1997 Style Thai (And Asean) Economic Meltdown Warned About

[impulse]

I quote all sorts of information and give everyone lots of interesting stuff to read and a guy comes along and his total comment in rebuttal is, "no."

And though I often disagree with your posts and the conclusions you draw, I have to admire your tenacity.

And, no. That's not sarcasm.

[samran]

Kind of like an Eddie the Eagle of Thai Visa.

[dec]

off topic but April 2010 I built an imaginary portfolio on google finance.. bought $1000 of every ticker on the NYSE corresponding to A,B,C,D right through the alphabet...as of today i am up 40 % which is a hell of lot better than my real portfolio or any mutual funds i have....luck/timing/ coincidence ??..food for thought

Edited February 24, 2013 by dec

[nidieunimaitre]

I quote all sorts of information and give everyone lots of interesting stuff to read and a guy comes along and his total comment in rebuttal is, "no."

And though I often disagree with your posts and the conclusions you draw, I have to admire your tenacity.

And, no. That's not sarcasm.

yes it is

[nidieunimaitre]

off topic but April 2010 I built an imaginary portfolio on google finance.. bought $1000 of every ticker on the NYSE corresponding to A,B,C,D right through the alphabet...as of today i am up 40 % which is a hell of lot better than my real portfolio or any mutual funds i have....luck/timing/ coincidence ??..food for thought

I have no reason to doubt you.

You got lucky with your imaginary investment.

Very much the same thing banks etc do:

They set up 10 different investment funds, each investing in different type of values. Of course, one fund will perform extremely well - the other 9 will not.

Next they will advertise this wonderfull fund - small print will say "historical returns are no guarantee for the future". Not unlike super cheap pizza deals realy.

... a seamless transition from your food for thought remark...

[Ricardo]

Raising interest rates would stoke inflation?

That's a new one for me.

After a lifetime of teaching macro economics.

Money in low interest rate countries is used to purchase money in high interest rate countries. This is called the carry trade. If everyone wants to buy baht the value of the currency goes up. If the value of the baht goes up then it costs more to buy things in Thailand. That is inflation. Where did you teach econ?

Agree with your first three sentences, about the carry-trade & stronger-Baht but then ...

"If the value of the baht goes up then it costs more to buy things in Thailand"

Sorry but I cannot agree, if the value of the Baht goes up, due to the carry-trade or real imports/exports or speculation or whatever, then imports into Thailand get cheaper, and Thai-produced products remain the same cost on the domestic market, unless they incorporate an element of imported-cost.

The inflation or price-increase is for people overseas, who buy exports like rice from Thailand, and occurs outside Thailand where their US$/GBP/Euro-based cost increases, due to the stronger Baht.

I believe you meant to say, "If the value of the baht goes up then it costs more to buy things from Thailand" ?

Edit to add, sorry if this appears that I'm being pedantic, it's not deliberate.

Edited February 24, 2013 by Ricardo

[impulse]

I quote all sorts of information and give everyone lots of interesting stuff to read and a guy comes along and his total comment in rebuttal is, "no."

And though I often disagree with your posts and the conclusions you draw, I have to admire your tenacity.

And, no. That's not sarcasm.

yes it is

No, it's not.

He posts links to a lot of good information. Though I don't usually agree with the conclusions he draws from that info, I appreciate it.

On the other hand, quite a few posters here begin, pursue and end all debate with "I'm right, you're an idiot to disagree, and my genius (and wealth) are so obvious that I'm not even going to bother supporting my opinion with any, like, information".

[nidieunimaitre]

Raising interest rates would stoke inflation?

That's a new one for me.

After a lifetime of teaching macro economics.

Money in low interest rate countries is used to purchase money in high interest rate countries. This is called the carry trade. If everyone wants to buy baht the value of the currency goes up. If the value of the baht goes up then it costs more to buy things in Thailand. That is inflation. Where did you teach econ?

Agree with your first three sentences, about the carry-trade & stronger-Baht but then ...

