Unsustainable spending will bring next financial crisis

There’s a long but good article in thestar. It was an interview with someone known as “Warren Buffett of Asia.” He is the HONG Kong-based Value Partners Group chairman and co-chief investment officer Datuk Seri Cheah Cheng Hye. He said many positive things about Malaysia from investment perspective. Whether we agree with his assessment or not, there are lots of information to be gained from the article. For me, this specific sentence is something I think I have been writing about. He said, “My personal theory is that the unsustainable spending and the populist politics in many of the developed countries will bring about the next global financial crisis. Maybe one even worse than 2008. The non-stop printing of money, the very low interest rates kept for far too long, and a political system that is based on trying to make everyone as happy as possible all the time to secure re-election – well all this creates a society or system that is increasingly unsustainable.”
Beyond just the government of the day which will affect the country, we can look at our personal financial standings too. We create our own financial crisis when we start unsustainable spending ourselves. A good friend who’s a marketing manager with a continental automotive brand told me that he has personally seen way too many people buying cars they could barely afford. They would drive the car for a few years and as soon as they have just enough funds, they would buy their next dream car. This sinks them deeper into the debt hole which is definitely going to be a financial crisis for them. 82,383 bankrupt Malaysians from 2013 – 2016 No prizes for guessing. Car loans are one major reason why people go bankrupt here in Malaysia.
He also mentioned about the non-stop printing of money which I think is referring to that huge economy whose currency kept going up despite having trade deficits every year. On a personal basis, it is also possible for us to spend MORE than what we have. Yes, through that credit card that we own. Beyond just spending our salary which is limited, we are tapping into additional FUTURE funds which we do not have yet.  For example, the top 20 percent income earners in Malaysia may earn RM8k per month and this would easily qualify him for a credit card with a credit limit of 4-5 times his salary. Assuming it’s 4 times, he would have extra RM32,000 in his hand suddenly. Without control, we can already see the perils he would be in once he starts spending future money and paying the minimum amount every month.
Where are we today? It’s good to know if we remain in the black which will ensure we remain in firm footing when the next crisis comes or are we already a few feet inside the debt hole. By the way, I do not consider having only funds in the fixed deposit as awesome. Perhaps it’s considered safe by many but inflation will eat up a lot of it over a long period of time. Build up more of what we have by investing the small pile of what we have. “Sikit-sikit, lama-lama jadi bukit….. juga”  Happy weekend everyone!
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written on 1 April 2017
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