Part 1 is here.
A few days ago, I tried to explain why there was a lack of fear in this recession. I was not the only person who noticed it. BNP Paribus wrote that this lack of fear can be due the relative size of our assets compared with our liabilities [Link]. They are basically saying that Singaporeans have more buffer now - if something happens, they can sell their assets to cover their liabilities. There is a bit of a circular argument here because the lack of fear actually prevents asset values from falling so it is not clear which causes which. The other point to note is although assets grew from the period 2000-2008, the distribution was the most unequal compared with the rest our our history. So the asset growth may be concentrated in the top 5% who saw their wealth accelerate at the fast rate during that period.
The bottom 20-30% of our population are in financial distress regardless of the recession. The author could have been more convincing if he showed what was happening to families at the median income level.
One of the comments to my original article says people are not fearful because they are complacent. I think it is possible that people are not fearful because nothing has happened directly to them....... yet. We may see some slow recovery in the coming months as many analysts predict but the risks remain high. The large amounts of money pumped into the economy by various govts in the form of stimulus packages around the world has only resulted in stabilisation and the possibility of slow growth. They cannot keep having one stimulus package after another.... Several central banks have used 'quatitative easing' an euphemistic term for printing money. Never before has the world seen such a massive expansion of money supply....and such expansions in the past have always led to inflation. Bernanke is suppose to explain his exit strategy next week[Link]. If he gets it wrong, the inflation that is going to hit us will be more painful than the recession.