Saturday, June 05, 2010

Why I think Economic Outlook is very bleak....

I have been watching the economic indicators closely since I was a teenager. I don't know why but I took a special interest in watching, monitoring the economy and correlating the eventual outcomes with what I saw. My interest intensified further 2 years ago when the subprime crisis occurred and have watched the economy more closely than before.

Earlier I posted 2 articles about the problems with sovereign debt - one in March 2010[Link] before the European sovereign debt crisis intensified and the other in early May 2010[Link] when things started going wrong. The subprime crisis and the sovereign debt crisis are just manifestations of problems caused by a debt ridden global economy. Early this year, I thought there were 2 possiblities going ahead - the 1st, global growth will accelerate in 2010 and ease the debt burdens around the world, the 2nd, is that we cannot make the escape velocity and the economy falters and the debt problems start to overwhelm the global economy. Watching the economic numbers out from all over the world, I now believe only the 2nd hypothesis is left standing. Many people call this the "double dip recession" scenario. I believe calling it that is too optimistic because it suggests that we will recover quickly after the 2nd dip. They called the first dip in 2008-2009 the Great Recession. The American govt and govts around the world mask the severity of economic problems by using fiscal and monetary stimulus. The problem of high debt never disappeared and part of it has returned to haunt us through the Europeans. The game plan of generating sustainable economic growth using stimulus appear to have faltered looking at the latest US jobs report.

In Singapore, many made the same mistakes as the people in Spain, Ireland, US etc. Remember the US housing bubble which was believed to be caused by interest rates being too low for too long. The same phenomena was seen in Spain and Ireland - today Spain's economy is in big trouble with 20% unemployment and a large part of its problems caused by the bursting of its housing bubble. After the western countries got into trouble with housing, we saw property bubbles in China, Hong Kong and Singapore. These bubbles create a lot of economic vulnerability when economic growth slows, the debt becomes a problem.

There were also many imbalances that resulted from the last 4 decades of economic growth include large income disparity which is only seen once other time in history ...before the Great Depression. Wages of workers have been kept too low for too long and demand was generated by the expansion of debt. Westerners borrowed heavily to buy good produced by poorly paid workers in Asia.

In the coming months, I believe, we will first see more signs of a slowdown....this is a bit hard to imagine in Singapore because we just reported the fastest export growth in past few years just last quarter but look out for it as the demand from major our trading partners slow and after that there will be no quick solutions to the economic problems that emerge because they have been in the making for decades.


Victor Ee said...

Read this book: Grip of death

Anonymous said...

good, can't wait for things to come down from their stratospheric levels...

national leaders' salary too

Anonymous said...

Economic outlook may be very bleak but for Singapore some things are quite constant whether good or bad times. The constants are:

1. No illegal public protests.
2. Opposition will still remain weak.
3. Foreigners will continue to come here.
4. Hot money from the region and the world will still flow here as safe haven.
5. No terrorist attacks because the terrorists consider Singapore not worth bombing.
6. Property prices may drop but not much. Govt hand is very strong here.

That's all for the time being.

Anonymous said...

And the best part is, all our solutions involve us borrowing yet more money from the future to fund our bailout and stimulus program.

We just cannot run away from borrwing.

Anonymous said...

SIN Prime Minister Lee Hsien Loong has made contingency plan when he addressed the junior college students recently. PM Lee has exhorted the Students to contribute to the Society when they can and help, amongst many things, to reduce the Growing Income Gap in SIN.

Me fails to see and understand his logic and intellect, cos me am of the view that under him, PM Lee Hsien Loong, the Income Gap got and gets wider. Me strongly believes that the longer he stays as the CEO of SIN, the wider the Gap will grow.

It's terribly difficult to concile his(LHL) exhortation to the Students with his leadership in so far as the Widening Income Gap is concerned.


Anonymous said...

Almost all the major countries have run out of ammunition in fighting another credit crisis --- they've already shot all their last bullets in propping up various banks, insurance companies, car companies, property developers and other industrial companies from Sep08-Mar09. Probably only China (and maybe S'pore) still have sufficient reserves IF they want to use. BUT by now, I don't think the govts want to waste any more money on "stimulus" programmes that ultimately won't work. China (and some other countries) may resort to engineering some war in order to distract the attention of mass jobless and beef up the patriotic fervour, in order to avoid possible mass social unrest and overthrow of existing govts.

S'pore govt definitely won't use much of our reserves to help citizens, as our economy is too small and fully dependent on other bigger countries. IF those bigger countries are not able to recover, then S'pore is also dead or at least comatose.

The second recession will be called The Great Reset --- coz most people will be made penniless and asset prices will eventually go back to 1965 level. $5000 for condominium in Toa Payoh, shiok! Problem is whether you even got $10 and whether got food to survive 1 week.

Anonymous said...

Anon above,

Your scenario may happen but not so soon lah, at least not in our life time.

Maybe in 50 to 100 years time.

