Thursday, November 29, 2012

Singapore Central Bank Acknowledges Elevated Risks of Homegrown Bubble

Bubble policies affect people’s behavior and attitudes. In Singapore I recently wrote about how bubbles policies seem to have spurred a populist demand for state welfarism

Last month Singapore’s central bank raised the alarm of a full blown property bubble and took measures to curb such eventuality 

"Eventual correction could be painful to borrowers and destabilise the economy."

The sound of alarm came as Singapore's central bank, the Monetary Authority of Singapore (MAS) announced a new round of measures meant to subdue rising housing prices, including capping loan tenure at 35 years.

MAS said that recent government measures such as the Additional Buyer's Stamp Duty "have had a moderating effect on residential property prices" and that "there is also significant supply of housing that will come onto the market over the next two years" the demand for housing is simply not slowing down.
Apparently, such actions have failed as corporate debt levels continues to rise as debt quality has eroded

From Reuters,
Singapore banks could see loan quality fall sharply should interest rates rise or if the economy worsens as corporate debt levels are high by historical standards, the city-state's central bank warned on Wednesday.

"Corporates are more leveraged today than they were a year ago as low borrowing costs may have prompted some corporates to borrow more than they would have otherwise," the Monetary Authority of Singapore (MAS) said in its annual Financial Stability Review.

Large firms have issued twice the amount of debt in the first nine months of this year compared with the same period last year, while loans to small- and medium-sized enterprises have continued to expand robustly, MAS added…

Singapore interest rates are hovering near all-time lows amid a surge in inflows resulting from quantitative easing by Western central banks.
Household debt levels have also been rising, but at a more moderate pace, from the same article
MAS had a more benign view on household debt levels, noting Singapore's household net wealth stood at four times gross domestic product, an increase of 7.3 percent from a year ago.

Total cash and deposits belonging to households have also continued to exceed aggregate debt, it added.

MAS said government measures since 2009 to pre-empt the formation of a bubble in Singapore's residential market has led to a "noticeable slowdown in the pace of housing loan growth".
Singapore’s authorities are in an apparent state of quandary.

Although one positive development is that Singapore has recently cut taxes on sales of precious metal, which should allow Singapore's residents to seek refuge on them from central bank inflationism.

The bottom line is that the conventional central banking tools under today's US dollar standard continues to fuel rampant speculations (via yield chasing dynamic) at the asset markets, and continues to propel massive malinvestments or the bubble phenomenon across the globe. 

As a side note, another positive development could be that Singaporean political authorities may be (and hopefully remain) more open minded than their developed world counterparts. That's based on the observation made by Professor Bryan Caplan at the econolog,  
A room full of Singaporean civil servants actually asked me a series of earnest questions about anarcho-capitalism. Can you imagine U.S. bureaucrats doing the same? Unlike most observers, I guess, I barely noticed Singaporeans' material egalitarianism. What struck me was their intellectual elitism. Many Americans would be horrified, but I was delighted.

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