"If the value of the baht goes up then it costs more to buy things in Thailand"

Sorry but I cannot agree, if the value of the Baht goes up, due to the carry-trade or real imports/exports or speculation or whatever, then imports into Thailand get cheaper, and Thai-produced products remain the same cost on the domestic market, unless they incorporate an element of imported-cost.

The inflation or price-increase is for people overseas, who buy exports like rice from Thailand, and occurs outside Thailand where their US$/GBP/Euro-based cost increases, due to the stronger Baht.

I believe you meant to say, "If the value of the baht goes up then it costs more to buy things from Thailand" ?

Edit to add, sorry if this appears that I'm being pedantic, it's not deliberate.

Do you have a great grandfather (born 1772) called David?

[nidieunimaitre]

I quote all sorts of information and give everyone lots of interesting stuff to read and a guy comes along and his total comment in rebuttal is, "no."

And though I often disagree with your posts and the conclusions you draw, I have to admire your tenacity.

And, no. That's not sarcasm.

yes it is

No, it's not.

He posts links to a lot of good information. Though I don't usually agree with the conclusions he draws from that info, I appreciate it.

On the other hand, quite a few posters here begin, pursue and end all debate with "I'm right, you're an idiot to disagree, and my genius (and wealth) are so obvious that I'm not even going to bother supporting my opinion with any, like, information".

QUOTE:... "If the value of the baht goes up, then it costs more to buy things in Thailand. That's inflation. Where did you teach econ?..." END QUOTE.

And yet I did not use the word idiot.

But yes, I was obviously wrong about your alledged sarcasm.

Sorry for that.

[chiangmaikelly]

Raising interest rates would stoke inflation?

That's a new one for me.

After a lifetime of teaching macro economics.

Money in low interest rate countries is used to purchase money in high interest rate countries. This is called the carry trade. If everyone wants to buy baht the value of the currency goes up. If the value of the baht goes up then it costs more to buy things in Thailand. That is inflation. Where did you teach econ?

Agree with your first three sentences, about the carry-trade & stronger-Baht but then ...

"If the value of the baht goes up then it costs more to buy things in Thailand"

Sorry but I cannot agree, if the value of the Baht goes up, due to the carry-trade or real imports/exports or speculation or whatever, then imports into Thailand get cheaper, and Thai-produced products remain the same cost on the domestic market, unless they incorporate an element of imported-cost.

The inflation or price-increase is for people overseas, who buy exports like rice from Thailand, and occurs outside Thailand where their US$/GBP/Euro-based cost increases, due to the stronger Baht.

I believe you meant to say, "If the value of the baht goes up then it costs more to buy things from Thailand" ?

Edit to add, sorry if this appears that I'm being pedantic, it's not deliberate.

You are correct. I was thinking of my personal situation. If interest rates go up in Thailand I can borrow at a cheap rate and lend at a more expensive rate. I can also buy to have something to sell at a higher interest rate. Since I am not the only one doing this more people buy and that pushes the price of land and other assets up which is inflation.

[jamescollister]

Just my opinion Thailand will not have a 1997 crash. When that happened the IMF stepped in and told the Thai Government what it had to do to get loans.

Banking system etc, Thailand complied with the new regulations.

Things in the whole world could go bad, but Thailand will be safer than many western nations that have not implemented these practices.

Asia is a market on it's own, there may be ups and downs, but up will be the overall trend.

Industry, commerce are growing through out Asia, you can't turn the clock back. Jim

[redroo]

keeping up appearances is all that they are doing until the bill comes for the borowed cash.

just like the west did.

[jamescollister]

keeping up appearances is all that they are doing until the bill comes for the borowed cash.

just like the west did.

Think if you look Thailand is in surplus, they make more than they spend. jim

[jbrain]

I'm just a simple layman myself, but being around in Thailand during the '97 financial crisis, I daresay whatever happens next (boom, bust, who knows), will not have the same cause of what happened in '97!

Back then the Thai banks simply went tits up due to borrowing pretty much everybody heaps of cash with virtually no collateral.

