Singapore’s Central Bank Panics Again, Embraces 2008 Policy as Offshore Yuan Falls

Stock markets have been soaring right? So some have been panic buying even as central banks go on panic mode (as shown by the assimilation of negative rates). 

This Bloomberg’s headline illustrates on the prevailing ambiance: “Singapore Adopts 2008 Crisis Policy as Growth Grinds to Halt”

Singapore’s central bank unexpectedly eased its monetary stance, moving to a policy last adopted during the 2008 global financial crisis, as economic growth in the trade-dependent city-state ground to a halt. The Monetary Authority of Singapore moved to a neutral policy of zero percent appreciation in the local dollar, it said in a statement on Thursday. 

The currency slid the most in five months after the announcement, which came as a surprise to 12 of 18 economists surveyed by Bloomberg, who had seen no change in policy. “The Singapore economy is projected to expand at a more modest pace in 2016 than envisaged in the October policy review,” the central bank said. “Core inflation should also pick up more gradually over the course of 2016 than previously anticipated.” 

As Asia’s financial hub, Singapore is feeling the effects of the global downturn and China’s weakening economy. More businesses were shut than opened in December and February, while bank loans have dropped every month since October, the longest period of declines since 2000. 

Singapore's central bank, the MAS, has been panicking over their credit bubble. The MAS mass warned of a credit bubble in November 2014. Credit risk concerns prompted them to ease in January 2015. Singapore's banks had lately been downgraded by Moodys

Yet a significant downturn in housing prices has already spread to the economy. And this has become a serious headwind. (bold added)

Growth was stagnant in the first quarter, with gross domestic product posting zero expansion on an annualized basis compared with the fourth quarter, the trade ministry said in a separate report Thursday. That was in line with the median forecast of 12 economists surveyed by Bloomberg… 

The last time the MAS shifted its currency policy to zero appreciation was in October 2008, when the economy was in a recession. Thursday’s move was the bank’s second unexpected decision in less than 16 months, following an emergency policy change in January last year to combat the threat of deflation. The International Monetary Fund warned on Tuesday that a prolonged period of slow global growth has left the world economy more exposed to negative shocks. The fund is predicting 1.8 percent expansion for Singapore for this year, compared with the government’s projection of 1 percent to 3 percent. 

The services industry, which makes up about two-thirds of the economy, contracted an annualized 3.8 percent in the first quarter from the previous three months, the first decline since the first quarter of 2015. Manufacturing and construction rebounded strongly in the quarter, expanding 18.2 percent and 10.2 percent respectively. 

Singapore's slowing economy reduces her citizens' capacity to service their high debt exposure, which raises the risks of default. So the MAS responded to such dilemma by easing. 

Yet seen from last year's policy accommodation, bank loans continued to shrivel. This reveals of the nation's balance sheet problems and the impotence of monetarism. You can lead the horse to the water, but you can't make it drink.

 

But no problem. "This time is different"! That's because Singapore's slowing economy has translated to a surge in equity prices. 

Singapore's major bellwether, the STI, was still down by 2.58% as of last Friday. Apparently such deficit was erased from yesterday's 2.69% surge

Nonetheless, the MAS' announcement has prompted the Singapore dollar to fall sharply or the USD SGD to rip.

Curiously, the MAS easing has coincided with the surge in the USD-offshore yuan CNH. Has the MAS responded to the PBoC's action?

Will the prediction of Swiss investor Felix Zuluaf be proven accurate--where Singapore will account for as the epicenter of the region's banking crisis?

Headlines of the Day: Hong Kong and Singapore's Hissing Property Bubbles

Both images from Bloomberg...

See article here

See article here

Singapore’s Central Bank Panics! Goes on an Easing Mode

Last November, Singapore’s central bank the Monetary Authority of Singapore, raised alarm bells by citing the financial system's record levels of corporate debt to gdp, aside from household debt to income ratio.

In the second week of this year, mainstream media has raised anew concerns over cracks in the city state’s debt financed housing bubble expressed in terms of declining property prices in the light of still ballooning debt, rising rates, falling currency, signs of capital flight and growing incidences of loan defaults.

Well I guess all these has led to today’s ‘emergency’ action.

From Bloomberg: (bold mine)

Singapore unexpectedly eased monetary policy, sending the currency to the weakest since 2010 against the U.S. dollar as the country joined global central banks in shoring up growth amid dwindling inflation.

