Wednesday, September 10, 2008

To Rescue the Stock Market, First Rescue the Economy

To Rescue the Stock Market, First Rescue the Economy
United Daily News editorial (Taipei, Taiwan, ROC)
A Translation
September 10, 2008

The day before yesterday the stock market rose 351 points, Yesterday it fell 233 points. The rebound was a one night stand, a flash in the pan. The admininistration is wondering how to rescue the stock market. But absent economic momentum and confidence, the stock market has no support. After all, economic issues are not the same as stock market issues. Everyone is experiencing economic difficulties, not just investors.

The global economy is mired in the worst depression since the Great Depression of 1929. This is the international consensus. Many nations have announced programs to revive their economies. The new administration has been in office 100 days. Its financial and economic experts were too eager to claim credit. Therefore each of them promoted his own solution. The result was chaos and disunity. The first of eight half-hearted measures to revitalize the economy received its answer when the stock market fell for five straight days. The policy lost all credibility. Given this lesson, when the administration makes its next move, its must think first and act second. Its objectives must be clear. Its actions must be unified. It must not keep worrying about what people will say.

Based on actual observation, the global economy is on a downward slide. This is the main reason Taiwan's economy is limping along, and it was to be expected, Of continuing concern is the decline in Taiwan's export growth and its industrial competitiveness. Is the situation deteriorating? Currently there are no signs indicate. Inflation rates, interest rates, exchange rates, and market price fluctuations suggest that the economy is stable compared to neighbouring countries. Sluggish domestic demand has been the norm for years. It reflects the public's lack of confidence. Over the past eight years a Closed Door Policy has alienated the public. The new administration, which wants to relax these restrictions, has failed to win public trust. It has run up against sluggish external demand. Nothing can hide the facts. If the problem isn't addressed, it may spin out of control.

Pessimism has followed on the heels of optimism. A sustained downturn could spark a wildfire and spin out of control. The downturn merely reflects fluctuations in the cycle of supply and demand. But what individuals are feeling is pain. Businesses are retrenching, closing down, and even declaring bankruptcy. Personal incomes are falling. The standard of living is declining. Unemployment is spreading through families, leading people to commit suicide or to commit crimes. When fluctuations in the economy become larger, and remain longer, their impact becomes more intense and more widespread. Manufacturing industries close down one after the other. Increasing social friction and chaos threaten public safety. The economy loses its resiliency. It is no longer able to withstand the next wave of economic shocks. This is no laughing matter.

The administration needs countermeasures. But its countermeasures must not swim agains the tide. That would be a waste of ammunition. For example, artificial intervention in the stock market, will only dig the administration in deeper. Nor is the answer taking advantage of the confusion to experiment with all sorts of quick fixes, Such shortsightedness will rebound in the long run. The price would not be worthwhile. The administration is considering an expansion of the five-year tax exemption, and a reduction in document taxes. These measures remain controversial, and their effectiveness in doubt. They undermine the legitimacy and weaken the impetus for property tax reform. Administration plans must not be at the mercy of the global economic downturn. To preserve Taiwan's economic vitality, administration plans must, as far as possible, anticipate future developments. They must minimize and limit long term damage.

The administration must, at the very least, implement the dual rate system and stabilize prices. It must provide a stable business environment. It must avoid making matters worse. The relaxation of controls and reconstruction programs must not be delayed due to economic turbulence. These weapons will be necessary in the event of an economic resurgence. The highest priority must be to bolster public confidence, to reduce turbulence, and above all, prevent aftereffects. "Reduction and Prevention" requires no bag of tricks. All it requires is action. The key is to expand demand in order to alleviate the suffering of those on the economic margins.

The nation's income structure is M-shaped. The administration's countermeasures must also be M-shaped. After all, the middle and extreme right hand side of the M-shape are middle and high-income groups. They have large savings accounts. They have the ability to weather the depression. The administration's programs to increase demand must redistribute the wealth, reducing the impact on the poor. The administration has the money, but if it doesn't spend it, the benefits will not be felt.

On the extreme left hand side of he M-shape are low-income groups. The administration has put forward a work subsidy program to take care of disadvantaged groups. It should pay more attention to the plight of small and medium enterprises and to unemployment. Small and medium enterprises are most vulnerable to economic changes. Cash flow is the key to success. The administration should consolidate its existing resources, and tide them over their difficulties. July unemployment was high due to seasonal factors, and will increase in August and September. But the administration is oblivious to the problem. Unemployment is the beginning of economic deterioration. It is the source of social chaos. The administration must prevent it as soon as possible. It must assist employment agencies, expand training, prevent bankruptcy fraud, and provide unemployment benefits.

2008.09.10 02:53 am









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