Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

Archive for December, 2010

$1.45: 1 Euro by the end of 2011

Posted by butalidnl on 31 December 2010

The year 2011 will be marked by a very significant deterioration in the dollar exchange rate. I think that the exchange rate by this time next year will indeed be $1.45: 1 . Why do I think so?

Well, the most obvious reason is that the US is printing too much money, accumulating too high budget and trade deficits, and borrowing too much. The US Fed is stimulating the US economy as if it was the only economy in the world. They don’t see the international effects of US economic policies. Well, I think that 2011 will show that there is a limit to the amount of US dollars the world can take. At a certain point, people from other countries will have to be convinced by high interest rates to invest in US treasuries. And this would mean a devaluation of the dollar.

Even without “Quantitative Easing 2” and the extension of the Bush tax breaks, I think the US dollar will be in trouble anyway. At the beginning of the year, Central Bankers (Central Bankers are very “neat” in that they make policies that start at the beginning of the year, or half year, or quarter) will most likely set their policy regarding the amount of US dollars they will keep in reserve for the coming year. And I think that they will set the target percentage for dollars at either the same or at a lower level than that for 2010.  The dollar is a declining component in world trade, and it is also expected to devalue, so prudent Central Bankers will aim to have a lower percentage of dollars in their reserves. This, together with the rise in the amount of dollars that go around the world’s financial system, would mean that there will be a growing amount of dollars that are dumped by all these Central Banks. All these extra dollars means that the US dollar will devalue.

What about the Euro and its crisis? Well, to make the long story short: the Euro crisis is over. 2011 will be the time of the dollar crisis; and as a result, the problems of the Euro will be overlooked or actually get solved. Investors are sure to notice that the US economy is heavily indebted, and that the dollar is devaluating; so, they will think twice before buying US treasuries. After all, the US economy is worse off that either the Portuguese or Spanish economies. People will see that, and will eventually have to act accordingly.
This will bring about a domino effect: lower demand for treasuries; speculators betting (through Credit Default Swaps e.g.)that the interest on treasuries will rise; interest on treasuries actually rising as a result, etc. If speculators get the idea of dumping their other US dollar denominated assets, then devaluation will surely result.

The US can still stop this trend of a devaluating dollar. However, I think it won’t, and for the simple reason that they want the dollar to devalue. US economists seem to think that this is a good idea – that devaluation will stimulate exports and lessen imports. So, the Fed will not do anything to defend the dollar; and thus the dollar will devalue in 2011.

Is Devaluation a Good Idea?
For a small economy, it indeed could be a good idea to devalue its currency in order to restore its balance of trade. Devaluation will make that country’s exports cheaper and make imports more expensive, forcing the market to restore the trade balance after a while.

For the US dollar, however, it will be a bad thing if it devaluates. And this is because it is the world’s main reserve currency. Devaluation will not only lower the price of the US’ exports, it will also lower the value of reserves other countries have built up. For many countries, holding US dollars becomes a game of chicken: they would keep it as long as possible, but dump it before everybody else does. But when the Central Banks start dumping dollars, there will be no stopping the trend.

So, devaluation will not only affect the trade balance. It will affect how other countries view the dollar. And this means that if they sense a trend of devaluation, they will  dump their dollars in the hope of preserving the value of their reserves.

Devaluation will also be bad for the US itself. When the dollar loses value, the amount of imports will take 6 months or longer before it starts going down. This means that oil and other commodities will sap the US trade balance for some time before going down.  And it will take some time before exports get a boost. There is a lag time before companies are able to increase production accordingly.  And there is China: if present trends continue, China’s yuan will maintain its value rate relative to the dollar. This means that imports from China will not be affected, and exports to China will also not increase.

Devaluation will mean that people will pay a higher price for oil. I would estimate it to reach $4/gallon in 2011, at least. Other commodities will also rise in price: from iron ore to rubber, copper, aluminum. And this will cause the price of goods produced in the US to rise accordingly.
Devaluation means that consumer prices in the US will rise. It may not rise by the same percentage as the devaluation, due to importers absorbing part of the loses, but it will surely rise.