The Monetary Authority of Singapore, which uses the exchange rate as its main policy tool, said in an unscheduled statement Wednesday it will seek a slower pace of appreciation against a basket of currencies. It cut the inflation forecast for 2015, predicting prices may fall as much as 0.5 percent.

The move was the first emergency policy change since one following the Sept. 11, 2001 attacks for the MAS -- which only has two scheduled policy announcements a year -- reflecting how the plunge in oil has changed the outlook in recent months. Singapore becomes at least the ninth nation to ease policy this month, as officials from Europe to Canada and India contend with escalating disinflation and faltering global growth…

The European Central Bank announced quantitative easing plans this month while Canada, Denmark and India cut interest rates. More may come -- the Bank of Japan chief said the country may need to get creative in any further monetary stimulus and Thai policy makers face growing pressure to lower borrowing costs.

In view of the previous events, in Singapore’s case, the MAS’ emergency action today has hardly been about “shoring up growth amid dwindling inflation” but rather about the mitigation of the growing burden of debt to an increasingly debt constrained society.

But of course, while easing may lower rates, which temporarily may alleviate the debt onus, easing also allows levered companies heavily dependent on debt to rollover debt. In short, monetary easing entails solving debt problem through MORE debt buildup.

Thus the MAS’ actions have been intended to buy time from a painful reckoning from previous speculative excesses financed by debt. But the kick-the-can-down-the-road policies simply means accretion of more imbalances.

The USD-Singapore dollar currently trades at 2010 highs. Yet Singapore’s stock market as measured by the STI nears record highs (stockcharts.com).

Perhaps debt constrained entities have pumping up stocks (by using leverage too?) in order to generate a bandwagon effect. And because rising stocks may bring about trading profits, cash flows from speculative stock punts may allow debt constrained entities to rollover existing debt.

So Singapore’s bubble dynamics spreads from property to the stock market.

And once again we seem to be seeing a divergence between the real economy (increased signs of economic stress)-monetary policies (panicking central bank) and the stock market: Singapore edition

Finally, the article notes that 9 nations have undertaken easing measures. If everything has been salutary as manifested by record stocks, and as what media has been saying, then why the need to ease?

Or has these been symptoms of the inability to wean away from overdependence on debt?

Cracks in Singapore’s Credit and Housing Bubble?

Interestingly, mainstream media seems worried over signs of Singapore’s deflating housing markets.

Last year I posted here that Singapore’s central bank the Monetary Authority of Singapore warned of a domestic debt bubble.

Apparently the diffusing property slowdown appears to be raising anxiety over potential escalation of credit risks

From Yahoo.com (bold mine)

Local rates have already started ticking up. Sibor, or the Singapore interbank offered rate, used as the basis for setting mortgage and other loans, climbed around 15 basis points in early January, to its highest since April 2010 after years of stability, Maybank (Kuala Lumpur Stock Exchange: MBBM-MY)-Kim Eng noted in a report this week.

The bank estimates a one percentage-point rise in Sibor increases monthly mortgage payments by 12 percent, under certain conditions. It expects Sibor will rise to 1.0 percent by the end of this year and 2.0 percent by the end of 2016, compared with 0.46 percent at end-2014.

While the rate is still relatively low -- the three-month Singapore-dollar Sibor was at 0.639 percent Thursday -- analysts expect it could continue to push higher. They lay the rise at the feet of U.S. dollar strength against the Singapore dollar (Exchange:SGD=) spurring fund outflows from the city-state, a situation unlikely to reverse anytime soon. Once the U.S. Federal Reserve begins a rate hike cycle, Sibor is likely to push even higher, they said…

Whether most households can handle a big bump in mortgage payments will be a key policy test. Singapore's central bank, the Monetary Authority of Singapore (MAS), introduced a total debt servicing ratio (TDSR) in mid-2013 to help contain property prices and limit how much debt households could take on.

Here is the USD-SGD

The USD-Singapore trades at 2010 highs

Yet the debt numbers:

Consumers' debt is still growing, rising 5.6 percent on-year in the third quarter, although that's down from an average 9.2 percent over the past five years, the MAS said.

Housing loans accounted for around 74 percent of household liabilities in 2014's third quarter, the data show.

