Black Thursday

As we blame Sulpicio Lines for that sea disaster (the 5th time!), the world waits for the announcement of the US Federal Reserve on the fate of the US economy. This Thursday, the Fed will announce the first quarter economic performance of the economy. This is quite important, since the Fed is also expected to announce the impact of rising crude prices, unemployment and food prices. Technically, the US is suffering a mild recession and it could worsen into a depression if left unchecked.

What the US, and the rest of the world is most concerned about is the "free falling" state of global oil prices. Today, oil prices reached a ridiculous US$ 143/barrel, a US$ 3 rise from last week's price. Markets reacted negatively, with the Dow Jones falling nearly 11 percentage points today. Speculations are rife that crude price could reach US$ 160/barrel, even if Saudi Arabia continues its plan to increase production.

Many analysts blame oil speculators for this rise in oil prices. Many even see these oil speculators using the "Global Warming" scare to justify the increase in fuel prices. With the purported "depletion" of oil reserves around the world, speculators have created a scenario where they justify oil as a threatened or "rare" commodity, hence, rising price of resources to satisfy demand.

World leaders and CEOs are now meeting as we speak in Europe at the World Petroleum Conference. The meeting aims to address key issues such as this affecting the global oil economy. However, many are pessimistic since oil-producing countries such as Iraq continues to reject foreign oil contracts. Also, many oil companies have decreased oil exploration activities due to economic pressures. So, we may still expect oil prices to go up in the next few months. Analysts say, we would probably see a US$ 160-200/barrel price of crude in December 2008.

Analysts are also looking at the dismal performance of the job market in the US. Siemens, one of the world's largest companies, have announced the lay off of more than a thousand workers. Other smaller and medium-sized companies have also announced job cuts. This could lead to a sharp rise in unemployment rates in the US, expected to double digit by mid-August.

Lastly, inflation seems pretty vulnerable now with food prices reaching ridiculous levels. Analysts blame food speculators, even noting those based in the Philippines. A recent news report says that the Philippines actually created an artificial increase in the price of rice with its international bidding. Inflation could reach double digits for both the US and the Philippines by August or by mid-September. I am not surprised if it already reached double digits for the Philippines.

What government should do at this point is implement a contingency plan. Safety nets should be implemented to protect critical sectors of the economy. I believe the Philippine economy is not resilient enough to weather an Asian financial crisis similar to the late 80's. If this is the case, then, short-term solutions should be done, like targetted financial assistance to would-be hardest hit sectors. Export industries are extremely vulnerable at this point and government should be particularly attentive to their needs. Likewise, manufacturing and the services sectors could also be affected by the worsening US recession.

Lastly, government should fast-track the implementation of Salceda's Noah's Ark plan. Some of us would probably think this is just a dole-out, but a similar program succeeded in arresting the economic slide of Malaysia, Thailand and Singapore. Government should protect the further deteriorating state of almost 5 million poor families, especially in the National Capital Region (NCR) to (1) prevent social unrest caused by economic difficulties and (2) enable the economy to still float and survive this slowdown of the global economies.

Useless Pursuit of Nothing

Some senators just did a Walk for Truth. They did it yesterday, Araw ng Kagitingan. The Senate just filed an appeal before the Supreme Court after the Highest Tribunal castrated their powers on the issue of executive privilege. Reports say its an attempt to regain whatever image the Senate has after that disastrous and highly-political decision.

The question is--so what? Why do quarters insist on this issue when everybody knows that GMA was behind the deal? Why do they need a Neri when everybody knows that he does not have the balls to go against Gloria? For most Filipinos, this probe is finished. The truth has come out. GMA and her ilk are so full of themselves and so into graft and corruption now that even the very stocks of rice are now being manipulated to satiate their greed.

I say to everybody who wants change---move forward. Fight against greed. Fight Gloria in the battlefield where she claims to have succeeded--economic front.

Former US federal reserve chief Alan Greenspan just declared that the US is under recession. And everybody knows what this recession will do to us. This would further worsen our already lamentable economic state.

