FILIPINOS will have bought approximately 300,000 new automobiles and commercial vehicles by the time 2015 ends. The latest figures for the eight months ending August show a 20-percent increase over the same period in 2014.
But that is nothing compared to what the sales could have been if the Philippines would just follow the US model of credit expansion.
Look how underdeveloped the Philippines is. In the US you can buy a $30,000 2015 Jeep Cherokee SUV without putting up a down payment. The monthly payment will go for six years at zero-percent annual interest rate and you get $500 cash when you take delivery. Of course, you have to have a job with an annual salary of at least $40,000 a year and a perfect payment record on past debts. But about 55 percent of all Americans can get a car deal close to “zero down-zero interest.” Here in the Philippines, though, we still operate on the silly outdated idea that when you buy something, you should actually have to take at least some money out of your pocket to pay for it.
By the time you are reading this, the US Federal Reserve Open Market Committee should have raised its base interest rates…or not. Let’s assume for a moment that the rate increase is 0.25 percent. When you think about it, that is an insignificant amount equivalent to 25 centavos of that P100 bill in your wallet.
However, because of all those great car purchase deals—among other credit buying from the government, business and personal—the total US debt is about 325 percent of total US economic output. That total debt is currently about $60 trillion. Adding 0.25 percent to the current interest rate adds about $150 billion to the current interest payments on that debt. That should not be any big deal at all since that amount is less than 1 percent of the total US GDP.
That is like you having a P60,000 balance on your credit card and having to pay P150 more a year in interest. So why is there all this panicking about the Fed raising interest rates?
You as a Filipino do not have any understanding of how fragile the US economy has become. You may understand poverty and extreme poverty in the Philippines. You may have relatives in the US that tell you things are going all right. You may think about that no-down-no interest car you could be buying if you were in Los Angeles and the higher salaries there.
But the overall reality is something completely different.
If as an American you have no debt and $10 (P480) in the bank, you have a greater net worth and are richer than about 25 percent of all Americans. A study released this past September shows that there are 1.5 million “ultrapoor” households —not individuals—in the US living on less that $2 per day. That is about 2 percent of the total US population. They live the same way poor Filipinos do, scavenging for bottles and cans to sell and selling their blood once a week just to survive. And this is beyond any government assistance.
According to the US Census Bureau, 49 percent of all Americans now live in a home that receives money from the government each month, and nearly 47 million Americans are living in poverty right now. For the poorest 20 percent of all Americans, median household wealth declined from negative $905 in 2000 to negative $6,532 in 2014 and it is all because of increased debt.
The increase in debt payments due to a tiny interest-rate increase will eventually have to be paid one way or the other by all 320 million Americans through higher prices or reduced services. This amounts to $468 per person. Hopefully, you have never been in a financial situation where your budget is exact, to where an unexpected P500 expense means you can’t pay your electricity bill. That is the US today.
It was not supposed to be this way. Debt increased to keep the economy going, expecting that economic growth would kick in to make everything all right. The last year has seen massive percentage price decreases in the following commodities: Crude oil, -35; Natural gas, -45; Wheat, 22; Coffee, -28; Copper, -28; Coal, -17; and Aluminum, -57.
However, economic growth just did not happen. Now governments in the West are desperate. So why a US interest-rate increase now? Nothing else has worked to get the economy going so let’s try something completely different.
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1 comment
If only the Republican political leadership allowed pump priming of the US economy through massive infrastructure rehabilitation, the economy under Obama would have been much better. I expect Hillary to fare better in her term given that she has a veteran by her side. I don’t see a possibility that a climate denier will get into the white house.