More signs of the emergence of deflation…

Despite a lot of handwringing forecasts for property price declines of as much as 20 percent, official data show private residential prices fell just 4 percent in 2014, although the number of transactions fell around 50 percent in the year-to-November. But analysts generally expect property price declines to continue this year.

Other cracks have begun to show in the property market, such as indications some buyers may have found ways to skirt the TDSR to get approval for larger mortgages. This week, local bank UOB(Singapore Exchange: UOBH-SG) filed a 181 million Singapore dollar (around $136 million) lawsuit against a unit of Indonesian company Lippo Group and some individuals, claiming a conspiracy to obtain inflated mortgages for 38 units at a luxury development on tony Sentosa island. All but one of those 38 loans have defaulted. Lippo has reportedly denied involvement in a conspiracy…

However, lower property prices will limit financially troubled households' ability to sell their homes as a means of exiting debt.

Another worry is the around 3 percent of credit card holders with unsecured debt greater than their annual incomes, although the MAS plans policies this year to prevent these people from getting further credit.

After the credit fueled boom, the legacy will always be the problem of debt, debt and debt…

This reports says Singapore’s banks are vulnerable to a housing deflation. From Nikkei Asia (bold mine) 

The slow-down in Singapore's property market has reduced high-end condominium prices and raised concerns that major local banks could be vulnerable to a surge in non-performing housing loans.

According to Singapore's Urban Redevelopment Authority, the price of private residential properties dropped 4% in 2014. Maybank Kim Eng notes that loan defaults have concentrated mostly among luxury homes which are more popular with foreign investors, particularly those located near Orchard Road, Singapore's retail hub, and Sentosa Island, a vacation destination with sandy beaches and resort hotels.

Among the three largest Singaporean banks, United Overseas Bank (UOB) is the most exposed on Sentosa. The report indicated UOB's non-performing housing loan volume has risen 61.4% since the end of 2013…

Other vulnerable banks…

Despite this case, Maybank Kim Eng concluded that among the three largest Singaporean banks, Oversea-Chinese Banking Corp. (OCBC) is most at risk in the event of a meltdown in the housing market, followed by UOB. DBS Group is least at risk.

Although OCBC's exposure to the luxury properties most favoured by foreigners is lower, the bank lent more heavily overall to property buyers than its competitors from mid 2009 to 2012 when prices in Singapore were breaking records and "speculation was high."

Here are several questions: what happens when Singapore’s housing and debt deflation intensifies? Will Singapore’s problems be isolated to the property sector and to the city state? Will there be no contagion via trade and financial linkages with the region or the world?

How about Singapore’s stocks? Will housing-debt deflation be vented on stocks?

So far Singapore’s stocks appear to be ignoring such risks.   

Monetary Authority of Singapore Warns of Domestic Debt Bubble!

More example of what  I call as: 

...global political or mainstream institutions or establishments, CANNOT deny the existence of bubbles anymore. So their recourse has been to either downplay on the risks or put an escape clause to exonerate them when risks transforms into reality

Singapore’s central bank, the Monetary Authority of Singapore, warns of escalating domestic leverage

From Yahoo.com

Corporate debt-to-GDP ratio hit 78% in Q2.

The Monetary Authority of Singapore today raised the alarm over the spike in local debt. In its annual Financial Stability Review, the MAS stated that the corporate debt-to-GDP ratio hit 78% in the second quarter, up significantly from just 52% in Q2 2008.

The report further noted that the household debt-to-income ratio has also edged up from 1.9 times in 2008 to 2.3 times in 2013.

“An interest rate hike combined with an earnings shock could increase the number of financially distressed corporates and households,” the MAS stated.

The MAS also said that still-elevated property prices and increasing cross-border banking exposure also warrants close attention.

“MAS is monitoring the above risks closely and taking pre-emptive measures to address them,” it said. 

These warnings from political authorities have been coming in so frequently. 

Doesn’t the MAS realize that ‘this time is different’? Debt stock, prices of stock markets and real estate can only rise forever?

Well of course the MAS can do something. They can pop the bubble. But they are afraid to do so. They dread the consequence: the implosion of unproductive debt or debt deflation

They don’t seem to realize that this will happen anyway. And for them to continue to inflate the debt bubble will pose as a BIGGER problem tomorrow than today, e.g. corporate debt-to-gdp at 78% today vis-à-vis 52% 2008. So how much will it be 6 months now 80% and rising???