One could easily borrow 10 million with a 200,000 Baht property as collateral as long as you kicked back a few 100k Baht to the loan officer.

And that was just for us mortals. Big companies could borrow billions of Baht without collateral by courting the right bank officer. Ask Mr. Rakesh Saxena, he approved a few of those! Took Thailand a good few years to get him extradited out of Canada

It was then that the Thai banks discovered that "non performing loans" were not so good for the bottom line!

Then Thailand (Chavalit actually) discovered that they really didn't have the (foreign) cash anymore to peg the US$ exchange to 25 Baht, and they had to float the Thai Baht. All the way down to 56 Baht to the US $ (Jan '98, ouch !!).

Which apparently started sort of a domino effect in the whole of Asia.

I doubt that currently Thai banks are anywhere near bankrupt, and there's a fair bit of foreign reserves floating around....

Maybe you should have a look at this post and notice that history is repeating itself in Thailand.

I am still in disbelief that my friend who makes 30,000 baht per month, with expenses including the support of a mother with dementia that consume all his pay, was allowed to take a car loan despite being a cosigner on his sister's expensive Mercedes and still carrying 300,000 baht in student loans. He has his student loans with the state bank and is on a repayment of schedule of 2500 baht/month, which he is behind on. He should never have been given car financing. He's a financial crisis waiting to happen. So much for his his business degree.

You know many small also make a big one

[samran]

I'm just a simple layman myself, but being around in Thailand during the '97 financial crisis, I daresay whatever happens next (boom, bust, who knows), will not have the same cause of what happened in '97!

Back then the Thai banks simply went tits up due to borrowing pretty much everybody heaps of cash with virtually no collateral.

One could easily borrow 10 million with a 200,000 Baht property as collateral as long as you kicked back a few 100k Baht to the loan officer.

And that was just for us mortals. Big companies could borrow billions of Baht without collateral by courting the right bank officer. Ask Mr. Rakesh Saxena, he approved a few of those! Took Thailand a good few years to get him extradited out of Canada

It was then that the Thai banks discovered that "non performing loans" were not so good for the bottom line!

Then Thailand (Chavalit actually) discovered that they really didn't have the (foreign) cash anymore to peg the US$ exchange to 25 Baht, and they had to float the Thai Baht. All the way down to 56 Baht to the US $ (Jan '98, ouch !!).

Which apparently started sort of a domino effect in the whole of Asia.

I doubt that currently Thai banks are anywhere near bankrupt, and there's a fair bit of foreign reserves floating around....

Maybe you should have a look at this post and notice that history is repeating itself in Thailand.

I am still in disbelief that my friend who makes 30,000 baht per month, with expenses including the support of a mother with dementia that consume all his pay, was allowed to take a car loan despite being a cosigner on his sister's expensive Mercedes and still carrying 300,000 baht in student loans. He has his student loans with the state bank and is on a repayment of schedule of 2500 baht/month, which he is behind on. He should never have been given car financing. He's a financial crisis waiting to happen. So much for his his business degree.

You know many small also make a big one

This is to be expected in any society at any time.

Where the Asian financial crisis was different was that instead of going to a thai local bank and getting his loan at 12%, his 'friend' would have borrowed offshore at 2% at an exchange rate of 20 baht to the dollar and use that to buy a ferarri instead of a Merc. Collateral would have been a strip of worthless land in nakorn nowhere.

In the mean time the bottom falls out the bottom of the currency and all of a sudden to repay those loans he has to buy one dollar for 45 baht.

Then you are really stuffed.

Edited February 24, 2013 by samran

[waza]

Raising interest rates would stoke inflation?

That's a new one for me.

After a lifetime of teaching macro economics.

Money in low interest rate countries is used to purchase money in high interest rate countries. This is called the carry trade. If everyone wants to buy baht the value of the currency goes up. If the value of the baht goes up then it costs more to buy things in Thailand. That is inflation. Where did you teach econ?

