Money printing (/borrowing) by Singapore government- how much is too much?

[Inix]

Gold is used in almost all decent electronic devices.

 

[GamerSg]

Gold is used in trace amounts in these electronics, it makes no significant difference to the price of the final product.

PainRack - Gold, while not as cheap as it was in 1998, is still relatively cheap today in terms of Global Money Supply. Should the world decide to go back to a gold standard, then it is still extremely underpriced.

I view gold as savings and not investment. It gives no dividends or returns but it serves as an inflation hedge when available investments cannot beat true inflation. It just happens that in the past decade, most investors would have done better to save in gold then to invest in some fund or ETF.

Ofcourse the possibility of a return to a gold standard or the Fed defaulting on the gold it is supposed to be keeping for other countries gives it a large potential upside as a bonus to it's inflation hedging properties.

Property is a leveraged investment unless you are paying cash in full.

 

[GamerSg]

........... Raise interest rates aggressively, raise needs for capital held in reserve...............

This should have been done from the start to prevent the bubble.

After the bubble bursts, doing this will amplify the bursting of the bubble and wipe out many people and banks(rightfully so), but i do not see any government ever doing this as it would be political suicide.

 

[Inix]

Gold is used in trace amounts in these electronics, it makes no significant difference to the price of the final product.

PainRack - Gold, while not as cheap as it was in 1998, is still relatively cheap today in terms of Global Money Supply. Should the world decide to go back to a gold standard, then it is still extremely underpriced.

I view gold as savings and not investment. It gives no dividends or returns but it serves as an inflation hedge when available investments cannot beat true inflation. It just happens that in the past decade, most investors would have done better to save in gold then to invest in some fund or ETF.

Ofcourse the possibility of a return to a gold standard or the Fed defaulting on the gold it is supposed to be keeping for other countries gives it a large potential upside as a bonus to it's inflation hedging properties.

Property is a leveraged investment unless you are paying cash in full.

I often find it amusing that people think that using Gold to back money supply is still THE way. Gold's only value besides minor commercial reasons, are either speculative or decorative and there is no other value beside that leh. And commercial reasons are really small ah

Remember that as a traded commodity, should for some reason traders decided that gold is no longer valuable (lost shine with middle class Chinese & Indians perhaps, or the world is once again ultra peaceful and US and EU are booming again), the prices can and will fall.

It is not really the magic pill for me.

 

[Inix]

If you know how the financial system works, you will realise that banks have an elevated legal status which allows them to create money which no other legal entity can. If you print money at home, you will be jailed. Banks profit from the same activity.

Alamak, you do realise that leverage is different from printing money. Don't you?

And i would not say that our banking system is safe. >50% of assets in the local banks are in the form of mortgages, should the housing bubble burst either due to rising interest rates/recession/war in region, every local bank will have to declare bankruptcy if the default rate hits ~10%.

However i also have no doubt that the MAS will print to bail them out causing more inflation and a wider wealth gap leading to more political unhappiness.

What you're saying is totally invalid in the context of the country. There are several factors that makes your argument moot IMO.

Taking statistics from 2010 onwards, HDB transacted around 18+K HDB flats over the period of 3 years (2010 - 2012). And during this same period of time, more than 178K applied for HDB loan, which means only around 10-15??K leaked to the banks.

See - Only 2 per cent of HDB loan applications rejected

So even if property market do come crashing down, the impact while still big, isn't going to crash the entire banking system.

As long as HDB isn't going to call back the loans which they offered (which they won't and they can't), there is no way the property market is going to suffer a significant (over 35% drop) crash soon.

Another reason that this does not really apply to us is CPF. Most of us use CPF to finance our homes and the smarter ones (which really is the vast majority of people) finance them with little or no cash monthly.

The couple of changes made to the housing rules only made it more difficult for people to take on leverage if they are not able to pay. Even if housing market do crash tomorrow by a significant 25%, banks will still not likely be required to call the loans, or even ask people to top up the loans. The fact is Bank loans require 20% down first (for 1 loan) and they require 40% down (for the 2nd or 3rd loan?)

While alarmists can argue that if interest rates rise significantly, people might not be able to afford it, but bear in mind that CPF interest rates WILL rise along, and the nett interest rates for these people (which at a glance look like over 95% of the HDB market) is still 0.1% of interest. And this affects the vast majority of the country.

And if the govt continues to pay 1% extra for OA and SA accounts, we are in fact, earning 0.9% interest in our 1st 20K in OA and 1st 40K in SA for our housing loan.

What you said IS applicable to the average western country, but IMHO, does not apply to us at all. Prior to 2007, the West went crazy with leverage. Banks were offering people crazy loans that were unsustainable at their income level. Heck, they even offered approved loans to people who were long dead.

This has never happened in this country owning to the fact that the Govt builds around 80-90% of the flats in the country lah..

 

[PainRack]

I often find it amusing that people think that using Gold to back money supply is still THE way. Gold's only value besides minor commercial reasons, are either speculative or decorative and there is no other value beside that leh. And commercial reasons are really small ah

Remember that as a traded commodity, should for some reason traders decided that gold is no longer valuable (lost shine with middle class Chinese & Indians perhaps, or the world is once again ultra peaceful and US and EU are booming again), the prices can and will fall.

