See yan the global economy in turbulent times (2015)

Advance Praise

“Every country has its star institutional builders. Tan Sri Lin is a truly brilliant institutional builder and doer from his days as central banker, architect to the design and
strengthening of Malaysia’s financial system and advisor to all prime ministers. His
masterly analysis of domestic and global events show through in his clear writings
in this book, passionately written with verve, practical to a fault, and wonderfully
told—from the biggest picture to the smallest institutional detail. Only one who has
done it before firsthand knows how the system works, what to do, and how to fix
it. No Asian writer has his command and authority on emerging market economic
development from the ground up. This is truly the work of a master, teacher, and
mentor—to be read and enjoyed by students and policy makers alike.”
Andrew Sheng, Chief Adviser to the China Banking
Regulatory Commission and former Chairman,
Securities & Futures Commission, Hong Kong

“The style of the writing in this book will allow even a person who is not knowledgeable in finance or economics to comprehend the subject and enjoy reading the
book. The topics covered are related to current issues and are loaded with lessons
and advice. This book should be read by anyone wanting to make economic sense
of the happenings in the financial markets and their effect on our lives.”
Tun Ahmad Sarji, Chairman, PNB
(Permodalan Nasional Malaysia) and
former Chief Secretary to the Government of Malaysia

“When it comes to economics, I am very much a layman. That’s why I have turned
to my learned friend See-Yan’s fortnightly column, and they have enabled me to
make sense of what is going on around me. Now that they are compiled into a book,
I would recommend it to all laymen like me who want to understand the forces at
play that make us go up or down economically.”
Tun Mohammed Hanif Omar, Deputy Chairman,

Genting Group and former Inspector-General of Police, Malaysia

“Essays on global economic and financial events are usually full of jargon that would
put off most people after reading a few paragraphs. See-Yan cleans up the jargon
and makes the concepts more comprehensible. Whether you are a student, academic, corporate executive, public official, or just a curious global citizen, See-Yan


can help you relate to issues of global importance, and understand ‘what are we to
do’ in our respective roles.”
Sidek Hassan, Chairman, PETRONAS (Petroliam
Nasional Malaysia) and former Chief Secretary
to the Government of Malaysia

“Professor Lin’s depth of knowledge and breadth of new strategic ideas are drawn
from his extensive research and illustrative insights into management and leadership from a deep variety and culture of model practices. I would like to recommend
to locals, world readers, and professionals, both in the public and private sectors,
especially the banking sector, to read this book for its superior insights and superior
execution.”
Thong Yaw Hong, Co-Chairman, Public Bank Malaysia
and Chairman, Prime Minister’s Economic Council
Working Group

“Tan Sri Lin’s essay collection covers one of the most epochal periods for both the
global economy and Malaysia’s ongoing development journey. This backdrop gives
See-Yan a rich and dramatic canvas to apply his sharp mind and deep experience.
Dr. Lin indeed lived and lit up for us such interesting times with much gusto and
in doing so brought the world to Malaysia and some of Malaysia to the world. This
book is an indispensable record and compendium of a pivotal period, from one of
the granddaddies of economic analysis in our region.”
Azman Mokhtar, Managing Director,

Khazanah Nasional (Sovereign Wealth Fund)

“See-Yan is a brilliant economist with a special knack for translating the complex
into simple language. His objective economic analysis and his insights have helped
us to better assess opportunities and anticipate challenges. This compendium of his
essays, written for the noneconomist, will prove useful for any business leader or
professional who desires to be more aware of the economic forces shaping the world
today, especially fast-paced Asia.”
Tan Chin Nam, entrepreneur and property developer, and
Honorary Life President, IGB Corporation Malaysia

“Professor Lin’s insightful commentary will appeal to professors and students of economics. This highly readable book will serve as a useful reference for anyone seeking
to understand economics from a global perspective. Tan Sri Lin, an accomplished
economist, takes a bold stand on the many economic issues that he vividly portrays
in the book. His balanced narrative offers ample room for the reader to arrive at his
own solution to the ills afflicting the global economy.”
Noor Azlan Ghazali, Vice Chancellor & Professor of Economics,
Universiti Kebangsaan Malaysia


