Money and Inflation

Money is nothing but a stacks of papers and numbers before you use it to buy things or services. Therefore, the value of money is equivalent to its purchasing power. A fall in the value of money is the same as a general rise in price of goods. We measure the changes in the value of money by observing changes in prices of a basket of goods which are commonly bought by the majority of people over given periods.

Inflation happens when purchasing power increases faster than the output of goods and services. The result leads to a general rise in prices. In HK, Consumer Price Index (CPI) relates to inflation of consumer goods and services affecting households. But CPI is different from the cost-of-living index in the effect of substitution. Due to the effect, people tend to buy more of the goods and services with relatively smaller price increases [or relatively larger price decreases] and less of those with larger price increases [or smaller price decreases]. Therefore, CPI tends to show larger price increases and smaller price decreases than the cost-of-living index over time.

Census and Statistics Department of HKSAR compiles four series of CPI based on the expenditure patterns of households in the relatively low, medium, and high expenditure ranges. Expenditure component and weighting:

• Food - 26.94 (26.67)
• Meals bought away from home - 16.86 (16.39)
• Other foodstuffs - 10.08 (10.28)
  
• Housing - 29.17 (29.91)
• Private dwellings - 23.93 (24.59)
• Public dwellings - 2.49 (2.07)
  
• Electricity, gas and water - 3.59 (2.98)
• Alcoholic drinks and tobacco - 0.87 (0.94)
• Clothing and footwear - 3.91 (4.13)
• Durable goods - 5.50 (6.24)
• Miscellaneous goods - 4.78 (5.70)
• Transport - 9.09 (9.01)
• Miscellaneous services - 16.15 (14.42)

Note: Figures in brackets refer to the corresponding year-on-year rates of change computed from the old 1999/2000-based CPI series.

The latest values are calculated from the base (=100) of Oct 2004 - Sept 2005.

The CPI(A), CPI(B) and CPI(C) respectively cover some 50%, 30% and 10% of households in Hong Kong. The Composite CPI (CCPI) accounts for 90% of the households with monthly expenditure ranging from $4,000 to $59,999.

The monthly household expenditures (in HK$) of these groups in the base period (i.e. October 2004 - September 2005) were $4,000 - $15,499, $15,500 - $27,499 and $27,500 - $59,999 respectively. The values for 1999/2000-based CPI series were $4,500 - $18,499, $18,500 - $32,499, and $32,500 - $65,999 respectively.

Taking into account the impact of price changes since the base period, the monthly household expenditure ranges of the CPI(A), CPI(B), and CPI(C) adjusted to the price level of 2006 are broadly equivalent to $4,100-$15,800, $15,800-$28,200 and $28,200-$61,500 respectively.

Inflation reduces the real value of money by reducing its purchasing power. This affects its role as a store of value. With further increases in the inflation rate, its role as a standard for deferred payments is underminded - difficult to get loan because lenders will demand a large forward rate for the risk.

There are five major causes of inflation that are operating in HK now:

1. Strong public demand for loans from financial institutions and households - money supply increases. (China)
   
2. Heavy government spending to reflate the economy, in order to finance budget deficits - if the increased output does not match up with the increased demand. (USA)
   
3. Successful and continuous demand for higher wages by the trade unions. (HK)
   
4. In times of rising inflation, an 'inflationary psychology' motivates people to spend savings quickly to avoid further decline in their money value. (China, HK)
   
5. Under fixed exchange rate - imported inflation through the price chain, raises the domestic price level. (HK)
   

Life is not a job but it is of buying and buying in HK.

Sony Ericsson P1i

Finally, I trade in the Motorola E6 for Sony Ericsson P1i. P1i using UIQ 3.0 based on the Symbian OS 9.1.

• The size of the built-in memory is 160MB as read from the specification. If read by Storage Wizard of the phone. Then the size is 134MB. P1i supports M2 Memory Stick 4GB max.
• Camera has built-in autofocusing system. When pressing the camera button half-way, the system will lock the focus.
• The phone already ship with Quickoffice ver 3.6.60.0 ZBRA-UIQ31 for Word, Excel, and PowerPoint viewing and editing. And PDF+ (ver is 1.69(78)) is the pdf file reader.
  
• Although not stated in the catalog, there is a pre-installed CN-EN & EN-CN Dictionary inside the phone.
• The video player support 3G H.264 movie format.
  

Symbian OS is a proprietary operating system produced by Symbian Ltd. It is a descendant of Psion's EPOC and runs exclusively on ARM processors. Symbian is currently owned by Nokia (47.9%), Ericsson (15.6%), Sony Ericsson (13.1%), Panasonic (10.5%), Siemens AG (8.4%) and Samsung (4.5%).

Symbian OS is built for handheld devices with limited resources. With Symbian-specific programming idioms such as descriptors and a cleanup stack and together with other techniques, the OS can keep memory usage low and memory leaks rare. Similar techniques are used for conserving disk space. Moreover, all Symbian OS programming is event-based, and the CPU is switched off when applications are not directly dealing with an event (through a programming idiom called active objects). Correct use of these techniques helps running longer battery life.

The structure of the OS is: base components (microkernel - scheduler and memory management), system libraries (character set conversion, a DBMS database, and resource file handling), networking and telecommunication subsystem (includes Bluetooth, IrDA, and USB), UIKON (OS's graphics, text layout, and font rendering libraries), Application Architecture, and other things like SyncML, J2ME, etc. For Application Architecture, there is a selection of application engines for popular smartphone applications such as calendars, address books, and task lists. A typical Symbian OS application is split up into an engine DLL and a graphical application - the application being a thin wrapper over the engine DLL. Symbian OS provides some of these engine DLLs.

