soon, would the spreading of disinformation be limited only to the political sphere, or would it encompass all segments, including finance and economics?
II. Philippine Gov’t on Taxes: Cognitive Dissonance, Opaque Plans and Fluid Goalposts
And yet, officials assure the public with shifting goalposts and opaque plans.
From the Inquirer (September 23) Filipinos should brace for possible new or higher taxes before President Rodrigo Duterte steps down in 2022 so that the government can repay the bigger debt it incurred to better respond to the health and socioeconomic crises inflicted by the COVID-19 pandemic. “I think sometime in the late 2021 or early 2022, we will start looking at additional revenues to pay for the heavy indebtedness that we are incurring this year,” Finance Secretary Carlos G. Dominguez III told the Senate finance committee on Wednesday.
From the Inquirer (October 15): President Duterte’s chief economic manager on Wednesday said that despite weak government revenue collections and surging borrowings, the Philippines would neither increase taxes nor dispose of big-ticket public assets in the near-term. “We are not really seriously considering any taxes. Taxing our citizens when their incomes are down is not a good idea,” Finance Secretary Carlos Dominguez III said in an interview on Bloomberg TV.
Like GDP, the fiscal deficit, and other macro-economic projections, authorities continue issuing communiqués with shifting goalposts. Have these not been part of the signal channeling designed to condition the mindset of the citizenry?
With the public's debt growing at a phenomenal rate, how do they expect to pay these, if not by raising taxes?
The public's debt burden, the BSP recently confessed, shall soon rise. Again, from the BSP’s 2020 FSR: The key element now is that NGs are taking on the burden for funding the needed relief program. There is no other entity in place that can absorb the ultimate risks and the corresponding financing. This will certainly mean higher debts, much less fiscal space. Intertemporally, this debt can be bridge-financed with more debt just to sustain liquidity. Ultimately though, taxes will have to adjust intergenerationally to make up for the gap. This is a policy issue that, for the moment, is pushed down the road but is unlikely to be avoided.
Besides, haven’t the National Government (NG) been pushing for the CREATE bill, which lowers income taxes in the interim that would immediately balloon the fiscal deficit, and subsequently, compound on the nation’s debt stock?
III. Can Popular Opinion Overrule The Economic Ramifications of Centralization Trends?
But instead of meaningful liberalization, the administration has been pushing for privately owned state-sanctioned enterprises or a neo-socialist economy (the fascist or state capitalism strain). The latest example involves the centralization of transport services.
From the Inquirer (October 17): Drivers and operators of public utility vehicles (PUV) may now enter into transport service contracts with the government under a P5.58-billion program aimed at easing the impact of quarantine restrictions. The Land Transportation Franchising and Regulatory Board (LTFRB) released Memorandum Circular No. 2020-059, signed by LTFRB chair Martin Delgra on Oct. 8, which outlines the implementing guidelines for the program that will allow PUV drivers and operators in Metro Manila and its nearby provinces, Metro Cebu and Metro Davao to render services to the government to meet the public demand for mass transportation.
So stages of the slippery slope towards centralization involve, first, restricting mobilization of transports, and then offer a bailout in exchange for centralized control of the sector. Instead of the commuting public, the government now determines the revenue and cash flows of the sector.
So how will a government takeover induce investments in the transport sector?
And does this not fit into sixth of the ten planks of Karl Marx’s Communist Manifesto that states, "Centralization of the Means of Communication and Transport in the Hands of the State"?
And thus, how do they think they can offset lower declining revenues with a surge in public spending and thus accrue a mountain of debt? By money printing? Is fitting a square peg on a round hole representative of a sound policy?
Aside from liquidity management, the other implicit goal of the central bank’s use of the printing press is to diminish the real debt burden. However, aside from furthering systemic imbalances, it only buys them time.
In any case, could the cure be worse than the disease?
IV. Justifying Debt with Inflated Statistics: No Doomsday for OFW Remittances and Record GIRs
And there's more, aside from obscure goals and targets, in trying to assuage the public, official communications have also been plagued by cognitive dissonance.