“Having studied at Harvard University, and being part of the much decorated Bank
Negara’s top management during a period in which Malaysia had to confront several
tumultuous financial turmoils, Lin See-Yan’s knowledge and experience shines in
this gem. The book is a synthesis of concepts and policies that blend with reality.
While students and academics of monetary economics will benefit enormously from
the breadth and depth of the analysis, it is a must-read for the nonspecialists as its
presentation is simple, clear, and crisp.”
Rajah Rasiah, Rajawali Fellow, Ash Center, Harvard Kennedy School,
Harvard University and Professor of Economics and
Technology Management, University of Malaya

“This book by one of Malaysia’s most distinguished economists should be read by all
in the Malaysian Economic Association and all academic staff for its deep analysis of
how the country dealt with its macroeconomic policy at the most crucial moments.”
Sheriff Kassim, President, Malaysian Economic Association and
former Secretary-General, Ministry of Finance, Malaysia



The Global Economy in
Turbulent Times

LIN SEE-YAN


Cover images: Illustration © LAT 2014; Stormy sky © Michal Koziarski/iStockphoto
Cover design: Wiley
Copyright © 2015 by John Wiley & Sons Singapore Pte. Ltd.
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Typeset in 10/12 pt, ITC Garamond Std Light by Aptara Inc., New Delhi, India
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10 9 8 7 6 5 4 3 2 1


To
Emily NH
Hsiu-Yi
& Kevin

Foong-Yi

AMN

Diaan-Yi
& Tom

And
Ashley Xuan
Zoe Qin
Joshua Di
The Loves of My Life

Jo-Yi
& KY



Contents

Royal Prelude

xlvii

Foreword

xlix

Preface

li

Introduction

liii

About the Book

lv

Acknowledgments

lix

PART I

THAT WAS THE WORLD THAT WAS (TW3)

1

CHAPTER 1

TW3 2008: The Year Free Markets Ran Amok
Annus Horribilis
What’s in Store for 2009?
Lessons
What, Then, Are We to Do?
Notes

3
4

5
6
7
8

CHAPTER 2

2009: “Oxpicious” Year Ahead
Ox Year
Reassessment
The Worst Is Yet to Come
What, Then, Are We to Do?
Notes

9
9
10
12
12
14

CHAPTER 3

Beware of PME in a Jobless 2009 Recovery
Fragile Global Recovery

17
17
ix

x

Contents

PME: A Bad Idea
Not to Worry about Inflation and High Debt
Lesson from the 1930s
What, Then, Are We to Do?
Notes

18
19
19
20
21

CHAPTER 4

G-20 Summit, Pittsburgh 2009: Has “It Worked”?
G‐20 Promises . . .
G-20: The New Champion
New Global Growth Model
Global Imbalances: What Next?
What, Then, Are We to Do?
Notes

23
23
24

25
25
26
27

CHAPTER 5

TW3 2009: Growing Again, but Hold on Tight
Dangers Lurk in 2010
Optimism Is Not Good Enough
Picking through the Wreckage
Two Qualms to Unravel
Growth Strategy—Competitiveness Matters
What, Then, Are We to Do?
Obiter Dictum
Notes

29
30
30
31
31
32
32
34
34

CHAPTER 6

Summer 2010: In for a Bumpy Ride,

Even a Double-Dip?
A Double Dip?
The Deflation Dilemma
New Conventional Wisdom
What, Then, Are We to Do?
Notes

35
35
36
37
39
39

G-20 Summit, Toronto 2010: Reflects a Fragile Unity
The Toronto Accord
Challenges and Risks

41
41
43

New Conventional Wisdom

44

CHAPTER 7


xi

Contents

Obiter Dictum
What, Then, Are We to Do?
Notes

44
45
45

CHAPTER 8

IMF Meet, Fall 2010: A Cop-Out
Global Economic Adjustment
The Mechanics of Rebalancing
Problem Not One of Coordination
Similar Problems, Different Paths
What, Then, Are We to Do?
Notes

47
48
48
50
50
51
51

CHAPTER 9

G-20 Summit, Seoul 2010: Much Ado about Nothing
The Seoul Action Plan
The Seoul Development Consensus (SDC) for
Shared Growth
What, Then, Are We to Do?
Notes

53
54

CHAPTER 10

TW3 2010: The World Trichotomized
State of the World Economy
Importing Pessimism
What, Then, Are We to Do?
Notes