Devaluation of the US dollar, if it goes beyond a point, would mean that other countries would consider dropping the dollar as the currency used to price certain commodities. Take for instance oil – it is still denominated in dollars. But if the dollar devalues too much, OPEC may just decide to drop the dollar/barrel measurement, and revert to perhaps a Euro to metric ton pricing.

It could be worse
That the dollar will devaluate, is practically a given. But a depreciation of 10% is not the worst possible case. It could indeed be worse. Here are some things that could make the scenario even worse for the dollar.

Germany Agrees to ECB Issuing Euro Bonds. So far, the Germans are holding back on this, for the reason that it pays much lower interest rates with the present system of each country issuing its own bonds. However, if for whatever reason, the Germans (and other “Northern” countries, e.g. the Netherlands) agree to let the ECB issue common bonds for the whole of the Euro zone – which would then have an “average” interest rate; then it will forever get rid of any reason for a Euro crisis. And this would mean that international investors will more enthusiastically tear down the price of US treasuries.

China Shifts Its Peg to a “Basket of Currencies”. If China lets go of its dollar peg, it will not be good for the US. It’s funny – the US has been insisting for years that the Chinese should revalue its currency. But if China does so, even if only a little, it will mean a lot of trouble for the dollar. Changing the peg for the yuan will mean almost certainly that China will stop buying US treasuries. This means that the price of treasuries will drop, and effective interest rates on them will rise.  And China’s dumping of US treasuries will be sure to trigger similar actions by other countries.

Big Disruption in the Supply of Oil. The price of oil is now at about $90/barrel.  It will slowly rise to about $100/barrel by the end of the year, given present supplies.  If there were to be a major disruption in the supply of oil – perhaps a total stop of Nigerian or Venezuelan exports – the price will rise to even $150/barrel.  While the world has seen these price before, it is now less able to cope with it. So, a big rise in the price of oil will be greeted by a return to recession for the US, and a big drop in the value of the dollar.  The dollar will lose more than 10% of its value, as a result of this.

I don’t think that these “worse case” scenarios will happen in 2011 (well, 2012 is another story altogether). So, this means that the US dollar will devalue by “just” 10%.

Unfortunately, I think that this trend is inevitable. The dollar will devalue by about 10% in 2011. It may devalue by the same amount in 2012. And if this continues, the dollar will cease to be the main reserve currency soon after. Only the Fed can stop this. But it won’t. It is not politically expedient for the Fed to do so.

Posted in World Affairs | Tagged: , , , , , , , , , , , , | 2 Comments »

The Real Christmas Story

Posted by butalidnl on 24 December 2010

It was a cold day, and Joseph was entering Bethlehem together with his pregnant wife Mary. Joseph had some misgivings about Mary’s getting pregnant without him having any role in it, but he knew that if he denounced Mary it would meant she would be stoned to death, and he didn’t want that to happen.  Anyway, things were better this way – he would recognize the baby as his own, and the baby would be the heir to his title (if it were to be a son, that is).

Joseph was no ordinary carpenter from Nazareth; and the people in Bethlehem knew that. Joseph was the latest in the secret line of “Jewish Kings” who had gone underground when Alexander the Great took over Judea some hundreds of years back, and who still remained “secret” even under Roman rule. Herod, as with all of his predecessors, would like nothing better than to extinguish this secret line of Jewish Kings. The Jews knew that Herod, being of Greek/Macedonian descent, was an usurper to the Jewish crown; and that Joseph and his line would one day take over their rightful role.

But that was for the future. The family had arrived, and the thing that Joseph was now thinking about was that Mary was about to give birth; and that none of his relatives and friends in Bethlehem dared to openly host the “King of the Jews” and the birth of the next in line. He has become quite frustrated at the cowardly attitude of his relatives. He had chosen to have the child born in Bethlehem to further legitimize its claim to the throne; Mary had to give birth there if she had to do it in a cave.

Well, it wasn’t a cave after all. A distant cousin agreed to have them rest together with the animals under their house; but on the condition that in a few days they would leave. It would be something of a “credible deniability” for him; he can always say that Joseph and family never slept in their house. So, that was it: Mary gave birth (thankfully to a boy) while they were resting with the animals.

