Friday, October 15, 2010

Overdose: The Next Financial Crisis

Here's an interesting video that attempts to explain the recurring financial bubbles and crisis in the past 2 decades. A few months ago, Nobel Prize winner Paul Krugman warned that we may be entering a 3rd depression [Krugman : The 3rd Depression]. In the past few weeks a currency war threaten to break out as nations try to devalue their currencies to gain a competitive advantage[Time: Who would win a currency war]. It is hoped that the G20 summit next week[Link] will help to avert a currency war and prevent economic instability. In May this year, a sovereign debt crisis broke out in Europe and caused markets around the world to plunge. It is hard to say when the next financial crisis will occur but the potential for a crisis exists and according to the video the risks are increasing. While stock markets and property markets rally to new highs, it is so easy to become complacent and forget the risks.

20 comments:

Anonymous said...

I think whatever crisis that will happen again will be like what happen last time.

Remember in late 2008 there was a crisis, where Lehman Brothers closed shop and also caused thousands of Singaporeans to lose all their money in structured deposits? And our GDP is negative?

But what happened since then? Things slowly recovered and the stock market, property market and GDP all go up again and even reached new highs, eg million dollar HDB resale flats.

So even if the next crisis occurs, things will surely improve again, just like the last time. It's all a cycle and life goes on peacefully.

Zzz said...

Where would you put your money since everything seems high these days?

Anonymous said...

Lucky,

Yes,indeed,a global currency/trade war is now on.

27 Sep 2010,FT reported:
Brazil in ‘currency war’ alert

An “international currency war” has broken out, according to Guido Mantega, Brazil’s finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness.

http://www.ft.com/cms/s/0/33ff9624-ca48-11df-a860-00144feab49a.html


The Fed's QE2 has immediate impact on many Singapore companies when MAS allowed S$ to hit record high against USD on Thursday at a time when Singapore had a 18% contraction in its third quartter GDP.

There is no disagreement on the way to resolve the global imbalance.Surplus countries mainly PRC and Germany to consume more,USA to cut down its own consumption.

But there is no solution,China domestic consumption is now running at or below 40% of its GDP against USA's 70%,with GINI close to 50,an a rigid political structure with little grassroot feedback,it would probably take up to 10 years or more,for China to rebalance.yet the war has begun.

PAP with its falling star,is caught as well,with Singapore GDP slowing,MAS was forced to be used by PAP as a political instrument due to pending general election.

Compare this to what other countries are doing

-Thailand is introducing a tax on foreign holdings of bonds, the latest in a string of attempts by emerging economies to curb destabilising capital inflows amid fears of a global currency war. The Thai cabinet on Tuesday imposed a 15 per cent withholding tax on capital gains and interest payments for government and state-owned company bonds, a clear signal that it would take tough measures to curb inflows of “hot money

http://www.ft.com/cms/s/0/bb3699c4-d5d5-11df-94dc-00144feabdc0.html

Or this
-Japan has called on South Korea and China to “act responsibly” on exchange rates in an unusually strong statement ahead of the G20 summit of leading nations in Seoul, expected to be overshadowed by rising tensions over currencies.

The statement by Naoto Kan, Japan’s prime minister, adds to pressure on Seoul as the host of the meeting in November to broker a discussion on currencies despite some countries, including China, pushing to keep the issue low on the agenda.

http://www.ft.com/cms/s/0/bb3699c4-d5d5-11df-94dc-00144feabdc0.html

Anonymous said...

"PAP with its falling star,is caught as well,with Singapore GDP slowing,MAS was forced to be used by PAP as a political instrument due to pending general election."
-Anon 16/10/10 06:57

PAP falling star? Are you kidding?

Look at the state of the opposition. How can it make PAP a falling star?

Look at the state of property prices. And the way we welcome foreigners and their hot money from the whole wide world. And the number of new citizens. How can it make PAP a falling star?

Population is now only 5 million. Target is 6.5 million. Still way to go.

Status quo will be for a long time to come, and change may not even happen in my lifetime. And I am not old.

Anonymous said...

I sincerely wish that the father and son have yr kind of confidence,but apprantly they are not.

Watch PM Lee in coming G20 where he will be,see what he says about why Singapore is going against the trend of fighting currency appreciation.

Thanks

Anonymous said...

Pl allow me to quote Mr Mike Tiong:

Anonymous said...

DISBELIEF was the first reaction of Mr Mike Tiong and many of his fellow manufacturers when they first heard that the Government was set to allow the Singapore dollar to rise even further.

On being told of the Monetary Authority of Singapore's (MAS) unexpected currency policy shift, the managing director's first thought was that it must be a joke.