Agree with your first three sentences, about the carry-trade & stronger-Baht but then ...

"If the value of the baht goes up then it costs more to buy things in Thailand"

Sorry but I cannot agree, if the value of the Baht goes up, due to the carry-trade or real imports/exports or speculation or whatever, then imports into Thailand get cheaper, and Thai-produced products remain the same cost on the domestic market, unless they incorporate an element of imported-cost.

The inflation or price-increase is for people overseas, who buy exports like rice from Thailand, and occurs outside Thailand where their US$/GBP/Euro-based cost increases, due to the stronger Baht.

I believe you meant to say, "If the value of the baht goes up then it costs more to buy things from Thailand" ?

Edit to add, sorry if this appears that I'm being pedantic, it's not deliberate.

You are correct. I was thinking of my personal situation. If interest rates go up in Thailand I can borrow at a cheap rate and lend at a more expensive rate. I can also buy to have something to sell at a higher interest rate. Since I am not the only one doing this more people buy and that pushes the price of land and other assets up which is inflation.

Until, as in the case of Thailand, that market demand drives the price over reasonable return of equity then its hyperinflation, or a bubble. Which is fine if you short it but is a sure loss long term.

PS: "Ican also buy to have something to sell at a higher interest rate." Do you mean capital gains here?

PSS: I agree with Richardo, the bahts appreciation doesn't increase domestic prices it does the opposite it exports inflation. That just my opinion and I am no economics guru.

Edited February 24, 2013 by waza

[chiangmaikelly]

keeping up appearances is all that they are doing until the bill comes for the borowed cash.

just like the west did.

They are making more cars in fact they are the 10th largest auto manufacturer in the world. They they sell these cars. That makes the GDP go up among other things. Everyone and every country borrows money. That is what bonds are. So I am sorry but your borrowed cash leading to doom is not correct unless you include the other 180 countries that borrow money. Check how much the average Thai owes as opposed to the average Brit.

[chiangmaikelly]

I'm just a simple layman myself, but being around in Thailand during the '97 financial crisis, I daresay whatever happens next (boom, bust, who knows), will not have the same cause of what happened in '97!

Back then the Thai banks simply went tits up due to borrowing pretty much everybody heaps of cash with virtually no collateral.

One could easily borrow 10 million with a 200,000 Baht property as collateral as long as you kicked back a few 100k Baht to the loan officer.

And that was just for us mortals. Big companies could borrow billions of Baht without collateral by courting the right bank officer. Ask Mr. Rakesh Saxena, he approved a few of those! Took Thailand a good few years to get him extradited out of Canada

It was then that the Thai banks discovered that "non performing loans" were not so good for the bottom line!

Then Thailand (Chavalit actually) discovered that they really didn't have the (foreign) cash anymore to peg the US$ exchange to 25 Baht, and they had to float the Thai Baht. All the way down to 56 Baht to the US $ (Jan '98, ouch !!).

Which apparently started sort of a domino effect in the whole of Asia.

I doubt that currently Thai banks are anywhere near bankrupt, and there's a fair bit of foreign reserves floating around....

Maybe you should have a look at this post and notice that history is repeating itself in Thailand.

I am still in disbelief that my friend who makes 30,000 baht per month, with expenses including the support of a mother with dementia that consume all his pay, was allowed to take a car loan despite being a cosigner on his sister's expensive Mercedes and still carrying 300,000 baht in student loans. He has his student loans with the state bank and is on a repayment of schedule of 2500 baht/month, which he is behind on. He should never have been given car financing. He's a financial crisis waiting to happen. So much for his his business degree.

You know many small also make a big one

This is to be expected in any society at any time.

Where the Asian financial crisis was different was that instead of going to a thai local bank and getting his loan at 12%, his 'friend' would have borrowed offshore at 2% at an exchange rate of 20 baht to the dollar and use that to buy a ferarri instead of a Merc. Collateral would have been a strip of worthless land in nakorn nowhere.

In the mean time the bottom falls out the bottom of the currency and all of a sudden to repay those loans he has to buy one dollar for 45 baht.