The birth of Joseph’s son (or at least that was the story that they put out),  became known throughout Bethlehem anyway (news travels fast in rural communities!). And it was the shepherds who said: “Here is born the heir to the Jewish crown, and the people in the poblacion of Bethlehem were pretending that they don’t know anything about it. We are shepherds like David our ancestor, and we don’t think this is right. We will pay the king a visit, and sing out to everyone the truth that the Jewish king is born. And to hell with Herod’s spies!To hell with the poblacion people who are too scared to admit it.”

After about two weeks, Joseph and Mary received a surprise visit from three wise men from the East.  They knew that their cover was blown. If outsiders knew that a royal heir was born, it would be only a matter of a (short) time before Herod would know it. So, they left for Egypt, to visit other relatives there, and to lie low for a while.

A couple of months later, Herod heard of the birth of the newest of the Jewish royal line, and that the family had reinforced their claim by having the boy born in Bethlehem. He knew that he had to kill this child. In order to make sure that he killed the child, Herod orders all infants in Bethlehem killed, from 0 to 2 years old. This was the massacre of the innocents. The family that owned the “manger” was not found out. It was an intelligence breakdown for Herod: he had no spies in Bethlehem at the time; and he had to resort to harsh blanket measures in an attempt to correct this.

But by this time, the family was safely in Egypt, with other relatives.

Well, we know how the rest of the story goes, sort of…

Posted in World Affairs | Tagged: , , , , , , , , , | Leave a Comment »

Kasambahay Bill: House Turn to Pass it

Posted by butalidnl on 19 December 2010

The Philippine Senate passed on 13 December SB 78, the Kasambahay Bill. Kasambahay is a term that includes all household help e.g. maids, cooks, houseboys, yayas, and drivers.  The bill requires that there be a written contractual agreement between the employer and kasambahay which shall state the ff: period of employment, monthly compensation, annual salary increase, duties and responsibilities, working hours and day-off schedule, and living quarters. The contract should be in a language that the kasambahay understands. The employers will also be required to pay premiums for their kasambahays in the Social Security System (SSS) and Philippine Health Insurance Corporation (PhilHealth).

Employers have to pay their kasambahays at least 2500 pesos in Metro Manila, 2000 pesos in cities and first class municipalities, and 1500 pesos elsewhere. The employer should also provide for adequate food, suitable living conditions, and whatever medicine and equipment their work requires.

The bill, when it is finally signed into law, will benefit about 2 million kasambahays all over the country.

Some people have expressed concerns that the price of employing kasambahays will then become “unaffordable” for some middle class families, resulting in unbearable “maidlessness” of those families.  But when you look closer, these families  mostly have their children going to private schools and they may own their own car. I think it is really a question of budgeting. A service as important as that of a maid deserves a decent salary. If those families feel that they can’t afford domestics, then that’s alright; not having maids is not the end of the world.  I live in the Netherlands, and I have never experienced having maids. All it takes to cope is for the family  to divide the tasks among themselves (meaning that the husband and children have household chores). 

Providing a minimum level of compensation and ensuring good working conditions for kasambahays is quite important for the national economy and national development.  It’s like the minimum wage law for other workers.  It is a measure that ensures a decent level of living for workers. Otherwise it will be simply exploitation, which is the extraction of work from someone without the corresponding compensation.

Filipino families are often guilty of maltreating their kasambahays.  Filipinos are among the worst employers of Filipino domestics abroad. This is because they bring their Philippine concepts on how to treat domestics with them.  We may even maltreat our kasambahays without noticing it. The most common form of maltreatment is requiring them to work very long hours – very often, from 6 am till 10 pm.  This is a terribly long work day. Don’t regular workers work only a maximum of 40 hours/week? Why do we require our kasambahays to work 96 hours a week (i.e. if they get a whole day off every week). Some kasambahays don’t even get free days, and this may mean not being able to go to their church, or ever visit their families.

And on top of all the maltreatment, many employers don’t even pay their kasambahays enough.  I think this reflects more on the low esteem that they have for their kasambahays, than on a lack of cash.