Food shortages will mark the remainder of GMA's term, as what Joey Salceda announced before the media a few days ago. These artificial shortages will continue because government is still helpless against these big-time rice traders.

However, I would like to commend the National Bureau of Investigation for "inviting" 3 big-time rice traders for questioning in their office. This is a bold move. This is a commendable one. I praise the NBI for making such a move. However, I would want sana to see at least one or two big-time rice trader JAILED immediately since these ones are the real anay of society that we, the people, want punished.

Worst is yet to come

HI READERS,

As I wrote here in this blog and in redbluethoughts.today.com, this report validates our economic prognosis in the Philippines. What this government should do is:

1. Institute austerity measures. Undertake fiscal discipline in all areas of governance.
2. De "cartelize" industries of basic commodities
3. Institute price controls in the name of "economic emergency". Mrs. Arroyo should declare a state of national emergency due to the expected economic crisis
4. Institute a well-thought food security plan.

If this government institutes these measures, it will ease up the expected slowdown of the Philippine economy.

Economists: Worst is yet to come


Filipinos still need to tighten their belts for the next six months as economists predict that the worst is not yet over.

Economic experts said prices of rice and petroleum products would continue to soar in the next few months.

The average price of petroleum products this March has reportedly reached US$96 per barrel as compared to the US$90/barrel in February.

Meanwhile, the cost of rice, a staple food in the country, is also climbing because Thailand and Vietnam’s harvest weakened. The Philippines is importing rice from Thailand and Vietnam.

Experts said the price of the rice and oil will continue to increase because of the big demand in China and India.

Cause to worry
"We have on one side the picture of a very rapid growth of the Chinese and Indian economy. As they double a lot of their supply of coal, wheat, oil and rice, these things are going to be very expensive in the Philippines. We're beginning to see it in the case of rice," said Dr. Felipe Medalla, dean of the University of the Philippines, School of Economics.

"Obviously there is worry especially about prices. Prices obviously are having a strong pressure upwards because of oil prices and again this global rise in food prices is really with us," Dr. Cielito Habito said.

Medalla and Habito were former socioeconomic planning secretaries.

Long-term uncertain
Medalla said it would be hard to stop the price increase particularly since the country is facing external factors, political problems and poor governance.

"Is a government mired in all sorts of scandals to be trusted by the people? Suppose the government says I'm an honest government, I'm telling you we have to have a slight rise in price to encourage farmers to produce. Who will believe it?" Medalla said.

They however advised the public to prepare as the long-term effect to the country is still uncertain.

"Let's prepare for the worst, let's be ready to tighten up our belts because definitely the worst things are coming but then again, not to lose hope. In the end, the economy is only as good as the people who make up the economy," said Habito.

Reuters poll - RP econ to slow
Philippine economic growth will slow this year from a three-decade peak in 2007 dampened by weak exports, slowing private investment, as well as rising inflation, a Reuters quarterly poll showed.

But government spending to rehabilitate and upgrade public infrastructure after years of neglect should provide some support, analysts said.

The median forecast of economists polled was for gross domestic product (GDP) to expand 5.8 percent in 2008, slower than 7.3 percent growth in 2007.

Lower than Dec poll
The latest 2008 growth forecast is lower than the 6.1 percent estimate in a similar poll conducted in December and is lower than the government target of 6.3-7 percent growth this year.

"The expected slowdown in the Philippine economy is really externally driven," said Frederic Neumann, an economist at HSBC.

"Aside from exports, remittances will also take a hit on the chin, which means slower consumption growth."

Fears of an abrupt US downturn loom large in the Philippines, where 16.2 percent of exports are bought by Americans, and where an estimated 30 percent of overseas Filipino workers' remittances come from.
With reports from Bandila and Reuter

A layman's guide to the US recession

Analysts say the fed cut on rates will not totally save the US from a recession. Markets today recovered but most investors believe this is not enough to arrest the slow slide of the US economy.

How to explain the US recession

Its like this. Millions of Americans can't pay their mortages to the banks. Why? Because people don't have enough money to pay those mortgages. Why? Millions of them don't have work. Those who do have jobs scrimp for money to pay high interest rates.

