There is nothing much the
government can do to help Singaporeans under the trilemma of international
finance, especially an effective money supply policy.
As far as we maintain
free flow of capital and stable (managed float) exchange rate policies, we will
be in a difficult position to have an effective money supply to help Singaporeans.
We will also not be able
to maintain low interest rate and have to follow the trend of international
finance.
The recent downgrade of
our banking system is an example of this trilemma. International buyers of our
financial assets, including property, have full right to move their money in
and out of Singapore. Also to maintain
our position as a financial centre, we have to allow the free flow of capital.
As regards to exchange
rate, a depreciated Singapore dollar will result to higher inflation. Singaporeans are complaining about price
increases of almost everything. Cost of living is a political issue in
Singapore but it has nothing to do with international buyers of financial
assets and they look for returns. The Moody’s report is pointing to assets
inflation and high debt of local people. If the returns are no more attractive,
international buyers can move their money away from Singapore with a rather
stable S$ exchange rate. In fact, they
lose very little. They can always come
back after assets inflation and weaker S$. Their returns may be even higher considering
the huge drop in financial assets and weaker S$ in Singapore.
To effectively arrest the
situation, an effective money supply policy is needed but it is quite impossible
to achieve under the trilemmna of international finance. If you recall how
Malaysia and Thailand/Indonesia reacted to the financial crisis, you will have
a clear picture. Malaysia stopped the free flow of capital so that it can have
effective money supply policy.
What is the trilemma of international finance?
 |
| source: blog.telegraph.co.uk |
It basically tells us you
cannot have all the good things in one go. You have to choose two out of three
policies and cannot have all the three policies at the same time.
To understand the issue,
The New York Times has this easy article to help you understand trilemma. #1 We
can draw a simple table to show how different countries based on this article of
their trilemma position:
|
|
Free flow of capital
|
Effective
Monetary policy
|
Stable exchange rate
|
|
USA
|
Yes
|
Yes
|
No
|
|
China
|
No
|
Yes
|
Yes
|
|
Individual European
countries
|
Yes
|
No
|
Yes
|
Singapore’s situation is
quite similar to individual Euro-zone country, e.g., Grace or Spain. They
cannot have an effective monetary policy of their own.
The reasons for our
ineffective monetary policy are different from Grace or Spain or Portugal but
the aftermath is the same. The
government, however clever however smart and how many million salary collected,
is not able to help Singaporeans under the trilemma of international finance.
Of course, if you are
rich enough to act and work like an international buyer of financial assets, you
will be benefited from the trilemma system. You can restructure your portfolio
you can park your money overseas for future advantages in Singapore.
The Monetary Authority of
Singapore is right to point out the risk of higher interest rate and bubble
property market but has failed to explain the operations of international
finance that is against the small not so rich property buyers.
Individual Singapore property
buyers are in fact casino-ing in a
closed market called Singapore. They don’t have the luxury and capability to
move their money out of Singapore. They have to stick with the assets inflation
and deflation in Singapore property casino.
International buyers are
operating in the open world market. They
don’t need loan to buy a property and international financial advisors and our
professionals, be it lawyers, accountants, financial institutions, are all
willing to help them. Even they sell
their property at a loss, they can still come back to buy cheaper properties
later. Can our not so rich property buyers do that? Perhaps, bankruptcy is waiting
for them.
Ordinary Singapore
property buyers are not in equal position as international buyers. Of course, the government likes to see the blooming
in property market so that they can collect more taxes and fees. And then, when there is a crash, they can use
the money to help Singaporeans? High hope!
They are caught in
between too. International buyers move their fund out with a stable S$ but the
MAS cannot come out with an effective monetary policy under the trilemma.
The most the government can
do is to tell you
“Property market
stabilising but curbs will stay: Tharman”#2.
DPM Tharman also confirmed international buyers are looking for yield
here.
[Curbs
recently imposed on foreign home buyers, such as higher stamp duties, are meant
as a disincentive rather than an outright restraint, Mr Tharman said.
"It's not a closed-door policy because Singapore has
to remain an open market," he said. "But we've put some sand in the
wheels, a fair bit of sand in the wheels, and it's having some effect at the
top end."
Mr Tharman added that rich foreigners are picking up
properties here to seek higher returns, not to squirrel away money from
authorities at home.
"Most of the demand for property in Singapore has
been a search for yield rather than a search for a place to keep ill-gotten
money," he said. ] #2
What happen if there
is no good yield here? The result is
outflow of capital. However, DPM Tharman is less concern about this risk as he
claims:
"Both the injection of liquidity
that came with quantitative easing and the potential withdrawal are discomforts
but are not going to pose fundamental risks." #2
So, are we expecting higher
property price before it goes down as there is no or small fundamental risks
currently? (Risks are always there as DPM Tharman sees USA and Europe are more ‘domestic’
rather than more “international’ now).
No matter what,
ordinary Singapore property buyers have to recognise the fact that they only
have limited funds to play in this property casino. Just like the 2 casinos in Singapore, just before
playing you have already lost S$100 in a closed market environment. It only looks open and international to international
players and buyers.
Good luck!
#1
#2
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