However, all of us know that nasi lemak is best served when it is fresh. It can never be kept for long despite its potential for value appreciation. In fact, its value will drop to zero as soon as it turns stale. And interestingly, the same situation applies to the money we hold today. Our currency can be as “perishable” as nasi lemak in this global money printing era if money is not produced for the right purpose and use in the right way and the right time.
The global economies have been embarking on expansionary monetary policies since the financial crisis broke out in 2008. Central banks around the world are printing money to support their economies and increase exports, with the United States as the primary instigator.
The Mighty Dollar
Since 2008, the Fed initiated several rounds of measure termed “Quantitative Easing”, which is literally known as an act of money printing. The Fed's balance sheet was about US$700bil (RM2.1 trillion) when the global financial crisis began; now it has more than tripled. With several countries' central banks including the European Central bank, the Bank of Japan and the Bank of England taking similar expansionary measures and encouraging lending, more than US$10 trillion (RM30.3 trillion) has been poured into the global economy since the crisis began.
While the global central banks
have become addicted to open-ended easing and competed to weaken their
currencies to boost economies, the impact of these measures to the
global economy is not quantifiable or realised yet. However, basic
economic theory tells us that when there is too much money chasing
limited goods in the market, it will eventually spark inflation.
When
money is created out of thin air, there is no fundamental support to
the new money pumped into the economies. More money supply would only be
good if the productivity is going up or in the other sense, when more
products and value-added services are created. In the absence of good
productivity, more and more money would not make people richer. Instead,
it would only decrease the purchasing value of the printed notes.
Let's
imagine a more simplified situation. For example, we used to purchase
an apple for RM1. If the money supply doubled but the amount of apples
available in the market remains, one apple will now costs us RM2 instead
of RM1. Now, our money has halved its original value. If the central
banks of the key economies keep flooding the global markets by printing
more money, the scenario can only lead to the worst, i.e.
hyperinflation.
This occurred in Germany after the First World
War. Hyperinflation happened as the Weimar government printed banknotes
in great quantities to pay for its war reparation. The value of the
German banknote then fell since it was not supported in equal or greater
terms by the country's production.
Flood of money
The
sudden flood of money followed by a massive workers' strike, drove
prices out of control. A loaf of bread which cost 250 marks in January
1923 jumped to 200 billion marks in November 1923. People collected
wages with suitcases. Thieves would rather steal the suitcase instead of
the money, and it was cheaper to light fire with money than with
newspaper. The German currency was practically worthless during the
hyperinflation period.
That scenario may seem incredible in
today's context. Nevertheless, we should not downplay the severity of a
global inflation should the current synchronised money printing push the
economies of major countries to burst like a balloon in sequence.
When
this scenario happens, people with savings and fixed income will likely
be the hardest hit. To withstand the tide of inflation, the best
defence is to invest in assets such as publicly traded shares, metal
commodities like gold and silver and properties that can hedge against
inflation.
Investing in any assets require in-depth research
before embarking on one. Commodities and stock markets are liquid assets
that can be bought and sold with relative ease, while properties are
favoured as long-term investment.
With Malaysia's current
economic and population growth, added with its still comparatively low
property prices in the region, our primary and secondary market
properties are good investment assets for investors to gain from the
continuous capital appreciation that this industry is enjoying.
With the above as a backdrop, are property prices really going up globally?
Using
the nasi lemak analogy, if we were to buy a RM100,000 medium-cost
apartment 10 years ago, it would be equivalent to 100,000 packets of
nasi lemak. Assuming it has doubled in price today, it would still be
the equivalent of 100,000 packets of nasi lemak at RM2 today. It would
seem to me that the true value of properties hasn't gone up, but that
global currencies have just gotten cheaper.
FOOD FOR THOUGHT
By DATUK ALAN TONG
By DATUK ALAN TONG
FIABCI Asia Pacific chairman Datuk Alan Tong has over 50 years of experience in property development.
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