The problem has been debt based speculation and consumption which comes from easy money policies. So the solution is to tighten money.

So like almost every central bank, dithering to tighten means that the only available remedy has been to “signal” the problem rather than to act on it.

Again the same dynamic: I recognize the problem of addiction but a withdrawal syndrome would even be more cataclysmic

Like many major central banks, for the MAS, HOPE has become the only strategy

Bursting Casino Bubble: Singapore Edition

I just wrote about Macau’s deflating casino bubble last night. The proverbial ink has hardly dried when an interesting article surfaced just a few hours back; Yahoo has an article on the Singapore equivalent

The recourse to undercutting and mudslinging…

Singapore's two glitzy casinos are fighting for a shrinking pool of high rolling players as China's corruption crackdown and economic slowdown reduce the number of VIPs at their tables, and the battle is starting to turn ugly.

Gaming mogul Sheldon Adelson, whose Las Vegas Sands runs the Marina Bay Sands resort, has accused rival Genting Singapore's Resorts World Sentosa of relying on overly generous incentives and credit to entice big money players.

Singapore’s major client base has been drying up…

Around half of that VIP business comes from customers from China, which is in the midst of an economic slowdown, while a crackdown on graft now in its second year is making it harder for wealthy Chinese to take money out of the country and discouraging conspicuous consumption.

Visitors from China were down 30 percent to 871,000 in the first half of 2014, according to Singapore's tourism board.

Last month, Las Vegas Sands reported a 34 percent fall in VIP volume business at Marina Bay Sands to $9.1 billion (5.73 billion pounds) in the quarter ending Sept. 30. Genting is expected to report a similar sharp slide in its third quarter results.

Festering consumer credit…

But credit collection is a thorny issue for Singapore casinos, which are already waiting on hundreds of millions of dollars in credit to be repaid by gamblers, the majority of whom are based overseas.

Genting has seen a 61 percent rise in its "trade and other receivables", or money owed by customers, to stand at S$1.2 billion in the quarter ending June 2014 from June 2012, while total revenue has increased by 7 percent in the same period.

In August, Genting Singapore President Tan said the company was prudent in managing its debt collections, citing a S$81 million ($62.5 million) impairment loss it had taken on its trade receivables in the second-quarter versus a S$32 million impairment loss a year-ago.

Las Vegas Sands said in its latest earnings presentation that its "gross casino accounts receivables" for Marina Bay Sands stood at $984 million at the end of September 2014, up 10 percent from September 2012.

So with the drying up of client base, the rivalry between the two Singaporean casino operators have turned acrimonious.

In trying to survive, one firm resorts to the undercutting of the competition, while the other goes to media to scream  “unfair”!

Yet the desperate attempts to garner consumer share with “overly generous incentives” comes with a cost—a surge in bad credit.  Actions have consequences. Aggressiveness  has a price.

The article goes to blame China’s “crackdown on graft” for the plight of Singapore’s casino operators. While this may be partly true, this doesn’t explain the surge in “money owed by customers”.

The article also goes on to look for other excuses to suggest of regional competition, “Another concern is that with new casinos opening in the rest of Asia, VIP players may be looking beyond Singapore to play.”

Again while this may partly be true, but this doesn’t explain why Macau or Singapore casinos being the region’s major leagues have all been enduring top line AND bottom line misfortunes.

The reality is that China’s sputtering economy has been reducing demand for the region's casinos. Political persecution of the opposition (via crackdown on graft) represents only the icing on the cake. Add to this the slowing regional economic growth which should exacerbate demand sluggishness.

On the supply side, zero bound has led to casino operators to overestimate on demand, thus the region's overcapacity which has most likely having been funded by cheap debt.

Now the chicken comes home to roost.

The deflating casino bubble can be seen in their respective stocks…

…Genting PLC

...and Las Vegas Sands owner of Marina Bay Sands

And this signifies the falling revenue-earnings part of the cycle. 

The next phase will be about credit anxieties where bad credit from both the consumer and supply side will become the chief concern.

There will also be a contagion phase.

Again as I wrote in April 2013

At the end of the day, basic economic logic says that all these yield chasing activities (whether the shopping mall, casino, housing and vertical projects) will end badly.