Those millions who don't work are victims of globalization. Why? US companies don't need their services because most have outsourced their labour requirements elsewhere, like China, India and the Philippines where labour is cheap.

Those who have work, well, because of their low salaries, can't pay the high interest rates that the banks charge. Blame the Fed. They're the ones who charge high interest rates. Why do they need to charge interest rates? Because that's where banks earn. And when banks earn, they pay higher taxes. Those taxes keep the US economy afloat and prevent bankruptcy.

Since many are not paying their mortgages, banks can't pay taxes. And when banks can't pay taxes, the US economy loses valuable revenue. And when it has low revenues, government can't fund its projects. And when that happens, treasury suffers and even government can't pay for its commitments to creditors and companies. Why is the US treasury nearly bankrupted itself?

Because the US is spending heavily on the global war on terror. The US spends billions of dollars everyday just to sustain the fight against Al-Qaeda in Afghanistan and Iraq. Americans are suffering because Bush decided to spend their dollars allegedly fighting terrorists.

So, they need more dollars. Some would say, why not make them? Well, the treasury can do that but it would lead to deflation which is also dangerous. Americans can't flood their economy with billions of dollars more because it would further dilute the value of their currency. Remember that currencies, by nature, should be traded. If they are not traded heavily, they lose or dilute their values. For currencies to be traded, they need to be exchanged. And the only reason for them to be exchanged is if companies buy stuff from other countries. This can only happen if there's a robust economy and companies are trading heavily with other companies around the world.

And the US economy is not performing well. It can't keep itself afloat. That's why some analysts predict that anytime now, the Federal Reserve would announce an recession.

What's the effects of recession?

A recession would send the signal that the US will momentarily stop paying its commitments to creditors and banks. It also means a slower economic pace. When an economy slows down activity, it affects markets since companies will have to lower their growth forecasts to keep pace with a slower economy.

Slower activity means decrease consumer spending

Capitalist economies such as the US rely heavily on consumer spending. In a recession, companies produce less since they expect that fewer people will buy their products and services. Why produce more when lesser people will buy? When there's lesser people buying stuff, (its postulated in economics that during hard times, people tend to save more than buy)it affects hundreds or thousands of companies. Profits are lower. When profits are lower, company performance is also affected. When companies perform less, their stocks are affected. Fewer investors will buy stocks from companies' which profits less. That's why stock markets crash when trading slows especially when investors sell instead of buy stocks.

Markets affect people's lives

When stock markets slow down, companies get a lesser amount of capital to use for their manufacturing and production. So, its a cycle.

Who will be hit the hardest?

Globalization has effectively linked regional and global economies to one. The US economy is the mother of all capitalist economies. Economies such as ours depend on the US economy. In fact, our economy will be one of the most affected since many companies here export their stuff there. BPO's and call centers will also be affected since most of their clients are US-based companies.

I expect call centers to bear the brunt of the recession. Fewer US companies will hire call centers since US companies will try to think of ways to save money by cutting down costs. Customer services will definitely have to go. When that happens, thousands of Filipinos working in call centers will have to be retrenched.

Philippine export companies will also be affected since the US is one of their primary markets. A recession would mean a smaller market to sell their products.

Is the solution looking elsewhere, like China?

No. China is still a paper tiger. Its economy is still heavily dependent on the US. If the strategy of the Arroyo government is to decrease US trade and concentrate on Chinese trade, they're mistaken. The yuan is still an unstable currency. It is pegged to the US dollar. Fluctuations in the US dollar due to uncertainty will definitely affect the Chinese economy.

Faulty Economic Vision

So its official---the Philippines will increase its economic ties with China, instead of the US. This is to cushion the impact of an impending US recession. Officials say this is to mitigate the effects of the recession, since, according to the IMF, the region where the recession will most likely hit hard would be Southeast Asia.

What fools.

China is totally reliant on the US for its own economic survival. Increasing our ties with the Yuan currency will not, I say again, will not insulate us from the US recession. The yuan is pegged to the US dollar, like our peso. If we help increase Chinese trade in our country, we are actually deprising our own businessmen compatriots of a sizeable market for our own local products.

