Friday, 26 April 2013

A Respond to a Pakatan Supporter on Malaysia's DEBT LEVEL.

Herein are some basics about DEBTS ;

Debt is often issued with a repayment plan (a "time to maturity" in some cases), repayment times may be between a few days (interbank cash flow management) and 50 years or longer (consumer real estate debt). The average repayment time of all worldwide outstanding debt is perhaps 10 years.

The debt-to-GDP ratio is generally expressed as a percentage, but properly has units of years, as below.
By dimensional analysis these quantities are the ratio of a stock (with dimensions of Currency) by a flow (with dimensions of Currency/Time), so they have dimensions of Time. With currency units of US Dollars (or any other currency) and time units of years (GDP per annum), this yields the ratio as having units of years, which can be interpreted as "the number of years to pay off debt, if all of GDP is devoted to debt repayment".
This interpretation must be tempered by the understanding that GDP cannot be entirely devoted to debt repayment — some must be spent on survival, at the minimum, and in general only 5–10% will be devoted to debt repayment, even during episodes such as the Great Depression, which have been interpreted as debt-deflation — and thus actual "years to repay" is debt-to-GDP divided by "fraction of GDP devoted to repayment", which will generally be 10 times as long or more than simple debt-to-GDP.

Debt-to-GDP measures the financial leverage of an economy; some economists, such as Steve Keen, advocate using it as the key measure of a credit bubble (both its level and its change – particularly of private debt and total debt), and high levels of government debt (public debt) are widely decried as fiscal irresponsibility.
One of the EURO Convergance criteria was that government debt-to-GDP be below 60%. In Malaysia, we have set it at below 55%. Currently Malaysia's DEBT vs GDP is at 53%.

Here is a respond to a hardcore Pakatan supporter who tried his level best to use Malaysia's DEBT issue as an instrument to shed false impression about local economic management without knowing about what other developed countries the world over are facing in terms of national debt.

  • The hard truth is the current corrupt regime has run up a national debt of more than RM600 billion.And increasing. If the current trend continues your kids will be maids or singing to the Koreans, Taiwanese and Singaporeans in the not too distant future. Go think about this Mr thinker writer, if you can.
  • In respond to Shadower -

    Yeah, the issue of DEBT RM 600 Billion. Wow ! This must be mind boggling fact which none knew about except for you and some privilage few among your PAKATAN friends.

    Yes I agree Malaysia did accumulate sizeable amount of debt over the years. In developing a country, DEBT is a measure of getting funds for development. The question is whether the acquired DEBT being used for real development projects ?

    The measure for this is to look at the RATIO of DEBT against GDP which currently stands at 53% for Malaysia and our ceiling limit is at 55%. Singapore is at 106%. Their DEBT vs GDP is way above the line but do you see Singapore falling apart ? No. Why ? It is because they are still able to repay all their debts in a timely manner and all the country's debt being used to develop the whole nation.

    One proof that Malaysia is using all its resources to develop this country is by looking at our GDP. Malaysia GDP in 1957 is somewhere above RM 5 billion but after 55 years our GDP increased to more than RM 1 trillion....

    We already hit the TRILLION mark. This is the HARD TRUTH that no one cares to check and verify. Another thing about DEBT, is that you dont pay your DEBT in one lump sump. There is this thing called staggered payment. You look at your overall income before committing to these debts. DEBT alone should NOT be a measure of government effectiveness.

    In economics, the debt-to-GDP ratio is one of MANY indicators of the health of an economy. It is the amount of national debt of a country as a percentage of its Gross Domestic Product (GDP).

    A low debt-to-GDP ratio indicates an economy that produces a large number of goods and services and probably profits that are high enough to pay back debts. Governments aim for low debt-to-GDP ratios and can stand up to the risks involved by increasing debt as their economies have a higher GDP and profit margin. In 2011 United States public debt-to-GDP ratio was about 100%. Remember, Malaysia is at 53%.

    The level of public debt in Japan in 2011 was 204% of GDP. The level of public debt in Germany in the same year was 85% of GDP. Almost a third of US public debt of USD 16 trillion is held by foreign countries, particularly China and Japan. Conversely, less than 5% of Japanese public debt is held by foreign countries.

    So go think about this Mr Thinker Shadower if you still have any shadow left !

    1. All i know is that the gov try put the burden of the debt to the people i.e. GST, less oil subsidy.

    2. If we look at Australia, the Income Tax there is about 40%. Thats huge as far as Malaysia is concern. Churches in the US, collects 30% of gross income of its worshippers. They are giving for the sake of religion. Our GST is a mere 5% and in returns, Malaysia do provide some real cool infrastructures in terms of road, schools, governmental systems, food subsidies, petrol subsidies, etc....I think it is justified.