Make Chiangmai Mail | your Homepage | Bookmark

Chiangmai 's First English Language Newspaper

Pattaya Blatt | Pattaya Mail | Pattaya Mail TV

Update October 2016

Chiang Mai News
Arts - Entertainment for Chiang Mai
Classical Connections
Community Happenings
Doctor's Consultation
Dining Out & Recipes
Heart to Heart
Health & Wellbeing
Mail Bag
Money Matters
Social Scene
Travel & Tourism
Daily Horoscope
About Us
Advertising Rates
Current Movies in
Chiangmai's Cinemas
Back Issues
Find out your Romantic Horoscope Now - Click Here!
Update by Natrakorn Paewsoongnern

Paul Gambles
Co-founder of MBMG Group


Update October 22, 2016

Australia: Still lucky or on the brink? Part 1

Is the Australian property market truly resistant to a bubble burst, or is it just a disaster that’s taken a while, but is now ready to happen?

For the last five years or so, I’ve been warning about a future crisis in Australia. So far, it hasn’t come to anything. But that doesn’t mean to say that the danger has passed.

That’s because this economic threat comes in the form of a housing price bubble. As any student of 2008, or even medieval and ancient history, will tell you – bubbles don’t go away. Instead, they just inflate and inflate. The problem is we never really know when the maximum capillary length has been reached and the whole thing pops, taking investors with it.

In Australia, the bubble began with the deregulation of the financial sector from 1985. This removed lending controls on banks, with the aim of opening financial markets up to greater competition, allowing savers to earn more interest and borrowers to take on loans at lower rates of interest.1 This created a new low-inflation, low-interest-rate economic environment in Australia.2

This sounds all very good in theory: more competition in the banking sector means a better choice for customers, as commercial banks vie for market share. The problem is that when it comes to loans, as individuals, we don’t necessarily know the full implications of what’s on offer – as we all saw with the US subprime crisis in 2007/2008.3

Once people get easier access to mortgages, house prices go up (see chart 1). As house prices go up, people have to borrow more to buy a place to live. In the face of escalating prices, the government embarked on a series of First Home Owner Grant programmes. The amount depends on the state: most give out between A$10,000 and A$15,000 towards a place and the Northern Territories government offers A$26,000.

Yet again, though, this helping hand has contributed to a further increase in the price of a home at a rate way above inflation and actual values.

In just the first nine years of the grant scheme (2000-2009), the public sector contributed A$200 million to the housing market to date. Yet, at the same time, there was a A$2.8 billion increase in mortgage debt – Australia’s sub-prime lite as Steve Keen, my colleague at IDEAeconomics, called it.4

The consequence of all this is spiralling household debt; which Australia has been experiencing since the early 1990s (see chart 2).

The global economic situation doesn’t help Australia either: largely due to asset values and interest rates. Overall, share prices have risen significantly over the last seven years. This was particularly true between 2009 and 2013 when, then Federal Reserve chairman, Ben Bernanke used quantitative easing to deliberately push up stock prices, in an attempt to boost US economic growth.5

To be continued...



2 See ABS data




Update October 15, 2016

Money is changing and so should we – Part Two

Creditors have better memories than debtors.

- Benjamin Franklin

Part 2 takes us through the birth of central banks to the virtual-money society we have today.

Centuries later, Ming China operated a paper currency system but the temptation to overuse it led to chronic inflation which forced the empire to revert to silver.1 Having ambitiously over-expanded the fiat system, the return to silver wasn’t easy and soon there just wasn’t enough of the metal in China. The dynastic government bought it from heavily indebted Spanish conquistadors who had acquired precious metals colonising The Americas.2

For long periods of history physical money was only exchanged between governments and bankers – everyday transactions were still undertaken on what was effectively a credit system with regular reckoning up.3

Reinhart & Rogoff’s excellent This time is different: Eight Centuries of Financial Folly4 covers much of the last 800 years of money and debt, from 13th century Britain’s travails onwards. These persisted, as debt crises tend to do, on and off for centuries. By 1694, King William of England needed money to pay off war debts incurred during the 30-years war with France and hence made a deal with a group of private bankers: in exchange for paying off his dues, they could have a banking monopoly. This monopoly became the Bank of England - the world’s first central bank – and its currency was government debt.5 That’s why modern nation states are generally run by deficit finance and maintain a national debt. Today’s currency is essentially one form of government debt.