Ensuring decent wages for kasambahays is part of the country’s economic and social development.  Their wages are an  important part of the income of their families.  Society will also not develop that fast if there are workers who are extremely exploited. Much of the work that many kasambahays are required to do are not really that necessary; the family could do it themselves, actually.  It is just that since the kasambahay is there after all, they let her do it. It is often not economically necessary work, and even results in spoiling the children of the employers. And, since kasambahays are cheap labor, they also get low social esteem. I mean, how many employers have ever visited the family of their kasambahay? Are the ashamed to do it? don’t have time? I think it is simply that the thought never even entered their mind.

It’s the House’s Turn
Now that the Senate has finally passed a Kasambahay Bill, it’s now the turn of the House of Representatives to pass it. It had passed one already in the year 2000, but the Senate then did not pass it also. So, I expect that this should not be that difficult to pass again, this time. It just has to be marked as a priority bill, and then it will surely pass.

Once it becomes law, it will then be a matter of implementing it. I don’t think that all employers will draft a working contract with their kasambahays the day after the bill is passed. But I think the practice of making a working contract, and paying minimum wages will gradually be more and more implemented. The bill will not solve everything for the kasambahays, but it will be a good start.

Ref: Kasambahay Bill Situationer

Posted in kasambahay, Philippine economics, Philippines, Uncategorized | Tagged: , , , , | 3 Comments »

Freak Snowstorm Hits Manila !

Posted by butalidnl on 8 December 2010

(This is a fake news broadcast, on what would happen if there really was a snowstorm in Manila.)

MANILA, Philippines, December 10. A freak snowstorm hit Metro Manila this afternoon. It was 1 pm when a huge black cloud covered the city, making it seem like a thunderstorm was underway. But, instead of rain, temperatures came down and snow started falling all over the city! People could not believe their eyes, and started to jump with excitement: “Sa wakas, nagkaka-snow rin tayo sa Pilipinas!” And even though it was rather cold, people were so overwhelmed with the snow that it seemed nobody noticed.. For a while at least.

Now, at 10 pm, things are so different. There is a crisis situation in our hands! The country is used to heat, but this sudden cold weather and snow is not too nice after all. Let us bring you reports from all over the city.

Ninoy Aquino International Airport (NAIA). Hundreds of people are stranded at NAIA, because their flights are not able to take off from the international airport. With their flights cancelled, many people have gone home or to hotels for the night. However, there are still those who are forced to spend the night at NAIA.

The snowfall, which started in the afternoon, has covered the runways with a layer of snow; making it impossible for planes to take-off or land. Airport authorities say that they are not equipped to take the snow off the runways, or to de-ice the wings of planes. Thus, in the interest of safety, they decided to close the airport by 2 pm yesterday.

International flights have been forced to land at Hong Kong,  Legaspi or Cebu. The freak weather seems to have affected only from Northern Luzon to Metro Manila, leaving the Visayas and the Bicol region clear of snow.

EDSA, Corner Kamuning. Traffic is going at a snail’s pace, if it is going at all. The snow is 6 inches thick here, and cars have to go slow in order to avoid sliding. There have been a lot of accidents already, but these have generally been cars sliding and hitting other cars. No major accidents really. The high incidence of these “bumping” accidents have caused police to totally ignore them; they have their hands full trying to ensure that the traffic flows.

There are reports of many cars not being able to start; probably due to frozen cooling systems. The buses and cars on the road, however, seem warm enough so as to avoid having their cooling systems freeze.

The LRT line seems to be operating normally; or at least as normal as it could, given the circumstances.  Workers have resorted to manually clearing the interchange links at the end of the lines (as in, shovelling the snow). The trains have to change tract at the end of their routes, and the problem is that the snow gets in the way of these interchanges. Management has decided to let the trains run through the night;  in order to serve the many people still on the streets (trying to go home, or en route to one of the “refugee centers”).