How Inflationism Propagated Singapore’s Riots

Sovereign Man’s Simon Black Singapore eloquently explains of the unexpected recent outbreak of riots in Singapore.

Like individual people, societies have their own breaking points. They build up anger and frustration for years… sometimes decades. Then all it takes is one spark. One catalyst. And it all becomes unglued.

Just yesterday, a 33-year old Indian man got hit by the proverbial bus in Singapore’s Little India neighborhood. That was the catalyst. What transpired for the next several hours was a full blown riot… the first of its kind since 1969.

Several hundred rioters stormed the streets. They started off smashing the up the bus that was still on the corner of Hampshire Road and Race Course Road. Then they started throwing objects at the ambulance staff who were unsuccessful in extracting the man in time to save his life.

By the end of the evening, an angry mob had lit five police vehicles on fire, plus the ambulance, leaving the streets in a towering inferno.

The government immediately went into damage control mode trying to explain what happened. But the explanation is really quite simple.

Singapore has had years of tensions building. The wealth gap is growing like crazy. Wealthy people are becoming ultra-wealthy, while the majority of folks see the cost of living rise at an alarming rate.

Strong ideological and ethnic differences are boiling over. And backlash against immigrants, especially from certain countries, is becoming an acute and obvious problem.

These issues are commonplace. Ideological differences. The wealth gap and economic uncertainty. Immigration challenges.

They’re the same issues, for example, that have plunged much of Europe into turmoil, including the rise of a blatantly fascist political party in Greece.

And these same issues exist, in abundance, in the Land of the Free… where a number of serious ideological divides are becoming obvious social chasms.

Printing money with wanton abandon. Racking up the greatest debt burden in the history of the world. Doling out wasteful and offensively incompetent social welfare programs at the expense of the middle class. Brazenly spying on your own citizens. These are not actions without consequences.

And if it can happen in Singapore– one of the safest, most stable countries on the planet, it can happen anywhere. Even in a sterile American suburb.

It is indeed disappointing to see upheavals erupt in what has been ‘successful’ economies. Singapore is one place I would prefer as residence.

But riots have indeed been a manifestation of tensions building overtime.

Growing politicization of the marketplace, e.g. latest labor protectionism, compounds only to social tensions

As I wrote about Singapore’s gradualist transformation to a welfare state in August of 2012

Once the ball gets rolling for the feedback loop of tax increase-government welfare spending then Singapore eventually ends up with the same plagues that has brought about the current string of crises, particularly loss of economic freedom, reduced competitiveness and productivity, lower standard of living, a culture of dependency and irresponsibility and of less charity and unsustainable debt conditions. The outcome from politically instituted parasitical relationship would not merely be a financial or economic crisis but social upheavals as well.

Be reminded that all these massive money printing measures and zero bound rates has only been driving a deeper wedge between the beneficiaries—which really are disguised bailouts of banks, the political elite and their cronies and of the bankrupt governments—and the main street (from whom the transfer to elites has been sourced)

Singapore is of no exception. 

Singapore’s loan to the private sector has been exploding, it began its upside acceleration in 2006, but then the ascent has intensified since 2011. Today this has turned nearly parabolic

Singapore’s massive credit bubble has been reflected on her money supply M3 growth (red rectangle)

The credit bubble has found its way largely to the property sector where Singapore’s property index has already eclipsed the pre-1997 Asian crisis highs.

Populist politics, which always looks at the superficial, the “visible” or the symptom, blame this largely on immigration rather than central bank policies led by the US Federal Reserve and Singapore’s counterpart Monetary Authority Singapore (MAS). The MAS has been resorting to "containing” the rise of the Singapore dollar vis-à-vis the US Dollar by pumping a domestic credit bubble.

Popular clamor has thus spurred more and more interventionism that has only been inciting social tensions which paved way for the recent riot.

So it should be no surprise when inflationism will continue to provoke riots worldwide, even in places deemed as ‘safe’ or stable.  We have seen a similar outbreak of public turmoil in Sweden last May.

Here in the Philippines, today the media announced of a massive jump in electricity prices in the metropolis. This will not only prick local bubbles but will also provoke a public uproar via demonstrations and possible riots.