It took a while but slowly village credit systems died out as governments started to create millions of coins, so that everyday transactions could be made, more immediately and perhaps conveniently in cash. As money came to be seen as a physical thing, the idea that debts could be written off became a thing of the past and debtors could even find themselves in prison if they didn’t pay up – what had been basis of society came to be treated as a crime.6

Gold and silver (and/or in some cases base metal) standards dominated before dying a slow death spread over the period from the 1920s to the final abandonment of the gold standard by Richard Nixon’s administration, faced with the spiralling costs of the Vietnam-American War.7

Once again money became more of a virtual commodity than a physical thing. Not only were new-fangled plastic cards starting to become popular for everyday transactions but the constraints on commercial banks’ ability to create broad money out of thin air were being removed one at a time. As another IDEAeconomics colleague, economist Ann Pettifor puts it, there’d become two ways of making money: invest in a project and labour; or simply speculate.8

Fast forward to today: Bank loans, plastic cards, online payment systems, digital wallets, block chain currencies and mobile payments are defining this latest period of dominance virtual credit money. Even local community credit is making a comeback: for example, in the Yorkshire city of Kingston-Upon-Hull, where local government and other organisations collaborate to reward community work with a local crypto-currency called HullCoin. Several local retailers have agreed to accept this as payment for or a discount on goods, meaning that the budget-slashed public sector can pay for services and indebted people can still buy the essentials.

As civilizations evolved over time, they developed mechanisms to protect society as a whole and its individual members from being trapped in debt slavery – the both constructive and humane practical recognition that has been best encapsulated by Michael Hudson, who famously declared “Debts that can’t be repaid, won’t be repaid.”9

However, the demise of civilizations has often been linked to their abandonment of this self-evident, fundamental truth. In the present day, we need to be cognisant of the dangers of societies that place greater emphasis on protecting creditors from non-paying debtors. Many feel that the repeal of legislation, such as The Glass-Steagall Act, is symptomatic of this – tearing up regulations that had specifically been designed to prevent another 1929-style banking crisis.

In truth, even if it hadn’t been repealed, Glass-Steagall almost certainly wouldn’t have prevented the 2008 Global Financial Crisis. But a more contemporary successor, drafted for purpose in the twenty-first century, would have been a better indication that both lawmakers and society generally, still understood the dangers.10

Once again we are in a period dominated by virtual money – not physical currency – and therefore, once again, we should be looking to provide ample protection for debtors and for society against creditors and not the other way round.

If nothing else, the protracted failure of central banks’ attempts to boost the economy surely highlights the need to rethink our attitude towards private debt.


1 Peter Bernholz, Monetary Regimes and Inflation: History, Economic and Political Relationships, Edward Elgar Publishing, 2015


3 idem

4 Carmen M Reinhart & Kenneth S Rogoff, This Time is Different: Eight Centuries of Financial Folly, Princeton University Press, 2011



7 idem




Update October 8, 2016

Money is changing and so should we – Part One

If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.

- John Maynard Keynes

The existence of cash can easily be taken for granted. But it’s time to realise its role is changing and, as a global society, we should adapt to a situation which has been evolving for some time.

What is money? This may sound like the opening to the kind of discussion to be heard around a bar littered with empty glasses. But it is fact a serious question. We use the term every day and generally take its meaning to be the billions of bits of paper and metal which exchange hands all around the world.

It hasn’t always been like this, though, and right now we’re in a transition between one of history’s cash periods and one of its virtual money periods. I say “one of” because virtual money is by no means an invention of the digital age.

Adam Smith’s assertion that first there was a barter economy, then cash, then debt is historically inaccurate.1 For barter to work, both parties would have needed to simultaneously want precisely what was on offer. Even if this was the case, a direct spot trade was rarely possible. If the village farmer and shoemaker did business with each other, how could they trade equivalents? The price of a pair of shoes may have been say, 15 days’ worth of lamb, but the farmer only needed a pair of shoes once every few months and, in the absence of refrigeration, the meat wouldn’t have lasted more than a day anyway!

