Are You Prepared Enough Regardless of Where this Economy can Go?

We are generally governed by natural laws like cause & effects, sowing & reaping, etc…but in our recent time, there are many things invented that can be controlled and manipulated according to our preference. A lot of them had been successful and efficient such as our cars, appliances, and so on and so forth. Same is true with this modern economy – It has been invented, created and now evolved into a complex structure that needs to consider several policies, measures and controls in order to achieve growth and sustain it i.e. manipulating these inputs will determine the future of any economy. However, how does this form of mechanism appear when it comes to its long-term effectiveness?

I can recall the pages of history of the worst nuclear accident in Ukraine in April 26 of 1986 – the Chernobyl disaster that as they conducted the test of their cooling pump whether it can function still with low power in case the auxiliary electricity supply should fail. They started their test by intently reduce the power output level by 20% of the normal thru lowering the control rods of the nuclear reactor but because of too many rods being lowered, it resulted to abrupt drop of power to almost shut down. They were then concerned by possible instability thus, engineers began raising some of the rods to increase back the power output to a manageable levels. And that was at around 11 pm.

By 1 am, the power was still at 7% level so more rods were raised, they disabled the automatic shutdown mechanism to let the reactor continue working at low  power condition. Engineers continued raising more rods and by 1:23 am, they were able to attain the 12% power level. But unfortunately, few seconds after, the power suddenly surged to a dangerous level that caused the reactor to overheat. Aiming to control the situation, they lowered back the rods of the reactor but, with power level reaching a hundred times higher than normal level, fuel pellets in the core began to explode - rupturing the fuel channels and caused explosion that blew-off the reactor. And the Worst Nuclear Accident in history happened.

The situation became uncontrollable because they defy the normal process of recovery as to the relationship between the rods and the resulting power level output. They wanted to shorten the process of recovering power levels by raising more rods in the system.

As always, when we fail to conform to the natural process and wanted to induce the output according to our time frame and preference, there are always resulting side effects and these normally trigger complications that will cause severe damages.

The CHERNOBYL Disaster and the ECONOMIC Disasters in history has no difference at all. The later is run by a sophisticated and advanced economic model with several control variables and parameters that the governments and central bankers manipulate and play with as they do their jobs. Take for instance the recent economic boost in the emerging Asian market. I am not aware exactly how the neighboring nations did their tricks but here in the Philippines, I can recall that in April of 2012, the Banko Sentral ng Pilipinas (BSP) applied the usual dose of Quantitative Easing (QE) by reducing the banks' reserve ratio or the reserve requirement as well as reducing the interest rates. That was intended primarily to stimulate the economy. Almost a year after, it seemed though that their QE dose had worked well - Philippines' credit rating had been upgraded, equity market is soaring high, improved consumer confidence index, the business sector is creating more jobs, etc...

So, is this situation worth partying? Yes! For many who believed in this illusion of progress and prosperity: Those who are seeing only the surface of the story and failed to realize or doesn't care about how it really worked.

Where are we now economically? Just last week, a news on a paper came up reporting that the Philippines' inflation could no longer be contained in the last year's level because of faster economic growth and the same is true with the appreciation or strengthening of the peso. Our lending growth has been sustained at a double-digit pace. This robust pace of credit expansion is due to the historically low interest rates that encouraged consumers, enterprises and businesses to secure loans. In relation to this, BSP reported that the outstanding loans from banks as of January grew by 15.4% year-on-year amounting to 3.18 Trillion pesos according to the report. This bloated the economy by at least 420 Billion pesos of base money that pushed the annual growth rate in the domestic economy’s liquidity or M3 to 10.8% compared to 7.2% last year of the same month. Coincidentally, S&P had ring the alarm and raised concerns regarding the excess growth in bank lending in the Asia Pacific region for it grew in a robust pace and may lead to economic imbalances. They said that the excessive credit will eventually spawn economic problems and they believed that faster inflation will be another emerging risk as banking sectors in the region continue to lend aggressively.

They are now starting to see the side effects of inducing economic growth, don't they? Can you read now the lines what they should do next? Clearly, they have the mechanism and the control. However, there is a fine line between right and wrong dose of those stimulus packages that could either delay or hasten the ultimate disaster of the economy. Can you relate with the rapid shoot-up of power in Chernobyl?

Regardless whether they can't or still can manage to steer the economy so that their partying can continue to get going, as an individual it is important to think ahead - take advantage of the season and redeem the time. While many are partying & celebrating the illusion of prosperity, progress and abundance, you and I as individuals should aim to build sufficient reserves, protection and investments through the use and implementation of a profound financial strategy that will bring you and I light years ahead than anybody who doesn't care building it.

Having such a strategy prevents you and me to be worsened should this economy worsened and enabling us as well to grab opportunities should these goodness & glory continue to sustain - for surely and as always, these too shall come to pass. Therefore, it really make sense and equivalently wiser to get prepared.

Until next time.




Bong Bungalan Jr.