SM Mega Mall. The mall is still open! Following the president’s call for all malls to remain open overnight, SM Mega Mall, and other malls; as well as centers such as Araneta Colliseum  have opened their doors to thousands of cold weather refugees –  people who literally are in danger of freezing from the cold. The Philippine National Red Cross is distributing blankets and hot soup in these centers. However, it seems that the supply of blankets is woefully inadequate.  The place is packed, and most people are just sitting down, and oblivious to the throng of people around them; after all, more people mean more warmth.

SSS Village, Marikina. There are reports that water and electricity are out in this area. It seems that some waterlines burst as a result of the cold weather, and electricity lines have snapped because of the cold, or because snow caused trees to fall on lines. So, it is now a dark and cold evening for the people of this area.

There is an eerie silence in the place. There are no vehicles moving around, and people are huddled in their houses, under blankets, and  with candles lit.

Philippine General Hospital, Manila. The staff of the PGH has been on emergency status almost since the snow started falling in the afternoon. As one would expect, there would be people suffering from the cold. There are reports of hundreds of deaths because of the cold – mostly older people, babies, or people with respiratory illnesses.

People are also coming in with broken bones, due to having slid on the snow. Hundreds of cases have overwhelmed the orthopedic staff.  People with broken arms and wrists, mainly, which people get when they attempt to break their fall. There are also people who have been “bumped” by cars which have slid on the roads.

Snow in the Philippines is sure to be a disaster.  This “newscast” is an example of what would happen if it did snow. Snow belongs only in places like “Snow World”, in Star City, Manila. Let’s hope it stays that way.

Posted in Philippines | Tagged: , , , | Leave a Comment »

Christmas Lights

Posted by butalidnl on 3 December 2010

Christmas is associated with light.  This has perhaps because Christmas started off as the Roman Festival of Light – because the days start to get longer again at this time. [Early Christians adapted the Festival of Light holidays to mark the birth of Christ, for symbolic reasons] The nights are indeed long around Christmas time, and it really helps to have lights to celebrate the holidays.

Lights at Ayala Triangle Gardens. Photo taken by Ferdie Llanes

There are all kinds of light shows and displays in the Philippines these days, to mark the holidays.

In Makati, in the Ayala Triangle Gardens, the former Ugarte Field, there is now an impressive show of lights.  What is less known is that these lights are LEDs (Light Emitting Diodes), and thus use a lot less electricity than ordinary Christmas lights. Organizers say that the present lights use only 5000 watts, as compared to 58,000 watts last year. 5000 watts means that for every hour the lights are on, it uses only 5 KWh, costing about Php 60 per hour. Compare this with 58 KWh previously – which cost about Php 70/hour. While costing less in terms of electricity used, buying LED lights will cost you a bit more than ordinary lights – about 4 times more in price. For an ordinary Christmas tree with 100 lights, it would cost about Php 800, while ordinary lights could be bought for about Php 200.  It will take about 3 Christmas seasons to earn back the additional cost of LED lights.

Not only Electricity Cost
If you think of it, the additional electricity used by Christmas lights could be quite excessive, even to the point of overloading the electricity grid. I don’t think this will happen, though, since the lights are used mostly during the night, and overall electricity use at night is much less than it is during the day. But there are other advantages of LED lights.
LED lights are solid-state, making them sturdier than ordinary Christmas lights. This means that they are less prone to damage, and less likely to cause electrocution or fire. LED lights could also be used for a very long time. These are advantages over and above the savings in the electricity they use. And of course, with the constantly rising cost of electricity, the savings from using LED lights could only go higher.
Using LED lights also are a way of supporting this environment-friendly technology. As more and more people use LED lights, these will tend to become cheaper – all kinds of LED lights. This means that LED lights for household use, for example, will gradually get cheaper, inducing more people to buy them. And when this happens, we would have a real chance at reducing our electricity costs.

LED light technology is actually just the opposite of solar panel technology. In the LED lights, electricity is transformed into light; while solar panels transform sunlight to electricity. Thus, as LED lights get used more often, not only will it make LED lights cheaper and more efficient; it will also result in solar panels getting cheaper and more efficient.

So, enjoy your Christmas and the many light shows that it brings. And hope that more and more of those lights will be LED lights.

Posted in electricity, environment, Philippine economics, Philippines, solar energy | Tagged: , , , , , , , , | Leave a Comment »