Figure 1
From Philstar (October 3): Economic managers now expect a deeper GDP contraction of 4.4 to 6.6 percent instead of two to 3.4 percent this year and a slower recovery with a growth of 6.5 to 7.5 percent instead of eight to nine percent next year.
From the Inquirer (October 14): “Weak demand means PH economy will spend less dollars than forecast in 2020-21”: The Philippine economy will earn more dollars than it spends for this year and next — and consequently see an increase in the country’s foreign currency reserves — on the back of lower imports due to weaker domestic demand. Thus said the Bangko Sentral ng Pilipinas (BSP) which announced on Wednesday sharp upward revisions to its balance of payments and gross international reserve forecasts for 2020 and 2021 which were recently approved by the Monetary Board.
See the contradictions?
If demand is weak, how then will the GDP target of 6.5% to 7.5% be attained? By forcing a production boom, when various rigorous operational barriers remain in place? And as they see things, wouldn’t supply side policies would be contradictory to the National Government and the BSP’s main guiding principle of demand management? Or are they banking on the elixir of fiscal spending’s trickle-down effect, which benefits only a few entities, at the expense of amassing Brobdingnagian debt?
The most recent forecasts describing weak demand equals more surpluses comes in the light of the nation’s gross international reserves hitting a record high of USD 100.5 billion as of September, primarily from "inflows mainly from the BSP’s foreign exchange operations and National Government’s foreign currency deposits with the BSP".
And with the recent release of OFW remittances data, which registered a slight decrease of 4.2% last August and a 2.6 decline YoY, the BSP has been elated that current numbers have been "far from the doomsday scenario" predicted by analysts.
The general idea is that with so much stash in USD, the nation is thus immune from a financial crisis, thereby justifying its rapid accumulation of foreign currency debt.
As previously pointed out*, the OFW remittances data has been unsupported by the economic logic. For instance, over 200k OFW were recently sent home by the National Government, which provided cash aid to some 280k of them. Including those who lost jobs but stayed abroad, over 500k or at least 23% of the total OFWs have been affected.
And because the BSP is a monopoly, the data it churns are not audited or authenticated elsewhere.
The assumptions ingrained into the BSP’s data publications are that such agency, untainted by politics, can only disclose objective and accurate statistics.
*On the July OFW Remittance Bounce, What the BSP’s Record Gross International Reserves Means, More on Unemployment Statistics September 21, 2020
V. S&P Global Downgrades Some Major Banks; DoF Telegraphs MOAR BSP QE in 2021!
However, the BSP never tells the public what are the economic, financial, and social costs of the borrowings by the National Government and the FX operations it and the banking system conduct with foreign counterparties. We must believe that they can do no wrong.
Yet, the combined FX operations of the BSP and its agent banks, which reached historic levels, has accompanied the record growth in the GIR.
And as I wrote last week…
Adding all these together, banks have become dependent on injections from the BSP for its funding! Incredible!
That is, the BSP hopes that by inundating the system with a tsunami of liquidity, it would be able to drown insolvency issues at best, or at the very least, disguise these by kicking the proverbial can down the road.
Consumers Burned Cash from Savings; the September CPI Story; QE Becomes Main Source of Bank Funding! October 11, 2020
Buried in the news have been a report of the recent downgrades of some of the major banks by the favorite establishment credit agency, the S&P Global Ratings.
From the Philstar (October 13): A deteriorating economy is posing greater than expected risks on Philippine lenders, three of the biggest had been placed under negative watch by debt watchers in a sign of bleaker things to come for the local banking sector. S&P Global Ratings announced early Tuesday morning placing into negative the outlook for credit ratings of Bank of the Philippine Islands (BPI) and Security Bank Corp. Hours after, Fitch Ratings did the same for China Banking Corp.
Like the GDP forecasting, credit downgrades happen when risks have become apparent.
And further disclosed, the BSP’s printing press operations, which started with Php 300 billion in March, and has now expanded to Php 840 billion, will be further increased in 2021!