Then you are really stuffed.

I think the above is a great post and deserves a gold star.

[mccw]

Money in low interest rate countries is used to purchase money in high interest rate countries. This is called the carry trade. If everyone wants to buy baht the value of the currency goes up. If the value of the baht goes up then it costs more to buy things in Thailand. That is inflation. Where did you teach econ?

Agree with your first three sentences, about the carry-trade & stronger-Baht but then ...

"If the value of the baht goes up then it costs more to buy things in Thailand"

Sorry but I cannot agree, if the value of the Baht goes up, due to the carry-trade or real imports/exports or speculation or whatever, then imports into Thailand get cheaper, and Thai-produced products remain the same cost on the domestic market, unless they incorporate an element of imported-cost.

The inflation or price-increase is for people overseas, who buy exports like rice from Thailand, and occurs outside Thailand where their US$/GBP/Euro-based cost increases, due to the stronger Baht.

I believe you meant to say, "If the value of the baht goes up then it costs more to buy things from Thailand" ?

Edit to add, sorry if this appears that I'm being pedantic, it's not deliberate.

You are correct. I was thinking of my personal situation. If interest rates go up in Thailand I can borrow at a cheap rate and lend at a more expensive rate. I can also buy to have something to sell at a higher interest rate. Since I am not the only one doing this more people buy and that pushes the price of land and other assets up which is inflation.

In this case it's appeared you were just a bit mixed up rather than a total ignoramus; still amazing you managed to fervently argue the opposite for a good few posts until some one managed to get through to you.

Is insulting people hard wired in your brain from birth or did you have to learn it?

Honestly it's increedible you manage to take an opposite view and then flip flop in a second. Really no point reading anything you post. I'll skip over your rubbish in future.

[nidieunimaitre]

QUOTE:

You are correct. I was thinking of my personal situation. If interest rates go up in Thailand I can borrow at a cheap rate and lend at a more expensive rate. I can also buy to have something to sell at a higher interest rate. Since I am not the only one doing this more people buy and that pushes the price of land and other assets up which is inflation.

UNQUOTE.

You make 2 points.

1/ borrow cheap (in US I guess) and lend expensive (in TH I guess). What does that have to do with inflation? How many people can do that (cost of transfer, need bankguarantee in US), so that it would have whatever impact on whatever?

2/ buy to sell at a higher interest rate ??? Do you mean 'at a higher price'? Sell to who? Remember inside TH nothing has changed, only interest rates have gone up. And then you mention buying land - please explain how to do that, I am interested in buying land in TH!

Edited February 25, 2013 by nidieunimaitre

[CaptHaddock]

In response to Jingthing's original post, Thailand is not in the same position now as in 1997. In the 90's the strong growth in Thailand attracted hot money leading to a runup of the baht that was based on speculation more than fundamentals. Banks and companies borrowed in dollars and probably other currencies. But since the baht was overvalued, a run on the baht was inevitable and eventually did happen led by Soros. Once that baht tanked those dollar loans could not be repaid and that was the Tom Yum Crisis.

Today however Thailand is number 15 among countries holding reserves of USD with $181 billion as of 12/2012.

http://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves

So, a replay of the Tom Yum crisis doesn't seem especially likely. However, Thailand does not have to originate a financial crisis in order to suffer from one. I think it is more likely that a financial crisis will start in another country, like China, the US or the EU, and then engulf Thailand and other countries.

Edited February 25, 2013 by CaptHaddock

[chiangmaikelly]

QUOTE:

You are correct. I was thinking of my personal situation. If interest rates go up in Thailand I can borrow at a cheap rate and lend at a more expensive rate. I can also buy to have something to sell at a higher interest rate. Since I am not the only one doing this more people buy and that pushes the price of land and other assets up which is inflation.

UNQUOTE.

You make 2 points.

1/ borrow cheap (in US I guess) and lend expensive (in TH I guess). What does that have to do with inflation? How many people can do that (cost of transfer, need bankguarantee in US), so that it would have whatever impact on whatever?

