Thus one could say that my Economic knowledge are merely based on watching some YouTube clips and personal observation, but do take note that I took an Economic subject in SPM and a couple of Economic courses in Uni. Though after seeing so many "economic expert" predictions and speculations I dare say my credibility is as good if not better than theirs.
The bogey word for the current financial meltdown in US would be "Subprime lending". Subprime is not a member of the Autobots nor is it an inferior version of Optimus Prime, instead it is an economic term. Recently created. To make things simple (kinda like E=mc2 in which people don't really care how in the world they got that formula) Subprime Lending is the act of giving out loans with interest rates written in fine print to people who can't afford to pay them back. Subprime Lending can also be defined as the art of making people think that imaginary money from the future will guarantee their standard of living. In the case of United States banks and financial institutions practice the art of Subprime Loans to home buyers.
So how does this connect to Malaysia? Well there are many ways of which it will affect our economy but that is not what I am going to discuss today. The current financial meltdown or impending meltdown is caused by mismanagement of credit and this is what I think we should look into. At least in the perspective of Malaysia.
The Credit Discussion.... Personal Credit
Economy : The management of household or private affairs and especially expenses
For me, to understand the upcoming economic problems that Malaysia will face in the near future one must not see or study how the average family manage their money but instead focus on younger generation who are generally single or just starting a family because they are the future. In other words our target would be the 80's baby in which most are in the should twenties by now. These are the generation that will start a family and take over the workforce in the next decade. Yes you and me (well most of you).
Let's analyze the economic situation of young typical graduate (degree holder) that comes from a middle class family who is just about to start working life in KL. Average pay for fresh graduate would be in the range of RM 2000 to 2500 which is more than sufficient to bear the cost of living. Here is the interesting part though, most of these graduates carry a debt which is called a study loan. So even before they start acquiring any asset's your typical undergraduate would have debt in the tune of 20 000 ringgit and above.
Your typical degree holder would then want to own a car, in which usually it is Malaysian made as it is technically cheaper. MyVi which is around 45 000 ringgit in which usually they would take a loan that span from 7 to 9 years. Then of course your typical KL Yuppies would want a handphone that cost around a month worth of wage, a laptop to do work and play around and bills that follow with them. So here you have it even before starting a family and even own a house your typical single graduate would have debts that takes 7 to 12 years to settle.
To make things more interesting this kind of lifestyle does not necessarily reflect to these degree holders who has a better chance of getting a better pay but generally young Malaysians do own those things stated above.
However Credit cards regulations are getting looser as time goes by. They even give out free credit card at Seven Eleven. Your average young Malaysians who earns more that 1400 ringgit a month would most probably own multiple credit cards. Digital Camera sales are booming in Malaysia and so is Starbucks and other fancy cafes. Night clubs and pubs are booming in Bukit Bintang. People don't seem to mind spending 180 ringgit or more just to look chilled in a nightclub. The current fashionable lifestyle of a young Malaysian in their twenties are driving the spending spree. You want to own a fancy handphone, hey just charge the credit card and pay in the debt in the span of 12 months. You do not neccescarily need hard cash to live with style these days.
Credit card companies are even offering credit to diploma holders who are yet to get any job. Suddenly in the mail you have a spanking new credit card with a limit of several thousand ringgit. Automatically your ATM card can act as a credit card these days and with credit card companies offering attractive discounts and bonus points to fancy eating places it is very tempting to just swipe it out. Let's not forget reload cards, karaoke, clubbing at the weekends, movies and bla bla bla....
So your average Joe and Jane keep building their debts as the years go by and eventually something is going to happen. The basic principle is relatively simple in which you do not spend more than what you earn. Every kampung folk knows this. However in the midst of capitalism and easy credit floating around that line is often crossed. This is not healthy, especially to the younger generation who manages their income based on wrong priorities.
Look at the recent Hari Raya, just stand in front of Courts Mammoth and see how many people take the 7.99 ringgit a week loan to get a new sofa or an LCD TV for the upcoming of Hari Raya. We borrow money to buy things in which their value will drop significantly in the next six months.
Let's not forget MLM, Internet Investment and Get Quick Cash business plan. Where you can own a Mercedes in just 1 year. I might write about it next time.
So should we regulate more on personal credit or should we just let the market forces do their job?
I am interested to hear what Ron Paul has to say about the current crisis, he is after all against regulations.
P/S - The IMF and western countries criticised us heavily on rescue plan and control during the 1998 financial crisis. The idiotic Finance Minister/PM in waiting back then was the IMF poster boy. And now, look what's going on, so HAH! IN YOUR FACE!!! Sinatra_Z personally likes Islamic Finance and Banking.