OS 9.1 was first released in 2005. It includes many new security related features, particularly a platform security module facilitating mandatory code signing. OS 9.2 released Q1 2006. Support for OMA Device Management 1.2. S60 3rd Edition Feature Pack 1 phones have Symbian OS 9.2. Nokia phones with Symbian OS 9.2 OS: Nokia N75, Nokia N76, Nokia 6120 Classic, Nokia E90, Nokia N95, etc. OMA DM is a protocol specified by Open Mobile Alliance (OMA) for Device Management (DM) purposes. It is a sub-set defined by SyncML. It support the following uses: provisioning, configuration of device, software upgrades, and fault management. OS 9.3 released on 12th July 2006. Upgrades include improved memory management and native support for Wifi 802.11 and HSDPA.

UIQ , previously known as User Interface Quartz, support touch screens with a resolution of 240x320 (ver 3). Depending on the phone, the color depth is 12-bit (4096 colors), 16-bit (65536 colors), or 18-bit (262144 colors) on some newer phones. UIQ v3.1 is the latest version of the platform. In addition to the pen-based UI, it also support one handed operation and a number of significant enhancements.

MathML

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When testing the script, I find that Safari does not accept cookie from local host (with no host name). So the counter works only when the page is loaded from the internet.

codes:

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A JavaScript function setCookie(name,value,expires,path,domain,secure)
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Show Me the Money!

Money Supply
Hong Kong's three-tier Banking System comprised of banks, restricted license banks, and deposit-taking companies. Hong Kong has three measures of money supply:

1. Money Supply definition 1 (M1): The sum of legal tender notes and coins held by the public plus customers' demand deposits placed with banks. HKMA maintain separate measures of Hong Kong dollars and foreign currency and add them together to measure M1. Here, foreign currency does not refer to foreign coins and notes. It counts the banks' holding foreign currency deposits.
   
2. Money Supply definition 2 (M2): M1 plus customers' savings and time deposits with banks plus negotiable certificates of deposit (NCDs) issued by banks held outside the banking sector.
3. Money Supply definition 3 (M3): M2 plus customers' deposits with restricted license banks and deposit-taking companies plus NCDs issued by these institutions held outside the banking sector.

Restricted licence banks may take time, call or notice deposits from members of the public in amounts of HK$500,000 and above without restriction on maturity. Restricted licence banks generally engage in activities such as merchant banking and capital market operations.

Deposit-taking companies are restricted to taking deposits of HK$100,000 or more with an original term to maturity of at least three months. They engage in a range of specialised activities, including consumer finance, trade finance and securities business.

Data and chart from HKSAR Monthly Statistical Bulletin:





Question: Why there is a negative growth of domestic credit in May 2007? According to HKMA, M1 exhibits a significant seasonal pattern, whereas there is no strong evidence of seasonality in broad money (M2 & M3).

Liquidity Preference Theory
Keynes's liquidity preference theory emphasized the sensitivity of money demand to changes in interest rates. Keynes hypothesized that people allocated their wealth between two assets: money and "bonds". The expected return on bonds is determined by the interest rate on bonds adjusted for expectations of capital gains or losses. For money, defined as the sum of currency and checkable deposits (M1), Keynes assume the return is zero (if interest rate is going to rise and hence expect a capital loss on bonds, then the zero return may outweigh the negative return on bonds).

The demand of money can be expressed by

M/P = L(i,Y,X)

M/P - real money balance = amount of purchasing power people wish to have on hand. In other words, it represent the purchasing power of money holdings.

where
M = amount of dollars that people wish to hold
P = price level
i = general level of interest rates
Y = real income
X = other factors such as the availability of money substitutes, political stability, etc.

In general, M/P decreases as interest rate increases. M/P increases as Y increases. On the other hand, consider P remains unchange, the increase of nominal money supply M will shift the money demand curve so that interest rate will fall. Finally, for constant supply of money M, the price level increases will cause the interest rate to rise.

Before Keynes, in the early 1900s, Irving Fisher introduced the term velocity of money V in his model of money demand. V represents the average number of times a dollar is spent in the economy each year on a purchase of goods and services. Fisher described velocity using transactions, rather than income or output. [Gross domestic product (GDP) is a measure of output. But it is not a perfect proxy of transactions because it does not count the purchase of assets such as bonds, mortgages, installments, etc.] Fisher defined the velocity of money as

V = PY / M,
where Y is the aggregate income, and the total spending on goods and services is P x Y.

Equation of exchange MV = PY, states that the quantity of money times the velocity of money equals nominal spending in the economy. Assume that V is constant, then the demand for real balances is proportional to the level of transactions.

M/P = (1/V) Y

As the real incomes of households and businesses increases, they will conduct more real transactions. Therefore, the public's demand for money rises with real income. Putting this into Keynes's liquidity perference theory and rewrite the equation of above we have

V = Y / L(i,Y)

Because of the elasticity of Y, it does not change as the interest rate change. Then, V will change as the interest rate i change.

Question: What will happen to Hong Kong if USA start to cut the interest rate this year?
Follow the argument of above, we can see if interest rate fall then the real money balances will increase. If Y does not change (assume there is no wealth effect on stocks rising). Then V will decrease.