2/ buy to sell at a higher interest rate ??? Do you mean 'at a higher price'? Sell to who? Remember inside TH nothing has changed, only interest rates have gone up. And then you mention buying land - please explain how to do that, I am interested in buying land in TH!

Keep it simple. I buy a condo with money I borrowed at 1% and sell that condo in a couple of weeks because I know where to advertise it. I loan the money to the new buyer at 5%. If I have big money I buy 49% of the condo building with money I borrowed at 1% and resell it at 5%. There are many ways to borrow and lend in Thailand. If you want to learn them you can live here for a while or pay for the information. In any event raising the difference between the borrow and lend rate might more money in the economy of the country with the higher interest rate. Does more money in the market create higher prices? Depends on how you look at it. I think a case can be made either way. Questions on buying land consult a professional.

Edited February 25, 2013 by chiangmaikelly

[mccw]

In response to Jingthing's original post, Thailand is not in the same position now as in 1997. In the 90's the strong growth in Thailand attracted hot money leading to a runup of the baht that was based on speculation more than fundamentals. Banks and companies borrowed in dollars and probably other currencies. But since the baht was overvalued, a run on the baht was inevitable and eventually did happen led by Soros. Once that baht tanked those dollar loans could not be repaid and that was the Tom Yum Crisis.

Today however Thailand is number 15 among countries holding reserves of USD with $181 billion as of 12/2012.

http://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves

So, a replay of the Tom Yum crisis doesn't seem especially likely. However, Thailand does not have to originate a financial crisis in order to suffer from one. I think it is more likely that a financial crisis will start in another country, like China, the US or the EU, and then engulf Thailand and other countries.

I agree with this prognosis. Further; if battered by the global winds I still see the Thai ship fairing better than most due to its low welfare commitments and regulatory constraints amongst other things.

[NeverSure]

I'm just a simple layman myself, but being around in Thailand during the '97 financial crisis, I daresay whatever happens next (boom, bust, who knows), will not have the same cause of what happened in '97!

Back then the Thai banks simply went tits up due to borrowing pretty much everybody heaps of cash with virtually no collateral.

One could easily borrow 10 million with a 200,000 Baht property as collateral as long as you kicked back a few 100k Baht to the loan officer.

And that was just for us mortals. Big companies could borrow billions of Baht without collateral by courting the right bank officer. Ask Mr. Rakesh Saxena, he approved a few of those! Took Thailand a good few years to get him extradited out of Canada

It was then that the Thai banks discovered that "non performing loans" were not so good for the bottom line!

Then Thailand (Chavalit actually) discovered that they really didn't have the (foreign) cash anymore to peg the US$ exchange to 25 Baht, and they had to float the Thai Baht. All the way down to 56 Baht to the US $ (Jan '98, ouch !!).

Which apparently started sort of a domino effect in the whole of Asia.

I doubt that currently Thai banks are anywhere near bankrupt, and there's a fair bit of foreign reserves floating around....

But this doesn't account for fractional reserve banking, or its Ponzi Scheme nature, nor does it address what happens in a sudden devaluation of collateral.

All know that US banks and Wall Street firms were belly up overnight when the true value of their collateral came to light. It took massive outright gifts from the US Treasury to save them. Not long before, all had great credit ratings and the future looked rosy.

The unwinding of high valuations of collateral along with the need to unwind the fractional reserve lending will indeed crash banks which looked solid only yesterday when prices were high.

I won't go in to fractional reserve banking because it's too easily googled. It doesn't take long to grasp for any who don't know.

I don't think I need to say what happens to a bank's loans if they are for something like real estate development, and the value of that real estate suddenly drops. The borrower can't sell to repay and the collateral won't cover the loan. The borrower needed to sell to pay. The bank is upside down.

But it is the fractional reserve lending which really puts everyone at risk so quickly, and it should be illegal. It won't be illegal because there's too much profit in it for the bankers.

