After “historic rates cut”, lies and misrepresentations from Bank of Thailand

Let’s go back to the “historic largest ever blabla” interest rates cut from the Bank Of Thailand (-100 basis points, from 3,75 to 2,75 %) announced wednesday.

I would like to debunk some of the bullshits the BOT and the medias serve us. For the sake of the exercise, let’s take an article published in Bangkok Post.

Mrs Duangmanee [an assistant central bank governor] said the decline in inflation had also provided room for monetary policy to shift its bias towards accommodating economic growth. Inflation dropped to 2.2% year-on-year in November, a 14-month low and down from 3.9% the previous month.

Once and for all, we should remember that currently we have DESINFLATION not DEFLATION. In other words, we have a slowing inflation rate. Not a general decrease of prices.

Prices increase at a slower pace than before.

Read my article about CPI in november. Food & beverage index for instance is 15 % higher than last year ! And the CPI is at 121,5 points against 118,9 in november 2007… Therefore still higher.

The central banks and medias around the world love to confuse people.

In the new weird Lalaland of central banks : when prices increase, the core CPI does not so it’s not necessary to hike interest rates… And when inflation rate goes down, then it means they can reduce interest rates.

In other words : all occasions are good to “stimulate”. 😉 To have a loose monetary policy.

“In fact, fiscal policy should take priority in stimulating demand. But [the economy] is unlikely now to respond well to the current problems,” Mrs Duangmanee said. “The MPC therefore needs to front-load monetary policy. We expect the impact to be felt on the economy in the near term.”

This one is tasty : so the economy is not able to answer to fiscal stimulus… so why it should respond to… monetary policy ? !

It doesn’t make any sense. If individuals and businesses are not stimulated by direct fiscal policy (to consume and invest more) why they would be stimulated by an interest rates cut ?

“We want to signal that monetary policy is now very loose. One sign is the fact that the policy interest rate, in real terms [after inflation], is so low.

This is just a plain and blablant lie. Shameful. Look at the chart.

botra

Real interest rate is absolutly not “so low“… The monetary policy is not so loose “now“.

It has been loose before, for a very long time (jan 2004 to mid 2006, and jan 2008 to mid 2008), and curiously the BOT wasn’t concerned about it, wasn’t even speaking about it. How convenient…

This grotesque lie is just a way to cover their arse and justify the fact that they can’t really cut a lot more.

Caretaker finance minister Suchart Thada-Thamrongvech, who has long urged the central bank to aggressively cut interest rates, praised the MPC’s action.

Dr Suchart said that with the policy rate now in line with average bank deposit rates, financial institutions would have greater incentive to lend rather than park funds in the money markets.

Suchart is ecstatic, because he has been begging for a rate cut since long time. It was his obsession (like all the politicians more or less). But what he says is just another nonsense.

All those clowns think that things are perfectly mechanical.

-I reduce my interest rates
-therefore it’s not interesting anymore for the banks to park their funds in money markets (at a lower price)
-therefore, banks will have incentives… to use their funds in another way : to lend more for instance !

Banks are not robot, are not living in a bubble. Banks reflect the general state of the economy. When the demand drops, the banks are not motivated to lend more ! Because, in any case, there is less demand for loans ( less projects to be launched etc.) !

Furthermore, following businesses and individuals, reflecting the general mood, banks become also more scared… less willing to take risks by giving out loans like candies… And in any case less willing to reduce their margins (to lend at lower price) !

This is a basic rule… related to basic human behavior, related to the grand scheme of cycles (growth, bubble, burst, start again).

But all the lunatics around the world (it isn’t of course a thai exclusivity) believe in the power of the words. They don’t believe in god. They believe they are gods.

Thou shall lend more, because… I said so !

😉

It’s freakingly amazing. And freakingly pathetic…

6 Responses to “After “historic rates cut”, lies and misrepresentations from Bank of Thailand”


  1. 1 fall 5 December 2008 at 12:04 pm

    Talking about managing by the textbook. I can imagine all the genius at BOT brainstorming together:

    Bureaucrat A: “Global economy is crumbling! Lunar cycle predicted bad omen! What shall we do?”
    Bureaucrat B: “Bring out THE book!”
    -rolling out a gold-gilded cart with book that radiate golden aura-
    Bureaucrat B: “Behold! THE book that will save us all! It’s titled is “Economics 101″!”
    Bureaucrat A: “We are saved, yippie-hurray!”
    Bureaucrat C: “Now, let see the table of content and find our salvation… hmm… monetary policy sound nice!”

    And thus, a happy-ending… not.

  2. 2 FDL 5 December 2008 at 3:38 pm

    We should not be too harsh on our Thai central bankers. Fibbing is an art – mastery of which is requisite to every aspiring central banker. And Alan Greenspan would probably rank as Fib Master of the bankers universe.

    Economics 101 pages must be getting torn from re-reads.

  3. 3 ThaiCrisis 5 December 2008 at 3:50 pm

    Absolutly correct. This is why I take great care to repeat many times that it’s not a “thai exclusivity”.

    All the central bankers are the same, because they have been conditionned within the same mindframe.

    And Greenspan will get, I think, a very, very bad role in history books.

    When those history books will speak about the “Great Great Depression” that is happening right now under our eyes… oh yes Greenspan will be lynched…

  4. 4 Insanity 5 December 2008 at 5:32 pm

    Indeed, the King of the Bubble himself, Sir Alan Greenspan, who, as reported by the May 27 Financial Times, believes that although “there is a greater than 50 percent probability of a recession … that probability has receded a little and I think the probability of a severe recession has come down markedly.” Greenspan said it was “too soon to tell” if the worst of the financial crisis were over. If that weren’t enough, Sir Alan warned that the central banks should not try to suppress bubbles lest they suppress innovation and growth, adding that “micro-meddling” merely undermines the financial system, since financial crises “of necessity are unanticipated.”

    Denial and stupidity often run together.

  5. 5 Insanity 5 December 2008 at 6:01 pm

    Indeed Governments have been lying (not just Thailand).

    The world monetary system (IMF system)is hopelessly
    bankrupt. The crisis is not caused by a breakdown in some mortgage crisis inside the United States, or something in England. The cause of the crisis, which broke out in
    July of 2007, was a result of an increase of an expansion
    of derivatives, which now totals to obligations in excess
    of quadrillions of dollars! The greatest amount of this
    expansion occurred under the administration of the
    former head of the Federal Reserve System, Alan
    Greenspan. And we have now quadrillions of dollars of
    obligations, so denominated, which are self-expanding
    obligations. This hyperinflationary monster is eating
    the world.

  6. 6 FDL 6 December 2008 at 1:58 pm

    What is unusually weird and scary is: While nearly all the governments of the world pour trillions of credit and tons of money ‘to stimulate’ the global economy, commodity prices keep on plunging (oil now at $40 and dropping), job losses staggeringly spreading, consumer confidence/demand plunging, global bank loan losses still ballooning and industries/companies profits shriking fast.
    Because VELOCITY of money had virtually stopped (nobody borrows, nobody lends (except governments) and nobody buys).

    The current global financial/economic crisis will not be found in Economics 101 lessons . . and no one has a clue, least of all the Federal Reserve and central banks of the world, how those tons of easy money would impact, and HOW FAST, once MONEY VELOCITY really moves.

    Hyperinflation after the deflation? Most surely. And when it comes, probably more pain and much longer pain to endure by all.


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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.


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