Bubbles just can’t last forever. Heed the prescient admonitions of the great Austrian economist Ludwig von Mises:

But the boom cannot continue indefinitely. There are two alternatives. Either the banks continue the credit expansion without restriction and thus cause constantly mounting price increases and an ever-growing orgy of speculation, which, as in all other cases of unlimited inflation, ends in a “crack-up boom” and in a collapse of the money and credit system. Or the banks stop before this point is reached, voluntarily renounce further credit expansion and thus bring about the crisis. The depression follows in both instances.

Riots serve as the proverbial writing on the wall.

How Inflationism Spurred Singapore’s Labor Protectionism

In August of 2012, I wrote about Singapore’s “gradual descent into the welfare state” as politicians divert the public’s attention by blaming symptoms of bubbles (zooming property prices and wage inflation) on immigrants to justify increased taxes for social spending.

Singapore’s homegrown bubbles as seen via record home prices (as of August) has been fueled by massive credit expansion or the zooming loans to the private sector.

This has been enabled and facilitated by the central bank’s accrued efforts to suppress the domestic currency, the Singaporean Dollar, from rising by accumulating enormous foreign exchange reserves by printing lots of domestic currency, thereby the easy money environment.  And due to such exchange rate management measures, the Monetary Authority of Singapore (MAS) even posted a $10.2 loss last year.

These bubble activities by the MAS have only amplified on the growing nationalism where this year the ruling party lost due to increasing populist clamor for immigration curbs.

Singapore’s housing index has already surpassed the pre-Asian crisis highs. This shows why the recent “FED taper” turmoil in May-June materially affected Singapore’s financial markets.

Now to Singapore’s labor protectionism, from Bloomberg:

Singapore will widen foreign-worker curbs to professional jobs as the government clamps down on companies that hire overseas talent at the expense of citizens, stepping up efforts to counter a backlash against immigration.

The Southeast Asian nation said yesterday it will set up a job bank where companies are required to advertise positions to Singaporeans before applying for so-called employment passes for foreign professionals. The unprecedented policy will target jobs that currently pay at least S$3,000 ($2,400) a month.

“There are concerns among Singaporeans, which I think is fair, and so it’s timely for us to introduce this,” Acting Manpower Minister Tan Chuan-Jin said in a Bloomberg Television interview yesterday. “There are Singaporeans out there, well-skilled and capable, who are looking for jobs and I think this step would actually facilitate that process.”

The country is persisting with a four-year campaign to reduce its reliance on foreign workers, after years of open immigration policy led to voter discontent over increased competition for housing, jobs and education. The move has led to a labor shortage and pushed up wages, prompting some companies to seek cheaper locations…

Singapore will also raise the minimum pay for employment-pass holders by 10 percent to S$3,300 a month in January, the Ministry of Manpower said in a statement yesterday. The job bank will be set up by mid-2014, it said. Companies with 25 or fewer employees will be exempt from the new rules, as well as jobs that pay a fixed monthly salary of S$12,000 or more, the ministry said.

Singapore’s declining economic freedom and the rise of economic nationalism as a consequence of the global and Singapore’s easy money regime is a sad development especially that I have regards for the country. 

Yet one thing leads to another. Since property bubbles and wage inflation are symptoms, policies that address symptoms means the disease won’t be cured. And once the labor-immigration controls fail to stem her bubbles and the perceived political inequalities, the government of Singapore will resort to even more controls or interventions in other areas (perhaps capital and exchange controls, trade, social mobility as the above, deeper wage and labor controls and more), that would mean lesser prosperity for Singaporeans.

And growing politicization of an economy will lead to more social tensions as various parties compete to use government ‘coercive’ machinery as means to promote their self-interests through the repression of the interests of the others. So as economic freedom declines, economic fascism and or cronyism increases.

Inflationism and social controls or political economic interventionism have always been intertwined. As the great Austrian economist Ludwig von Mises warned (On The Manipulation of Money and Credit)

Inflationism, however, is not an isolated phenomenon. It is only one piece in the total framework of politico-economic and socio-philosophical ideas of our time. Just as the sound money policy of gold standard advocates went hand in hand with liberalism, free trade, capitalism and peace, so is inflationism part and parcel of imperialism, militarism, protectionism, statism and socialism

Lessons from Singapore’s Central Bank: Central Banks are Vulnerable to Bankruptcies

Mainstream media and their favorite experts continue to impress upon the gullible public that foreign currency reserves acts as a shield against the risks of a crisis.

