Jesse Colombo, Contributor
My recent report about Malaysia’s economic bubble has generated quite a bit of interest and controversy in the past few days. In addition to receiving over 45,000 views and 3,000 Facebook shares on Forbes, it made the headline of The Malaysian Insider, where it continued to spread virally in Southeast Asia.
The report received a favorable response from Lim Guan Eng, the Chief Minister of the State of Penang, who said in a press statement, “Even renowned financial analyst Jesse Colombo wrote in the Forbes online magazine that Malaysia’s economic bubble will burst due to its high government and household debt.”
Lim went on to say, “Interestingly, Colombo said that plans to build the tallest building in Southeast Asia, the 118-story and RM5 billion Warisan Merdeka Tower, is a major Skyscraper Index red flag.” The Skyscraper Index red flag refers to a Dresdner Kleinwort report in 2009 which showed a correlation between the construction of the world’s tallest buildings and the impending end of business cycles.
The report also struck enough of a raw nerve that Malaysia’s International Trade and Industry Minister Datuk Seri Mustapa Mohamed refuted my assertion that the popping of China’s precarious bubble economy will also pop Malaysia’s bubble in a press conference in Kuala Lumpur, saying “The Chinese economy is not going to tumble. It’s going to stay strong. We’ve seen high growth in China for many years.”
“Malaysia is not going to be adversely affected. Anyway, we are focusing more on domestic resources growth and it’s becoming more relevant in this context,” he added.
There seems to be an unwritten rule that government officials across the world must deny the existence of economic bubbles that pose a great threat to their countries. When I was warning about the U.S. housing and credit bubble in 2005, Ben Bernanke infamously denied its existence. Officials are denying the UK’s and Australia’s housing bubbles, along with many other post-2009 bubbles that I am currently warning about.
I don’t see how public officials’ bubble denial does anything but harm to their countries’ citizens. Denying the existence of bubbles does not make them disappear, but only serves to hamper the early detection process that is so critical to the survival of terminal illnesses, whether physical or economic.
I also don’t see how denying the risks posed by China’s massive economic bubble does any good either. I will be writing an extensive report about China’s bubble after I finish covering bubbles in Southeast Asia, but for starters, they have a multi-trillion dollar debt bubble that has exploded in recent years as their government has encouraged the building of scores of empty “ghost cities” to generate economic growth.
Charts show a ballooning Chinese credit bubble:
The chart below shows how much of a role debt-fueled construction plays in China’s current bubble economy:
It is very difficult to completely deny the existence of a bubble in China, and even worse to say that Southeast Asian economies won’t be affected by its popping. I genuinely want to see emerging market nations thrive, which is why I am working to raise awareness of their bubble problems, as I did with the U.S.’ bubble. I want the rest of the world to avoid making the same bubble mistakes that the U.S. and peripheral Europe did that devastated our economies, but bubble denial on the part of policy makers only makes this unfavorable outcome more likely.
In the coming weeks, I will be publishing more reports on other countries that I consider to be part of the emerging markets bubble. Please follow me onTwitter and like my Facebook page to keep up with the latest bubble news and my related commentary.
http://www.forbes.com/sites/jessecolombo/2013/10/18/its-not-a-bubble-until-its-officially-denied-malaysia-edition/
Created by Tan KW | Aug 17, 2024
Created by Tan KW | Aug 17, 2024
interesting article (alternative views)against the government official statistics. China may tweak it's economy to avoid any hard landings given the size of the country. whereas Malaysia limitation (eg high debts has less room for the country to provide strong economic adjustment ) against any economic fall outs. Nobody likes to have a economic bubble in it's own country. Not me !
2013-10-22 08:24
rookie8833
What a good observation... the more you deny the bubble means the more likely there is bubble
2013-10-21 18:47