From the Philstar (October 14): The Duterte administration may borrow money from the Bangko Sentral ng Pilipinas (BSP) again next year if the highly anticipated economic rebound from the pandemic does not materialize. “Our first options are to go back into the commercial market, but if the economy doesn't perform as we expect, we will go back to them (BSP),” Finance Secretary Carlos Dominguez III told Bloomberg on Wednesday.
Again from last week,
In other words, by adopting QE, the BSP has corroded its supposed “independence”? What stops the NG now from perpetuating the use of QE? Self-discipline?
VI. BSP’s Balance Sheet Explodes Higher in August!
The BSP published its balance sheet as of August.
Figure 2
Along with its QE, BSP’s balance sheets exploded by an unprecedented 31.03% in August to a record Php 6.76 trillion. August’s number accounts for 36.57% of this year’s official GDP target (-5.5%).
In the past, international borrowings supported the QE; this time, however, FX operations have failed to keep pace with the rise of domestic liquidity expansion. That said, despite the substantial borrowings, the share of BSP’s FX assets plunged to 70% of total assets, a multi-year low. At Php 4.76 trillion, nominal FX assets drifted near the record high.
Meanwhile, domestic securities, which surged by a milepost 171% for a third straight month of triple-digit gains saw its share of total assets rocket to 18% at Php 1.22 trillion.
Figure 3
On the liability side, while currency issuance zoomed by 30% in August, the sizzling 40.1% of deposit growth eclipsed the former. In effect, the share of currency to total liabilities tumbled to 26.94%, while deposits jumped to 58.52%.
Reserve deposits of other depository corporations (ODC) or bank reserves fell 20.58% YoY last August to Php 1.352 trillion, which share of liabilities sunk to 20.58%.
The BSP cut RRR rates by 200 bps last March, which translates to Php 198 billion (year to date) of reserves released to the banks.
Meanwhile, deposit accounts of the Treasurer, which includes foreign currency deposits, surged 70.37% in August to Php 1.24 trillion. Its share of liabilities soared to 18.8%, which narrowed the gap of the ODC.
On the other hand, Overnight deposits (OND), which represent domestic repo activities, rocketed by 2,913% to Php 593.6 billion from Php 19.7 billion a year ago. OND accounted for a 9% share of total liabilities, which spiked from .4% in August 2019.
VII. Revamping the BSP’s Balance Sheet with Treasury Assets! Greater Risks, More Fuel for the USD
With the QE, domestic Treasury securities have been replacing bank and FX assets depicting the extensive amount of inflationism used by the BSP to rescue a supposedly "stable or sound macroeconomy".
Last September I wrote, that
Having a large short position is like building a rocket lift-off pad for the USD.
The deterioration of the BSP’s balance sheet from its printing press operations should signify another fuel to the lift-off pad for the USD.
Not just about the USD, the BSP’s QE carries with it embedded risks, as the great Ludwig von Mises explained,
…inflationism carried on ad infinitum is not a workable policy. If the issue of fiduciary media is expanded continuously, prices rise ever higher and at the same time the positive price premium also rises. (We shall disregard the fact that consideration for (1) the continually declining monetary reserves relative to fiduciary media and (2) the banks’ operating costs must sooner or later compel them to discontinue the further expansion of circulation credit.) It is precisely because, and only because, no end to the prolonged “flood” of expanding fiduciary media is foreseen, that it leads to still sharper price increases and, finally, to a panic in which prices and the loan rate move erratically upward.
Ludwig von Mises, Part B: Cyclical Policy to Eliminate Economic Fluctuations 2. Monetary Stabilization and Cyclical Policy (1928), The Causes of the Economic Crisis, and Other Essays Before and After the Great Depression
At the moment, the massive injections have initially pushed down rates, which has been aggravated by a big setback in demand. However, despite the recent infusions, yields of Philippine Treasuries (BVAL) have been creeping upwards.
That is, the more the BSP uses QE, the risks of a crisis are magnified, which should also serve as a massive springboard for the USD (plunge in the Peso).
Let us not forget, the market and the economy are time-consuming processes.