It is not really the magic pill for me.

It gets even funnier.

The reason why Gold is chosen is because of its supposed rarity, it has "intrinsic" value, thus, its not a commodity where prices can fluctuate wildly, protect against inflation and etc.

But using existing Gold supply, cannot back the huge amount of goods and services in the real world economy now, much less finanicial services.

So, to back.... gold prices must automatically rise to match the existing world money supply.

Then...... what intrinsic value does Gold has anymore?

The best part of all is GamerSg uses this argument to say Gold is 'underpriced' right now and worth buying. Gold is now ten times higher than its previous price, before 2008. This means that lots of investors have moved into Gold, trying to use Gold to protect their cash against inflation ALREADY. Moving further into this market just means you're supporting speculators who will sell you inflated gold prices.

You're now literally betting that the world future economy will be even more bankrupt now, so as to justify the argument that gold will protect you from inflation(because you need gold prices to rise at the same rate of inflation). If the economy improves and money is shifted out of gold, prices will drop.

 

[pandasr]

Some background readings might help for people trying to understand the issue here. I thought that the following article makes for a good grounding:
Inflation and debt

Enjoy.

 

[PainRack]

Has anyone noticed how gold has crashed?

Price drops to lowest price in 3 decades. So, anybody who bought gold after 2008 kenna burn like nobody business.

Although wonder whether now good time to buy gold or not.......

 

[NTB2DO]

3 decades? Cannot be lah.

I remember gold price was at all time low in 1998--ie 1&1/2 decades ago--where 916 gold jewelleries were retailing at around $16/g. If I'm not wrong, (916) gold price had been hovering around $80/g lately, so even if price really crashes, surely it can't possibly crash to somewhere lower than 1998's $16+/g level right?

 

[zuoom]

Gold still a long way from when I first took notice of it at 27 odd range.

What would it take for gold to fall to those level?

 

[PainRack]

3 decades? Cannot be lah.

I remember gold price was at all time low in 1998--ie 1&1/2 decades ago--where 916 gold jewelleries were retailing at around $16/g. If I'm not wrong, (916) gold price had been hovering around $80/g lately, so even if price really crashes, surely it can't possibly crash to somewhere lower than 1998's $16+/g level right?

lol. sorry sorry, should had write biggest drop in price in 3 decades.
Read wrongly.

 

[cherry6]

Version Update... 2.0.

Money printing (/borrowing) by Singapore government- how much is too much?

Briefly, M1= printed SGD in circulation + some more, M3= quasi money= everything including government bonds (treasuries) etc (people will pay U money for these at whatever is market rate(much is sold to CPF so Temasek & GIC can invest the CPF monies etc) but too big to use at super-mart).

• Will so much printed money worsen the rate of inflation (even if it isn't captured by the CPI) in Singapore? ('Why CPI might fail to capture the true rate of Inflation in Singapore.'[HWZ, 11Jan2013])
• Will so much money 'printing' worsen the wealth divide?
• Will the supply inflation of the SGD ($ printing) also inflate the housing price in Singapore?
• Are CPI measurements in Singapore consistent over the years just as the luxuries enjoyed by the average Singaporean (who has been forced to become more and more 'productive') have alongside increased- is this 'productivity' readily translatable into quality of life improvements?
• What is the effect of Singapore's increase in GDP upon the environment- Singapore has already refused entry to boat people arriving as political refugees 'Singapore cannot accept Rohingya refugees' [CNA, 24Mar2009], will Singapore do the same for environmental refugees as sea levels across the world rise?

According to the chart on SG govt money printed, 1989-2011, M3, the broadest measure of Money created by the central bank has increased from
dollar notes created/ printed have increased from SGD71.0 billion (1989) to SGD 451.7 billion (2011)
Using compound interest(inflation) calculator [ink] with the input values as:
Input principle: $71,007.8 M
Input years= 22yrs.
Input total= $451,675.2 M
Result: Effective Annual Rate of increase = 8.7736% P.a.

The same calculation for years 2010 to 2011 period= Effective Annual Rate of increase= 10.135%

Thus if Singaporean quality of life didn't increase by 10.135%, why is the government of Singapore issuing so many treasuries/ printing so much $$$???

In short, the government of Singapore should perhaps avoid printing so much $$$ (bills+treasury bonds) that only serves to inflate a Potemkin GDP figure premised upon high rentals as referenced to inflated property prices- which only serves to make the poor even poorer, which is essentially what the Lehman Brothers 2007/8 economic crisis did. Erstwhile, even if it were necessary to print so much SGD just to maintain equal SGD value depreciation with the exponentially disintegrating USD (aka toilet paper) (due to massive USD quantitative easing@USD$1T p.a.), then perhaps income tax on the poor should be waived, NS allowances increased drastically, and all Singaporeans should be given guidance and a CPF educational account: operational till retirement: so as to pay for preventive health education and lifelong learning schemes from all the extra printed $$$ (8.7736%*$451.67B=S$39.63B p.a) (reserves to be replenished from taxes collected only) .

[pict source: https://secure.mas.gov.sg/msb-xml/Re...=I&tableID=I.1 ]

Caption: Currency to exchange for gold please- takers, anyone?[Image source]