[NeverSure]

In response to Jingthing's original post, Thailand is not in the same position now as in 1997. In the 90's the strong growth in Thailand attracted hot money leading to a runup of the baht that was based on speculation more than fundamentals. Banks and companies borrowed in dollars and probably other currencies. But since the baht was overvalued, a run on the baht was inevitable and eventually did happen led by Soros. Once that baht tanked those dollar loans could not be repaid and that was the Tom Yum Crisis.

Today however Thailand is number 15 among countries holding reserves of USD with $181 billion as of 12/2012.

http://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves

So, a replay of the Tom Yum crisis doesn't seem especially likely. However, Thailand does not have to originate a financial crisis in order to suffer from one. I think it is more likely that a financial crisis will start in another country, like China, the US or the EU, and then engulf Thailand and other countries.

I agree with most of this, but Thailand also has significant and not so transparent national debt. Within your link, just above the list of countries, it says "IMF or other outstanding loans are not shown here, and if accounted for many nations would list lower."

So, the known debt of Thailand is about $US123 billion, but we all know what happens (or rather we surely don't know) to the money Thailand borrows for big projects. It seems to vaporize into corruption.

I think that Thailand, and speculators, and banks, and the government, and now even the general population are on a debt gathering spree unlike anything before.

[CaptHaddock]

In response to Jingthing's original post, Thailand is not in the same position now as in 1997. In the 90's the strong growth in Thailand attracted hot money leading to a runup of the baht that was based on speculation more than fundamentals. Banks and companies borrowed in dollars and probably other currencies. But since the baht was overvalued, a run on the baht was inevitable and eventually did happen led by Soros. Once that baht tanked those dollar loans could not be repaid and that was the Tom Yum Crisis.

Today however Thailand is number 15 among countries holding reserves of USD with $181 billion as of 12/2012.

http://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves

So, a replay of the Tom Yum crisis doesn't seem especially likely. However, Thailand does not have to originate a financial crisis in order to suffer from one. I think it is more likely that a financial crisis will start in another country, like China, the US or the EU, and then engulf Thailand and other countries.

I agree with most of this, but Thailand also has significant and not so transparent national debt. Within your link, just above the list of countries, it says "IMF or other outstanding loans are not shown here, and if accounted for many nations would list lower."

So, the known debt of Thailand is about $US123 billion, but we all know what happens (or rather we surely don't know) to the money Thailand borrows for big projects. It seems to vaporize into corruption.

I think that Thailand, and speculators, and banks, and the government, and now even the general population are on a debt gathering spree unlike anything before.

Thailand's 2011 GDP was about $345 billion. Debt to GDP ratio is therefore about 35%. Very healthy. Nothing at all to worry about there. Sorting countries by unemployment rate (low to high) puts Thailand near the top of the list with a rate of less than 0.6%. Enviable.

http://en.wikipedia.org/wiki/List_of_countries_by_unemployment_rate

So, Thailand is in excellent condition at the moment. Anyone who came here hoping to benefit from a repeat of the 97 crisis should probably look elsewhere, at least based on endogenous factors.

[Jay Sata]

Here is what puzzles me.

I see condo's, housing estates ,hotels and shop houses being built everywhere in Thailand and just wonder who is going to live in them and pay the rent or mortgage. The projects are funded by easily borrowed money of course.

In simple terms there has to be an over supply very soon and we all know what happened to the Spanish property market.

[Naam]

Here is what puzzles me.

I see condo's, housing estates ,hotels and shop houses being built everywhere in Thailand and just wonder who is going to live in them and pay the rent or mortgage. The projects are funded by easily borrowed money of course.

In simple terms there has to be an over supply very soon and we all know what happened to the Spanish property market.

The projects are funded by easily borrowed money of course.

you Sir... have no idea what's going on in Thailand. that's why you are puzzled.

[samran]

QUOTE:

You are correct. I was thinking of my personal situation. If interest rates go up in Thailand I can borrow at a cheap rate and lend at a more expensive rate. I can also buy to have something to sell at a higher interest rate. Since I am not the only one doing this more people buy and that pushes the price of land and other assets up which is inflation.