59
59
63
63
64

CHAPTER 11

Prospects 2011: As the World Turns
State of the World
Impact of Oil

MENA
And Then, There’s Japan
A Word on China
What, Then, Are We to Do?
Notes

65
65
67
67
68
69
69
70

CHAPTER 12

A Check-up at Mid-Year, 2011

71

MENA Jasmine Revolution

71

56
57
57

xii

Contents

Japan’s Earthquake and Tsunami
Eurozone Concerns Grow
US Economy: Worse than It Looks
Global Growth Revisited
The Threat of Inflation
What, Then, Are We to Do?
Notes

72
73
73
73
74
75
76

CHAPTER 13

Gloomy Outlook Takes Its Toll, 2011–2012
The Contagion
The Problem Is Europe
Default by Greece?
The Shadow of Recession
Housing Ignored
What, Then, Are We to Do?
Notes

77
77
78
79
80
81
82
82

CHAPTER 14

G-20 Summit, Cannes 2011; APEC, Honolulu 2011:
Without Gusto!
G‐20 and France
G‐20 and Italy
G‐20 Has Little to Show
The G‐20 Pact
APEC’s Honolulu Declaration
What, Then, Are We to Do?
Notes

83
83
84
84
85
86
87
88

TW3 2011: Annus Horribilis
Storm Clouds Gather
Poor Rich World
United States, Eurozone, and Japan
Rich Poor World
China
What, Then, Are We to Do?
Notes

89
89
90
91
92
93
93
94

CHAPTER 15


xiii

Contents

CHAPTER 16

G-20 Summit, Los Cabos 2012 GJAP: More of the Same
Los Cabos GJAP

IMF War Chest
BRICS Initiative
Growth Compact
What, Then, Are We to Do?
Notes

95
96
97
97
98
99
100

CHAPTER 17

APEC, Vladivostok 2012: A New Perspective
APEC Declaration
Free and Open Markets
APEC Integration
What, Then, Are We to Do?
Notes

101
101
102
104
105
105

CHAPTER 18

TW3 2012: A Tough Year with a Bleak Outlook
Enter 2013
OECD Slashes Forecast
East Asia and Pacific (EAP)
What, Then, Are We to Do?
Notes

107
108
108
110
111
112

CHAPTER 19

2013: Breadth of Global Slowdown Disconcerting
OECD and IMF Downgrade
What, Then, Are We to Do?
Notes

113
114
117
118

CHAPTER 20

TW3 2013: Tension and Risks; a Peek at 2014
Emerging Asia 2013
Outlook for 2014
What, Then, Are We to Do?
Notes

119
120
121
125
125

CHAPTER 21

Spring 2014 Stock Take: Complex Risks Ahead
The Assessment

127
127


xivv

Contents

The Risks
What, Then, Are We to Do?
Notes

129

130
131

PART II

TROUBLE WITH THE GLOBAL ECONOMY

133

CHAPTER 22

The Paradox of Thrift
Savings
Aggregate Demand
Thrift
Japan and Germany
What, Then, Are We to Do?
Notes

135
135
136
137
137
138
139

CHAPTER 23

Deflation Is Not an Option

World Economy
“Green Shoots”: Just out of Freefall
Worst‐Case Scenario: Deflation?
Deflation Woes
What, Then, Are We to Do?
Notes

141
141
142
143
144
145
146

CHAPTER 24

Reality Check on Economic Models
Failure of Models
Minsky’s Challenge
Markets Don’t Have All the Answers
Risk and Morals
What, Then, Are We to Do?
Notes

147
147
148
148
149

150
150

CHAPTER 25

Commodity and Asset Prices Are Up;
Can Inflation Be Far Behind?
Paradox of a Symmetrical Recovery
Commodities
Asset Bubbles

151
151
152
153


xv

Contents

Inflation and the Quantity Theory of Money
What, Then, Are We to Do?
Notes

154
155
155

CHAPTER 26

A New Hazard: Double-Dip Deflation
Double‐Dip Talk amid Unusual Uncertainty
A History Lesson
Deflation Is Poorly Understood
Concern but Not Panic
Biflation
What, Then, Are We to Do?
Notes

157
157
158
159
160
161
161
161

CHAPTER 27

The “New Normal”
New Normal for the United States
New Normal for the Eurozone
New Normal for Emerging Nations
What, Then, Are We to Do?
Notes

163
163

165
166
167
167

CHAPTER 28

Muddling Through the Inflation
United States and Eurozone Inflation
Emerging Developing Countries (EDCs)
China, India, Other Asia
Latin America
The Subsidy Spree
What, Then, Are We to Do?
Notes

169
170
171
171
172
173
173
174

CHAPTER 29

It’s a Dangerous World out There
In Search of Safe Haven
What Went Wrong?