What really happened, in places such as 3rd millennium-BC Mesopotamia was that there was no barter but complex financial systems of recording accounts, so that traders were compensated for their sales. Every few months, the whole village would reckon up. If someone didn’t pay, they’d incur the wrath of the entire community (and as far as we know risk being excluded from the community economy).2

Coinage didn’t become popular to simplify trade: major ancient trading powers, such as the Phoenicians and Carthaginians, were actually among the last to mint coins. It came about to pay soldiers to seize gold and silver from sanctuaries and palaces.3 As enough provisions for an army couldn’t easily be dragged across vast empires, the soldiers would use some of their gold and silver to buy food from the locals – after all, intelligent merchants were unlikely to offer credit to someone who fights battles for a living!

Being very keen to recoup some of those precious metals, the heads of empires developed systems of taxation. However, the use of coins continued to be restricted, in the main, to areas populated by the military such as the great cities of empire (which needed to be defended) and along frontiers (which also needed to be defended and offered scope for expansionary excursions too). Great empires required great defences (which as any modern football manager would tell you can at times be just as expensive as great attacking capability) and this inevitably led to overreaching and in turn to the first debt crises. These were often accompanied by great unrest. The constitutional states of ancient Athens and Rome, which developed from such situations, were keen to introduce coinage.

One consequence of the popularisation of coinage was that, as money was no longer simply a credit arrangement, debt crises were almost never solved by just cancelling debts. Instead, the solution was to throw money at it. In Athens, there were no debt cancellations as such, but the government came up with excuses to distribute coins to its poorer citizens in a kind of reverse taxation. People received coins for civic activities, including jury service, manning the fleet, attending the assembly, even attending the theatre.4 This was a significant change in the form of ‘jubilee’, the periodic re-sets that had been undertaken since the earliest civilizations at Ur,5 as explained by my eminent IDEAeconomics colleague Michael Hudson, to prevent excessive indebtedness becoming a systemic problem.

The new physical approach to currency worked for a while but, by around 600AD, our forbearers had to face the paradox that the greater the money creation, the greater the likelihood of an ensuing liquidity crisis. Almost three millennia ago the increasing importance and value of currency led to most gold and silver being cached in temples, monasteries and other sacred places. Consequently, everyday money had to become virtual again. In Europe, Roman denominations were still used to keep accounts but sufficient physical currency for settlement no longer existed. Instead transactions were settled using debased local coinage, leather tokens or tally sticks. The Islamic world and India used paper records, similar to cheques.6

In Part 2, I take a look at how we went back to physical money before the global economy’s gradual move back to virtual currency.


1 http://www.theatlantic. com/business/archive/2016/02/barter-society-myth/471051/


3 idem

4 idem



Please Note: While every effort has been made to ensure that the information contained herein is correct, MBMG Group cannot be held responsible for any errors that may occur. The views of the contributors may not necessarily reflect the house view of MBMG Group. Views and opinions expressed herein may change with market conditions and should not be used in isolation.
MBMG Group is an advisory firm that assists expatriates and locals within the South East Asia Region with services ranging from Investment Advisory, Personal Advisory, Tax Advisory, Corporate Advisory, Insurance Services, Accounting & Auditing Services, Legal Services, Estate Planning and Property Solutions. For more information: Tel: +66 2665 2536; e-mail: [email protected]; Linkedin: MBMG Group; Twitter: @MBMGIntl; Facebook: /MBMGGroup


HEADLINES [click on headline to view story]

Australia: Still lucky or on the brink? Part 1

Money is changing and so should we – Part Two

Money is changing and so should we – Part One



Chiangmai Mail Publishing Co. Ltd.
189/22 Moo 5, T. Sansai Noi, A. Sansai, Chiang Mai 50210
Tel. 053 852 557, Fax. 053 014 195
Editor: 087 184 8508
E-mail: [email protected]
Administration: [email protected]
Website & Newsletter Advertising: [email protected]

Copyright © 2004 Chiangmai Mail. All rights reserved.
This material may not be published, broadcast, rewritten, or redistributed.