UNQUOTE.

You make 2 points.

1/ borrow cheap (in US I guess) and lend expensive (in TH I guess). What does that have to do with inflation? How many people can do that (cost of transfer, need bankguarantee in US), so that it would have whatever impact on whatever?

2/ buy to sell at a higher interest rate ??? Do you mean 'at a higher price'? Sell to who? Remember inside TH nothing has changed, only interest rates have gone up. And then you mention buying land - please explain how to do that, I am interested in buying land in TH!

Keep it simple. I buy a condo with money I borrowed at 1% and sell that condo in a couple of weeks because I know where to advertise it. I loan the money to the new buyer at 5%. If I have big money I buy 49% of the condo building with money I borrowed at 1% and resell it at 5%. There are many ways to borrow and lend in Thailand. If you want to learn them you can live here for a while or pay for the information. In any event raising the difference between the borrow and lend rate might more money in the economy of the country with the higher interest rate. Does more money in the market create higher prices? Depends on how you look at it. I think a case can be made either way. Questions on buying land consult a professional.

None of this makes any sense whatsoever. A 4% instant arbitrage for one. Risk free so it seems to.

Then this - so you borrow at 1% - fom where? Offshore? then if so, whatabout exchange rate risk?

Otherwise, sounds like a lease to own scheme here....nothing more. No reference to the creditworthiness of the buyer and whether that 4% gap covers the risk....

[mccw]

I'm just a simple layman myself, but being around in Thailand during the '97 financial crisis, I daresay whatever happens next (boom, bust, who knows), will not have the same cause of what happened in '97!

Back then the Thai banks simply went tits up due to borrowing pretty much everybody heaps of cash with virtually no collateral.

One could easily borrow 10 million with a 200,000 Baht property as collateral as long as you kicked back a few 100k Baht to the loan officer.

And that was just for us mortals. Big companies could borrow billions of Baht without collateral by courting the right bank officer. Ask Mr. Rakesh Saxena, he approved a few of those! Took Thailand a good few years to get him extradited out of Canada

It was then that the Thai banks discovered that "non performing loans" were not so good for the bottom line!

Then Thailand (Chavalit actually) discovered that they really didn't have the (foreign) cash anymore to peg the US$ exchange to 25 Baht, and they had to float the Thai Baht. All the way down to 56 Baht to the US $ (Jan '98, ouch !!).

Which apparently started sort of a domino effect in the whole of Asia.

I doubt that currently Thai banks are anywhere near bankrupt, and there's a fair bit of foreign reserves floating around....

But this doesn't account for fractional reserve banking, or its Ponzi Scheme nature, nor does it address what happens in a sudden devaluation of collateral.

All know that US banks and Wall Street firms were belly up overnight when the true value of their collateral came to light. It took massive outright gifts from the US Treasury to save them. Not long before, all had great credit ratings and the future looked rosy.

The unwinding of high valuations of collateral along with the need to unwind the fractional reserve lending will indeed crash banks which looked solid only yesterday when prices were high.

I won't go in to fractional reserve banking because it's too easily googled. It doesn't take long to grasp for any who don't know.

I don't think I need to say what happens to a bank's loans if they are for something like real estate development, and the value of that real estate suddenly drops. The borrower can't sell to repay and the collateral won't cover the loan. The borrower needed to sell to pay. The bank is upside down.

But it is the fractional reserve lending which really puts everyone at risk so quickly, and it should be illegal. It won't be illegal because there's too much profit in it for the bankers.

Regarding real estate. Did you notice all the shell buildings and rotting houses? Ever looked at the banks reclaimed properties for sale? They basically keep it all on book at 100% the given loan value; so as long as they continue to do this (which undoubtedly they will) there is not a major risk from devaluation. Land and houses etc will all stagnate for 10+years if it comes to that but no chance of a Spain / Ireland style collapse.