Well based on this theory, Singapore’s humongous forex reserves (more than twice the Philippines) imply that the current meltdown suffered mostly by emerging markets should have Singapore the least affected. 

 

Reality has shown otherwise. 

10 Year Singapore government bond yields continue to unsettle now at 3 year highs

The Singaporean Dollar has been sold off. The USD-SGD on an uptrend since December 2012.

The ASEAN meltdown has Singapore’s STI reeling from the ASEAN bear market forces.

While Singapore has technically not yet in a bear market, the break below the June lows and the recent ‘reprieve’ or tepid ‘suckers’ rally reveals of the STI’s vulnerabilities.

In my view, the stress in Singapore’s markets exhibits an ongoing deterioration of trade and financial linkages with ASEAN.

Now Sovereign Man’s prolific Simon Black propounds on how central banks can go bankrupt using the recent Singapore experience. (bold mine)

A few months ago, the Monetary Authority of Singapore (MAS), the country’s central bank, released its annual report for the fiscal year ending 31 March 2013.

And the results were ‘shocking’, at least for those of us who read central bank annual reports cover to cover like a Harry Potter novel.

The bottom line for MAS showed a mind-boggling S$10.2 BILLION loss (roughly $8 billion USD), about as much as General Motors lost in its worst year.

This is the antithesis of what one would expect from Asia’s dominant financial center. And it begs the question– how can a central bank, which has the power to conjure money out of thin air, even suffer a loss, let alone such a heavy one?

Simple. MAS was desperately trying to hold back the Singapore dollar’s rise against the US dollar.

Because Singapore is a trade-based economy and the US dollar is so central in international trade as the world’s reserve currency, MAS has been trying to keep the Singapore dollar somewhat restrained vs. the US dollar.

Essentially MAS was buying US dollars and then intentionally selling them at a lower price in order to create artificial demand for US dollars.

This was a completely failed strategy.

Singapore’s ultra-healthy economy attracts investment from around the world, and the natural tendency is for the Singapore dollar to rise.

This rise has been even more pronounced given Ben Bernanke’s journey into monetary madness over the last several years.

Since 2008, the Singapore dollar steadily appreciated by more than 20% from peak to trough as investors sought a more stable currency alternative. After all, Singapore is a very strong, growing economy with zero net debt.

Because of these factors, MAS lost a prodigious sum trying to prevent its currency’s natural rise; the S$10.2 billion they lost constitutes roughly 3% of GDP.

In fact, Singapore’s economy only grew by S$11.5 billion from 2012-2013… so MAS managed to blow through 87% of the country’s economic growth last year fighting Ben Bernanke. Crazy.

This is something that is clearly not sustainable. And while that term is a bit overused today, such losses cannot continue indefinitely.

A central bank CAN go bankrupt, often creating a major currency crisis. And this is what suggests to me, above all else, that the fiat system is on the way out.

Fiat currency has been the greatest monetary experiment in the history of the world. Four men control over 70% of the world’s money supply, giving them control over the price of… everything.

And this system is so absurd that, healthy nations like Singapore are forced to lose billions in order to keep playing the game.

That’s exactly what it is– a game. Like most nations, Singapore has been playing this game for decades while the US changes the rules whenever it sees fit.

And it’s becoming obvious that the cost of playing is now far exceeding the benefit it receives. The hard numbers are very clear on this point.

This spells one inexorable conclusion: game over.

Another interrelated consequence of this US dollar recycling (vendor finance scheme) by Singapore’s central bank has been to blow homegrown bubbles 

Growth in the loans to the private sector has virtually been skyrocketing

Singapore’s surging housing index has passed the 1997 Asian crisis highs!

And domestic credit to the private sector at 112% of GDP is about the highs of the 1980s and similarly approaches the Asian crisis highs of 1997.

I don’t have data on the claims to the banking system on ASEAN by Singapore and vice versa, but I suspect that there may be significant private sector exposures on the ASEAN investment corridor, as well as ASEAN investments in Singapore

Should the ASEAN meltdown continue or deepen then the risks of a regional crisis grows. 

We should thus be vigilant on the conditions ASEAN markets

And despite the denials of media and their clueless highly paid mainstream experts, we should expect the unexpected 

Mounting losses compounded by economic slowdown or recession will place central banks on the spotlight.

Caveat emptor

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 

From Yahoo.com

"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.