photo by shamshahrin

Articles like this scare the hell out of me. Malaysia has a growing issue on it’s hands in part because the government is still saying, “No problemo“. Unless there are genius’ at work the likes of no where else in the World, Malaysia has some painful realizations to come to grips with over the next few months.

Where the discussion isn’t going, at least in public, (or the PR level), is the possibility that the first foreign policy crisis the administration will face will be the complete economic collapse of a large, unstable nation. To be sure, Pakistan is nearly broke, and U.S. policy makers seem to be aware of that; but a worldwide demand crisis could lead to social unrest in countries like Indonesia and Malaysia, Singapore, the Ukraine, Japan, Turkey or Egypt (which is facing an internal political crisis of epic proportions already). The U.S. won’t have the resources to, say, engineer the rescue of the peso again, or intervene in Asia as in 1997.

A close friend of mine organizing funding for a mobile device startup recently had dinner with banker here and told him that many manufacturers in the country have cut back to 2 days of operation. The next shoe to drop locally is massive defaulting on credit and car loans according to this banker.

Malaysia and other countries facing a financial crisis need to rewrite home and auto loans based on current valuation rather than going into the same default and foreclosure spiral as the US and Europe. A link house in Bandar Sri Damansara was 285k RM in 2002. Earlier this year the same property was asking 520K RM. I anticipate correction in the area of 30 to 40% over the next year. Basically if your property doubled in value over the last few years, get ready for a big correction.

Malaysia has been lucky to have experienced good times for a long while. I’m scared what the reaction would be here if people are holding property loans at twice the amount of the homes current value. Then consider a collapse in the job market along with b.a.d. inflation. Then add government with weak leadership that continues to deny there is a problem.

Scary times folks.

• Malaysia is in recession
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After spending a few years in Malaysia, whenever you hear top level ministers and the Prime Minister repeatedly declare that things are not that bad, things are actually bad. I’ve talked to shop keepers, hand phone dealers, car salesmen & real estate agents. They already know what the government is afraid to say, Malaysia is indeed in recession.

KUALA LUMPUR: The global economic slowdown is beginning to take a toll on the lifestyle of Malaysians in Kuala Lumpur and people are bracing themselves for difficult times. A member of the public said: “What I heard around in the market… even they are saying things are more expensive. They are buying less, going to supermarket less and business is slowing down a bit.” Another said: “I have cut down a lot on lifestyle expenses.”

I’ve noticed over the past several years the increasing trend of banks handing out packs of 3 and 4 credit cards to just about anyone. Retailers here have schemes whereby people can purchase appliances, computers and such for zero interest for the first 12 months, quite popular with consumers. The real economic danger here will be when people begin to mass default on credit debt.

via Channel News Asia

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I hope Schiff is not right this time.

The sad reality is that we borrowed and spent our way into this crisis, and we are not going to borrow and spend our way out of it. Legitimate credit can only be supplied if there are genuine savings to finance it. Savings can’t be magically concocted into existence by a printing press, but can only be created by consumers who spend less than they earn. Efforts to fool the market will not work and will ultimately lead to a monetary disaster and runaway inflation.

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Last year we visited Auckland for 2 months to get an idea of what it would be like to live there. Both my wife and I have family in New Zealand and we’re giving it serious consideration. During our ‘07 holiday visit I checked in with my brother in law about the local real estate market. He’s invested in several properties in the Auckland area, has done real estate training and is a sharp guy. I asked him if he felt home prices in New Zealand would be dropping like they were back in the US. His reply was that the NZ real estate market was well insulated from the US economy and that he felt prices would continue to rise. I’m a guest in his home, his country.. who am I to argue?

I’m no expert but I saw this coming 2 years ago from the growing stream of news on blogs and on social bookmarking sites like Reddit / Digg. That’s knowledge of the crowd for you. No one in social media is surprised by the financial collapse. What happens in banking in one country affects banks and overseas. These are international companies. When Lehman Brothers fails in New York, it also fails in London, Hong Kong and Auckland.

While taking public transportation around Auckland I’d talk to the bus drivers about areas they considered to be hot markets for buying homes. Who better really? One of the bus drivers told me she and her husband were getting ready to buy a home. I told her about the coming sub-prime fallout and that she might want to wait a year. I might be getting a warm NZ hug the next time I ride her bus.

With huge projects failing and housing markets reaching 26 year lows, the NZ economy is in recession.

New Zealand is a fantastic country and has excellent investment value. Prices will come back eventually and our long term plans still include NZ. Especially if Obama should lose this election – NZ here we come! Recession or not.

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