Chart : real interest rates… were negative 32 months on 50

Here is a new chart after the statement of Miss Tarisa, governor of the Bank Of Thailand : Our real interest rate is negative, therefore if there is any hike in the policy interest rate, any affect on spending and economic growth won’t be much,” said Tarisa. (Nation)

You can see the problem by yourself : from january 2004 to february 2008, on a total of 50 months, interest rates were negative… 32 months !

And the BOT seems to discover this fact… What a joke.

This is why I wrote : “the BOT discovers that water is liquid“.

To remember : real interest rate is the interest rate minus the inflation rate (CPI).

People usually don’t understand, but the idea of real negative interest rate is monstrous.

It’s not even cheap money, it’s not even free money… It’s worse : it’s free money with a leverage ! The more you get in debt… the more you get rich. You follow ? 😉

From an financial perspective, it’s a monstrosity. And it can only lead to wrong decisions from economic agents, markets distorsions, bubbles, credit binge, hang over, and then recession.

It’s mechanical. And it’s exactly what happened and happen now in many countries.

On the same scale of monstrosity, we could place the “carry trade” : borrow money in countries with very low (or negative real) interest rates… and then use the money to buy assets denominated in high yield currencies (Japan is famous for such “carry trade”).

It’s a magical trick. But the problem is : it can’t be a long term policy. It’s way too dangerous.

Money must have a price. Money can’t be free. And obviously money can’t be free with a leverage !

Miss Tarisa has endorsed and promoted such policy.

It’s too easy now to act like if the situation was… new.

3 Responses to “Chart : real interest rates… were negative 32 months on 50”

  1. 1 chinesethai 18 June 2008 at 5:15 am

    On one hand, Thailand needs to save the exporters and jobs. Raising interest rates and letting Baht rise could hurt the exporters and jobs.

    On the other, it needs to care for the economic stability and the poor. It can’t afford prolonged trade deficit.

    Something needs to be sacrificed.

  2. 2 thaicrisis 18 June 2008 at 5:18 am

    Exactly. Choices must be made.

    The idea to have “everything in the same time” is really dangerous.

    Since a few years, this idea has spread everywhere, thanks to a strong growth in the world (particularily in Asia). So many people take it for granted.

    Big mistake.

  3. 3 chinesethai 18 June 2008 at 6:20 am

    The root cause of this lies in the fact that, unlike China, …… Thailand, as well as most of the SE Asian countries, is not self-reliant in science and technology. And there is no sign that they are planning to be. They need all those luxuries (subways, bridges, cars, railways, computers, cellphones, satellites, cameras, machinery) that they don’t have the know-how to make. So all they can do is to earn as much foreign currency as possible by exporting little value-added commodities (rice, tapioca, sugar, etc), opening the country left-right-and-centre for tourism and foreign investment with little or zero technological transfer at the expense of the environment. And CORRUPTION is a BIG ingredient that has obstructed all the progressive thinking and brought Thailand to this point.

    So whenever there is a shock in the global economy like the current unstoppable rise in oil price, the country finds itself helpless. Thailand’s poor always pay the price, thus destabilizing the society.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.

%d bloggers like this: