Debt Crisis - European Sovereign Debt Crisis

Economic uncertainty became the main topics nowadays, and everyone is focusing on the European countries' sovereign debt crisis - which is said to be one of the main contributor for the current gloomy economic situation. Some predict that it may risk the world to a double dip recession if it's not solved soon.

How had these sovereign debts developed into a crisis? The clue may be found from the following 2010 data:

It isn't viable when the percentage of debt is extremely higher over the income (i.e. GDP), and it will never be viable if it's occurring over 10 years period. Despite the word 'extremely higher' itself is pretty subjective..the above data indicate to me that there were indeed an extensive debt burden vs GDP growth and employment rate within some European countries..

To determine whether it is high or low, the following simple logic may be used: EXPENSES (or INVESTMENT) vs INCOME = GAIN or DEFICIT. which would be the result?....

Will another debt facility to these European countries solve this debt issues, and eventually solve the economic crisis?....this require in depth studies..

In my quest to find motives/ intentions of replacing gold with paper money, I had come across an article (refer http://rt.com/news/economy-oil-gold-libya/ ) and the following video embedded:


Some points & quotations to be pondered on:

1. There is a possibility that intervention in Libya is about Gaddafi's plan to introduce the gold dinar, instead of protecting civilians or oil agenda.
2. “It’s one of these things that you have to plan almost in secret, because as soon as you say you’re going to change over from the dollar to something else, you’re going to be targeted,” says Ministry of Peace founder Dr James Thring. “There were two conferences on this, in 1986 and 2000, organized by Gaddafi. Everybody was interested, most countries in Africa were keen.”
3. The idea of selling oil and other resources only for gold dinars would shift the economic balance of the world, and Gaddafi had been urging African and Muslim nations to join together to create this new currency that rival the dollar and euro. A country’s wealth would depend on its gold reserve, and not how its traded dollars.
4. Libya has 144 tons of gold. UK, for example, has twice as much, but with ten times population.
5. “If Gaddafi had an intent to try to re-price his oil or whatever else the country was selling on the global market and accept something else as a currency or maybe launch a gold dinar currency, any move such as that would certainly not be welcomed by the power elite today, who are responsible for controlling the world’s central banks,” says Anthony Wile, founder and chief editor of the Daily Bell. “So yes, that would certainly be something that would cause his immediate dismissal and the need for other reasons to be brought forward from moving him from power.”
6. In 2000, Saddam Hussein announced Iraqi oil would be traded in euros, replacing dollars. Sanctions and invasion followed might be the move to prevent OPEC from transferring oil trading in all its member countries to euro.
7. “The US have denied self-determination to Africans inside the US, so we are not surprised by anything the US would do to hinder the self-determination of Africans on the continent,” says Cynthia Ann McKinney, a former US Congresswoman.
8. A gold dinar would provide oil-rich African and Middle Eastern countries the power to turn around to their energy-hungry customers and say:  “Sorry, the price has gone up, and we want gold.” which  US and NATO allies would like to avoid.

Now it gave me more motivation to find the truth - the possible motive on replacing gold with paper money.=)

Malaysia Budget 2012 - In a glance

The RM230.833 billion Federal Government Budget 2012 proposals was unveiled on Friday, Oct 7 as follows:

• Theme: “Transformational Budget: Welfare for the rakyat, well-being of the nation”.
• Seven(7) areas to be focused:
1. Reducing the impact of inflation;
2. Enhancing the well-being of the rakyat;
3. Accelerating rural transformation;
4. Reinvigorating investment activities;
5. Innovating Malaysia;
6. Developing human capital; and
7. Improving public service delivery.

Official site of Malaysia Budget 2012: http://www.treasury.gov.my/index_bi.html

Malaysia Budget 2012 - Commitment for Islamic Capital Market

Yesterday, the Malaysia Prime Minister, Najib Razak tabled to the Dewan Rakyat the country Budget 2012 proposal. Some of the items tabled were:

• Kuala Lumpur International Financial District (KLIFD): Income tax exemption of 100% for 10 years and stamp duty exemption on loan and service agreements for KLIFD status companies. Income tax exemption of 70% for 5 years for property developers in KLIFD.
• Sukuk: Income tax exemption given for sukuk issuance and transactions (based on wakalah principles) is extended for another 3 years until the year of assessment 2014.
• ETF: To boost Exchange Traded Funds (ETFs), Valuecap Sdn. Bhd subsidiary, I-VCAP, to provide RM200 million as seed monies for shariah-compliant ETFs. This fund will provide a matching loan subject to a maximum of RM20 million.
• SMEs: Government  to provide RM100 million for the SME Revitalisation Fund. This scheme offers soft loans up to a maximum of RM1 million for entrepreneurs to revive their businesses. To help SMEs to commercialise research products, government to set up shariah-compliant Commercialisation Innovation Fund totalling RM500 million with an attractive profit margin.

which it is pretty obvious that on a way forward, the Malaysian government will be focusing in developing the country as the hub of Islamic capital market. One of the concept within the Islamic capital market is Islamic finance.

What does the “ISLAMIC FINANCE” mean, what makes it different from the conventional finance/ banking? I did some light research, and these are my findings:

Fundamental of Islamic Finance: Constant with Islamic Law/ Principles (Prohibition of investing in businesses that are haraam (unlawful), e.g. business in alcohol, pork, pornography, gossiping media, etc.) Prohibition of usury/ “Riba” (collection and payment of interest). Prohibition of "Maysir"  (involved in contracts where the ownership of a good depends on the occurrence of a predetermined, uncertain event in the future. Prohibition of "Gharar" (speculative transactions). Motive: The concepts of “Riba”, ”Maysir” and ”Gharar” were prohibited in Islamic Finance transaction due to they involve excessive risk and foster uncertainty and fraudulent behavior – contrary to Islamic values. The use of derivative instruments (as practiced in conventional finance/ banking) is impossible in Islamic finance/ banking. Allowable transaction concept in Islam: Some concepts/ principles of Islamic business transaction have well been established during the lifetime of the prophet Muhammad, but some were established thereafter, derived from the principles outlined in the Al-Quran & As-Sunnah. Some of these Islamic finance transaction concepts are: Bai' al 'inah (sale and buy-back agreement) Bai' bithaman ajil (deferred payment sale) Bai' muajjal (credit sale) Bai salam Musharakah (joint venture) Mudarabah (Profit Sharing) Murabahah Musawamah Hibah (gift) Ijarah (lease, rent or wage) Ijarah thumma al bai' (hire purchase) Qard hassan/ Qardul hassan (good loan/benevolent loan) Sukuk (Islamic bonds) Takaful (Islamic insurance) Wadiah (safekeeping) Wakalah (power of attorney)

Official site of Malaysia Budget 2012: http://www.treasury.gov.my/index_bi.html

p/s: Sure thing, the God who created the world and creatures within it understands the best their behavior and how they reacts to situations. Versus the creatures, who have very limited knowledge about the world and themselves. Something for us to ponder.looking forward to see Malaysian success in this area.