Too big for anyone?

Speaking at the launch of Carrefour hypermarket 's price cut campaign yesterday, Najib said to fellow Malaysian, " Malaysia can ride out economic downturn". However, his comforting statement was virtually "ridiculed" by Dr Mahathir when the former PM latter said that " I have no confidence in Obama, so what about Najib, because this (economic challenges) is too big, too big for Najib and too big for Obama". Dr Mahathir believes that no countries will be spared and they are heading into a worldwide recession unless changes are made to the international system. Although I have never been a fan of Dr Mahathir, I tend to agree with him that the world economies are heading towards recession. However, I believe the changes to be made in the international system may not come so soon and that simple to avoid the impending recession.

The current international system which enables currencies to float and move freely was established after the ending of Bretton Woods system(established after WWII and after the Great Depression). Briefly, the new system came about after President Nixon suspended dollar's convertibility to gold in 1971 to get more money to fight the Vietnam war resulting all other major currencies were left unpegged to USD and floated freely. It further resulted to the more frequent printing of money and over the years set financial markets into further deregulation and development of variants of futures, options, swaps or derivatives. The combination of cheap money, deregulation, global imbalances, the US housing bust and credit clog, further risky financial innovation and greedy bankers with the view of maximising profits causes the existing system to break; which is what we are experiencing right now.

How much the changes and reforms could be made in the existing system's architecture is still a mystery but some leaders from EU (detail here) have been calling a change via Bretton Woods II in the coming Nov 15 G-20's summit in Washington. Perhaps the details would be revealed out then. I believe in order for the changes to be made, we need to have strong and charismatic leaders today to solve issues and bringing law and order. Do we have them today? The new system if ever proposed must be fair and not skewed towards any particular country economically and financially and must not be seen as a deterrent to financial innovation with a view of further improvement. It is easy to be a critic but to give constructive criticism is another matter.

* Good luck! November and December months are examination months for most of the senior highs! Good luck to the SPM, STPM and under graduate candidates! Also, today is South Korea's college entrance examination...a 9 hour examination....an exam that is very crucial to secure limited entries to universities. Coincidentally, the UPSR results are also out today!

* RBS: Sell yuan, buy HKD as China's economy is expected to contract faster than expected and since HKD is pegged to the USD which is considered to be stronger as it is viewed as a stable and safe currency like the yen.

* Bloomberg: Jim Rogers: Global financial markets have yet to bottom after this rout. Bonds investment is terrible as economic problems may persist until 2010.

* Oil hits its 22 months low at USD55 per barrel.

* Collapse of Big 3 auto makers- Chrysler, Ford and GM have severe repercussion to the US economy. It may eliminate up to 3m jobs and deprive governments more than USD150b in tax revenue. An estimated USD25b is needed to keep the industry afloat. Despite the criticism, I believe the Fed will be able to use the existing USD700b cash to bailout the auto industry and other non bank business too.

* China Daily: A senior government official says the China's stimulus plan is aimed to guarantee at least 9% economic growth over the next 2 years. To avoid further meltdown, the property prices and employment must be in tact, but this is very tough indeed.

* World Bank is set to provide USD100b in new aid to developing countries.

* FT.com: Iceland's rescue plan flounders?

*BT(Singapore): A study concluded that in London, for every 1 financial job there are 2 persons eyeing for it. Morgan Stanley, Goldman Sachs are all cutting down staff. There is one place that may be interested in hiring...KAF-SeaGroatt-Campbell (refer here).