What, Then, Are We to Do?
Notes

175
175
176
179
180


xvi

Contents

CHAPTER 30

“Risk-Off” Episodes
Global Economy Snores
Central Bank Fix
Rich Nation’s Woes
China
What, Then, Are We to Do?
Notes

181
181
182
183
185
186

186

CHAPTER 31

Now’s Not the Time for Austerity
Austerity
Growth and Austerity
The IMF About-Face
A Cri de Coeur
What, Then, Are We to Do?
Notes

187
187
188
190
190
191
191

CHAPTER 32

The World Economy: Growing Pains
and Bubbly Worries
The Worldwide Wobble
Out of Step
What, Then, Are We to Do?
Notes

193

193
196
196
197

CHAPTER 33

What’s Up Is Down
Why the “Fall Fall”?
GDP and the Market
Time for a “Melt‐Up”?
What, Then, Are We To Do?
Notes

199
200
201
201
203
203

PART III

THE UNITED STATES: JOBLESS RECOVERY

205

CHAPTER 34

Jackson Hole “Gunfight” Shoots Blanks

The Official Line

207
207


xvii

Contents

Uncomfortable Monetary Math
New Insights
What, Then, Are We to Do?
Notes

209
210
210
211

CHAPTER 35

The United States Is No Longer AAA
US Downgrade
Immediate Global Sell‐off
European Contagion
What’s Wrong with the US Economy?
What, Then, Are We to Do?
Notes

213
213
214
216
216
217
218

CHAPTER 36

“Occupy Wall Street” Goes Global
US Inequality
US Poverty
Smart Government
What, Then, Are We to Do?
Notes

219
220
221
222
223
223

CHAPTER 37

Lessons from Marx to Market
Marx and Global Disorder
Unbalanced Times Ahead
Lessons from Japan

Middle Classes Also Rise
What, Then, Are We to Do?
Notes

225
225
227
227
228
229
229

CHAPTER 38

Sachs and Krugman on the Global Crisis
Sachs: Confucian Man
Sachs’s Focus
Krugman: The Liberal
What, Then, Are We to Do?
Notes

231
232
234
234
235
236


xviii

Contents

CHAPTER 39

Life after Keynes with the Double-Dip
J. M. Keynes
Free‐Market Fundamentalism
Keynesianism
What, Then, Are We to Do?
Notes

237
237
238
240
242
242

CHAPTER 40

Growth Dims after the “Cliff”
“Cliff” Deal
US Debt Ceiling
Budget Deficit
Ideological Divide
US Economy
Growth Update
What, Then, Are We to Do?
Notes

243
243
244
244
245
245
246
247
248

CHAPTER 41

An Inconvenient Truth: QE Withdrawal Syndrome
Current State of Play
Tapering Is Not Tightening
What, Then, Are We to Do?
Notes

249
250
252
253
254

CHAPTER 42

An Unnecessary Disaster Spawns Market Fears
Why So?
Debt Armageddon

The Impact
What, Then, Are We to Do?
Postscript
Notes

255
256
256
257
259
260
260

CHAPTER 43

US Growth Deficit: Too Loose, Too Long
Growth Deficit
Transatlantic Gap
Messy Jobs Status

261
261
262
262


xix

Contents

Return of Inflation
What, Then, Are We to Do?
Notes

263
264
265

THE EUROPEAN UNION AND EUROZONE:
MORE AUSTERITY

267

CHAPTER 44

Dark Clouds over Europe and the United States
The Eurozone Stumbles
The United States Slides
Productivity: The Critical Key
US Deficit Is Too Large
What, Then, Are We to Do?
Notes

269
270
271
272
272
273
274

CHAPTER 45

ECB and Fed Clear Way to Act
Weakness Dogs the World
Draghi’s Dilemma
Bernanke’s Barrel Roll
What, Then, Are We to Do?
Notes

275
275
278
279
280
280

CHAPTER 46

Eurozone Growth Can’t Move beyond First Gear
but Needs to Keep Deflation at Bay
Definite Weakening
“Lowflation” to Deflation
QE as Last Resort
What, Then, Are We to Do?
Notes

281
281
282

283
284
284

PIIGS Can’t Fly: The Trouble with Greece
Desperate Times, Desperate Measures
Debt Jitters Spread
The Risks
Headlines Miss Woods for the Trees