Prescription

The secret to surviving this threatening economic crisis is NOT, I say, NOT to spend so much. Arroyo's perverted direction encouraging that all projects should be continued to innoculate us from the crisis is not a very good idea. The only way for us to survive this is to limit spending on frivolous projects, concentrate on strengthening local industries and insulate the export industries by creating safety nets. Also, we need to assist the ailing agricultural sector by opening external markets while enhancing production capacities. That what we can ease the pressure of the recession to our economy

The Sumilao Model

Just like what we wrote here, the Sumilao model remains as the most viable form of struggle that would eventually lead to a revolution. Yes, I said it first here. Versions of Sumilao appears in almost all of the forms of struggle right now. Marches left and right are happening now. At this writing, thousands of farmers are marching towards the seat of power.

And the Powers-That-Be quake in fear.

Will these mass actions lead to something wonderful? Will it eventually prelude the downfall of Gloria.

No.

Without the support of the enlightened military and the traditional political groupings like the Liberal Party, the Nacionalista and others, the rate of success is nearly zero. These mass actions should be supported by civil society, religious and proto-religious groups. Why? To attract middle class attention and animate the minds and hearts of the fence-sitting majority.

Why the rural masses as lead?

The continuing US recession will greatly impact the rural areas this year. Most of RP's agricultural products are being exported in the United States, Europe and Asia. With these markets under great stress and depression, the agricultural sector will definitely find it very difficult to expand and grow. Yes, agricultural production was high last year, as attested by Agri Secretary Arthur Yap. But, we are not talking about production here. We are talking markets. Even if we increase production ten-fold if these products cannot find a market, its useless. The internal demands for our agri products will never exceed external demands.

Expect thousands of insurgencies to explode in various parts of the country this year. And it is not because of globalization. It is due to a decreasing market size that is behind this.

Will ousting Arroyo solve the problem?

Yes. A new government will rejuvenate every sector of Philippine society. It will boost investments. It will likewise improve the economy, make it grow. Foreign governments will again look with kindness at this country and consider it as a viable investment and production site.

It will eliminate the persistent problem of legitimacy and would open the country to acclaim since finally, the Filipino People have wrested their freedom from dictatorship.

The US recession and its Impact on US

Arroyo has just called an emergency energy summit. She needs to. The threat of high oil prices will impact greatly on the country's economy. One of the things which this summit achieved is lower the tariffs imposed on oil prices. It was a decision which sectors have been wanting for Arroyo to do since last year when oil players jacked up petrol prices.

But what Arroyo must actually do instead of calling for an energy summit is an economic summit. Why? There is a strong possibility that the slide of the US economy into recession will affect Philippine economic growth this year. The high 5% unemployment rate and the sluggish pace of the economy will surely affect the flow of net foreign portfolio and foreign direct investments. Investors, both local and foreign, have shown nervousness and apprehension, not because of political talks, as what "eminent" stock analyst Astro del Castillo said yesterday. The Philippine stock market will perform poorly in the next couple of weeks or even months until this US recession boils over.

Surely, those companies involved in the call center, export and those closely linked with retail or consumer goods will find it extremely hard to compete in the US due to this recession. There will be less demand for locally-based call centers because companies in the US will surely slash their customer service budget. When things turn worse, companies look at their books and erase those which they consider to be dispensable expenses.

What I fear is the fate of fellow Filipinos in the US. Surely, with unemployment high, the first sector to be affected by it would be the minorities. There will be less jobs available for them. When this happens, some or many of them would be unable to send dollars into the country or worst, entertain thoughts of going back. The exodus of incoming expats would surely strain our own economy.

This early, questions about the resiliency of our economy are animating every boardroom and every coffee shops. People are edgy. And when people are uncertain about things, they are bound to do the inevitable--strategic retreat. I, myself, am thinking of pulling out certain investments linked with the stock market, for fears that the value of my money will be diluted due to this impending recession. I am not encouraging others to do so. But, if they assess the situation, they would empathize with me when I say this: When the sky is littered with dark clouds, it's time to rush to the nearest shelter for rain.