Anonymous said...

the only industry that thrives on debt is the banking and financial industry. this industry is like a big casino that produces limited benefits. the current crisis reinforces the fact that this industry has grown too big and is in much need of reform and regulation. obviously they are resisting change and regulation, and politicians are either on their take or lack political will to do the right thing.

i dunno why people are still emphasising so much on the banking & financial industry when instead more emphasis should be placed on the engineering and tech sector bcos the next growth will be and must be the green industry if mankind wants to have a sustainable future that does not rely on the current model of endless consumption based on depletion of natural resources.

recruit ong

Anonymous said...

Hi Lucky,

Basically I think your forecast is fairly accurate. Sadly for Singaporeans, when things go wrong, all problems are tai-chi to the ordinary people who are made to work till they drop.

Anonymous said...

If you believe in the Keynesian models, which is all the rage now, it looks bleak.

The economy could shrink faster than their budget cut.

jamesneo said...

To Anon 5/6/10 15:11, dun be too sure lah, if the PAP do stupid things like run budget deficits of 5-10% continuously for 5-10years due to bloated government and rubbish stimulus, then the fall might be within 10-20yrs.

Anonymous said...

Lucky, things are not so dire. The solution is to print $. So long as they do that and tolerate a higher inflation, markets will improve towards the end of the football season when many big players will have to restock.

Fox said...

Actually, governments all over the world should increase government spending now because of the enormous output gap. The time for austerity is not in the middle of a recession.

It is quite difficult to run a deficit in the middle of a boom because government spending usually falls and tax revenues increases. Spain and Ireland actually had national budget surpluses in the mid 2000's.

There are encouraging signs of recovery. I think that there is an over-reliance on using the stock market as a measure of the actual state of the economy. If you look at things such as the amount of electrical power used in the US, the actual growth in the work force, the amount of coal mined, capital expenditure, etc, then they strongly suggests that the US is growing very rapidly.

Anonymous said...!

Anonymous said...

"Actually, governments all over the world should increase government spending now because of the enormous output gap."

No money, how to spend?

Lucky Tan said...
This comment has been removed by the author.
Lucky Tan said...


There was a upswing right until March 2010. I was hopeful. But from march 2010 it was suppose to accelerate int April 2010 and the private sector should take over from the govt stimulus which is waning. I think the handover is a problem....but there was a slowdown even without the "Euro" crisis and the headwinds from the financial market which will feed into the real economy.

Now I think there is too much for the US economy to overcome. I'm not taking my cues from the stock market which is "weekly noise".

One of the leading really good indicators I look at is the Ceridian index from UCLA - it showed a decline in April 2010 which for me set the 1st alarm bells. I'm waiting for the next UCLA Ceridian index to see ...this should be released on 12 June 2010. If this number is bad, the US economy is "confirmed" in trouble.

This index picks up broad activity and is definitely less noisy than the stock market. But the stock market is always very fast - right or wrong! The other one is the Singapore Private Property Index - once it turns down it just goes down quarter after quarter until the bottom is reached...and when it turns up, it persists to go up. If you want to know the key turning points in the economy look at our housing may be later or early but once it turns the economy (and the stock market) is in real trouble, it does not turn back up so easily....

Anonymous said...

Dear Mr Lucky

Didn't you say that Obama going to fix the economy?
U mean giving all the money to GS isn't the right solution?
Or your Messiah stopping the regulation of derivatives is wrong?
Or you messiah insisting on austerity for the small euro nations is wrong?

Aren't you and Obama always correct?

Just the yen carry trade rite?

Aiyah, its just that "too-big-to-fails" sucking up all the liquidity and capital from the SMEs that create most of the jobs.

Just like Japan. Where the interest rate is zero for big boys and 20% for the small ones.

But last I check, Japan is still ok.
dun worry, we will survive the Obama presidency.

Lucky Tan said...

anon 21:39,

What Obama, Bernanke, Geithner could do was give the patient who suffered a heart attack a chance to get back on its feet. The problem is not with what they did but the man being too sick to stand on its can only tell when he tries and falter. You can't say the doctors are no good when the patient is so sick.

Didn't I say short rally for yen carry trade? did we get one after I posted? The word 'short' is no there for nothing.

Japan is miserable...and its going to Japans around the world.

Anonymous said...

Dear Mr Lucky

Obama giving the patient a chance to get back on his feet?!!!

Do you want to ask your pet squirrel in the states how the unemployment is like or rate of foreclosures or bank (the kind that actually lends money) failures is like over there .. since he became POTUS?

Short rally due to yen carry trade?
Its the euro carry trade now my friend :-)

But hey, $ talks and you have always been on the mark.
Thats why you are rich!

For the record, could you define "bleak"?
Bleak like Dow 5000?

Btw, I sure wouldn't mind SG falling to to Japan's standard of living.

Anonymous said...

But I tot u got this feeling that rally will continue through the world cup until end-Jul?

What sort of 'short' rally only spike on one day and go downhill from there?

Anonymous said...

The one day rally was to welcome a new man at the helm. Symbolic Japanese Courtesy or new broom sweeps clean syndrome.

Anonymous said...

One day spike can call 'short rally'. What's next. One hour spike?