287
288
288
289
290

PART IV

CHAPTER 47


xxx

Contents

What, Then, Are We to Do?
Notes

291
292

CHAPTER 48

Greece Is Bankrupt
The Greek Illusion
Greece Is Insolvent
The Macroeconomics
Political Solution: Slash and Burn Won’t Work
Few Options Left
What, Then, Are We to Do?
Notes

293
293
294
295
295
296
297
298

CHAPTER 49

Greek Bailout Mark II: It’s a Default
Contagion: Italy and Spain
The Deal: Europeanization of Greek Debt
Impact of Default
Growing Pains
What, Then, Are We to Do?
Note

299
299
300
301
302
303
303

CHAPTER 50

Greece and Eurozone: Austerity Fatigue
The Eurozone
The Greece “Lock‐in”
Unlocking the Greek Bailout
Politics beyond Borders
What, Then, Are We to Do?
Notes

305
306
307
308
309
309
310

CHAPTER 51

Greece: More Aid Needed to Save

the Austerity-Fatigued
Fleeting Relief
Sins of the “Father”
G‐20 and EU Summit
Asia’s Lessons
No Pound of Flesh
What, Then, Are We to Do?

311
312
313
313
314
315
315

Notes

316


xxi

Contents

CHAPTER 52

New Euro Deal: Not the Whole Bazooka
The Deal
Tough Sell with No Growth

Not Enough Firepower
Drag on Asia
What, Then, Are We to Do?
Notes

317
318
319
320
321
321
322

CHAPTER 53

European Union: Favoring Growth Against
More Austerity
The Pain
“Growth Compact”
Economic Suicide
Three‐Pole Global Economy
What, Then, Are We to Do?
Notes

323
324
324
326
326
327

328

CHAPTER 54

European Union: A Summer of Discontent
Austerity Backlash
Stiffest Test Ever
Austerity Rebuked
What, Then, Are We to Do?
Notes

329
330
332
332
334
334

CHAPTER 55

European Union: Draghi’s Bumblebee
Euro Does Not Fly
Europe Limps into the Third Quarter of 2012
US Economy Cools
Sticky Spell for Asia
China Stabilizes
What, Then, Are We to Do?
Notes

335

335
336
337
338
339
339
340

CHAPTER 56

Cyprus’s Bailout Turns Bail-In
Cyprus Is Unique

341
342

A Bitter Deal

342


xxii

Contents

Cyprus Euro Not the Euro
What, Then, Are We to Do?
Notes

344

344
345

PART V

JAPAN: DEAD ON BUT NOT DEADENED

347

CHAPTER 57

Japan in Deep Hibernation
Sleepwalking in Slow Motion
New Stimulus
¥ Intervention
Deflation, Status Quo, and Recovery
What, Then, Are We to Do?
Note

349
350
351
351
352
353
353

CHAPTER 58

3-11: The Tohoku Disasters One Year On

Japan Remembers
The Fourth Disaster
Tea at Entokuin
Digital Archive
Economy Grapples with Aftermath
What, Then, Are We to Do?
Notes

355
355
356
357
357
358
359
360

CHAPTER 59

Japan Picks Up the Pieces
IMF Updates
Japan’s Outlook
What, Then, Are We to Do?
Notes

361
361
362
365
366

CHAPTER 60

Abenomics: Japan Comes Alive Again
The Three Arrows
Takahashi‐nomics
The Risks
What, Then, Are We to Do?
Notes

367
368
369
370
371
372


xxiii

Contents

CHAPTER 61

Abenomics Hitting Speed Bumps
Impact
Speed Bumps
Wages and Growth
What, Then, Are We to Do?
Notes

373
373
374
375
376
376

PART VI

THE INTERNATIONAL FINANCIAL SYSTEM

377

GOLD
CHAPTER 62

So, the Gold Bug Still Bugs You
Monetary Gold
The World Running out of Gold?
Man’s Addiction to Gold
Gold Is Looking Less Barbaric?
Gold’s Uncertain Future
What, Then, Are We to Do?
Notes

379
379
380
380

381
382
382
383

CHAPTER 63

Man’s Addiction to Gold
Gold Standard
US$ Standard
Gold and SDRs
Future of Gold
What, Then, Are We to Do?
Notes

385
386
386
387
388
389
390

CHAPTER 64

In Search of Gold at Bretton Woods:
Lust for Gold Not Paying Off
Back to New England
Bretton Woods Accord
Back to Harvard

Gold
Goldbuggism

391
392
392
392
393
393