'You're joking right? Don't joke please, not funny for me.'

Once the truth had sunk in, Mr Tiong, who runs electronics and computer parts manufacturer McCoy, said he feared the move was 'bad, very bad' news for his company, which gets paid mainly in US dollars and has come to rely on a stable local currency.



www.cpf.gov.sg/imsavvy/infohub_article.asp?readid...6730...

Anonymous said...

People like Mike Tiong might a minority.

The majority may benefit from an appreciation of the Sing dollar vs US dollar.

Our govt, being a capable one and in a position to see the big picture, must have weighed the pros and cons carefully before making the decision. The net effect must be good or else they won't do it.

Anonymous said...

S'pore's GDP is 2/3 made up of exports. Hence this strengthening of SGD is bad news for many of local companies and exporters who mainly use USD as medium of exchange. GDP will definitely be affected if SGD remains too strong for too long. But this is a temporary calculated move by PAPies, as they believe that 4Q 2010 GDP is already crap no matter SGD strong or weak.

The SGD strengthening move by MAS is indeed a political move for GE in Dec 2010. PAPies have done their sums and calculated that a temporary pain for companies and exporters is worth it to give the ordinary joes an impression of good purchasing power despite stagnant wages, especially going into the holiday year-end. Example is the lowering of electricity tariffs despite oil prices remaining on the high side in terms of US dollars. How come? Simply becoz SGD has strengthened a lot over the last 3-4 months.

A slowdown in worldwide consumption and exports has already been factored in by the PAPies and they figure that a temporary strong SGD is not going to make too much difference. Singapore may again see a technical recession when the GDP figures are reported in Jan 2011. So PAPies are striking fast & hard when the iron is still hot.

After GE, you can bet your ass that MAS will weaken SGD substantially, together with increase in GST, ERP, property tax, road tax, COE, conservancy fees. Electricity and gas tariffs will naturally jump higher as SGD weakens.

Anonymous said...

Bond yields are pathetic
Bank deposits are pathetic
Gold prices too high
Housing prices too high
Stock market going up
Dividend yields low

Economists, analysts say there is more than 4 trillion US$ released by the US Gov.

"The world is awash with cash"

You dont see it in your bank account do you? yeah, neither do I

If QE2 is not forthcomming than we are doomed?

We cannot raise interest rates.

So where do we park the money?

No where... some have chosen Gold
Some have chosen properties.

My view is:
raise everyone's salary!
Then the money will flow!

jamesneo said...

"So even if the next crisis occurs, things will surely improve again, just like the last time. It's all a cycle and life goes on peacefully"
When i read such comments i want to vomit blood. The next financial crisis within the 1-3 yrs will set the stage for the final big one(5-10yrs): the imminent default of the US government either through outright default or through hyperinflation both which are devastating for singapore's foreign exchange reserves which are held mostly in US dollars and only a few percent in gold. Of course there is still that small possibility that they can end up in stagflation for the next 10yrs which will lead to high inflation throughput the world in commodities like agriculture, precious metals and energy.

Anonymous said...

Migrate to the jungle in Kalimantan(Borneo) may free one from worry. This concrete jungle provides no food but stress.

Anonymous said...

As recently as Spring 2010,the Fed was considering when and how it would begin to raise interest rate.But as the recovery stumbled,the Fed reversed course,and by late summer it was bebating how best to oprop up the recovery.

With QE2,Mr Bernanke said:
1.The Fed dual mandate is to foster max employment and price stability.
2.Inflation is too low relative to the desired rate of 2% or a bit below
3.Unemplyment is too high
relative to long term forcast of 5-5.25%.

Fr MAS,Singapore

Domestic inflation "rose significantly" from 0.9 per cent in the first quarter to 3.2 per cent in July and August, the MAS noted.

With the economy already operating at close to full employment, coupled with higher external commodity prices, such costs could be passed on to consumers.

This, MAS said, may result in inflation hitting around 4 per cent by the end of this year and stay high in the first half of 2011.

www.todayonline.com/Business/.../Monetary-policy-tightened

Anonymous said...

i would like to recommend an old video about the 2008 subprime crisis.
http://www.youtube.com/watch?v=mzJmTCYmo9g&feature=related

Have a good laugh. : )

Anonymous said...

Ben Bena is bad news, whatever they did in 2008 is not a good one. Printing $ to cover up a debt crisis just exported the prob away from USA only.

Then you see that since then, $ prob has turn up all over the world. It will only get from bad to worse if they keep to their printing ways.

We are Singapore, a small dot. What our government can do is only that much. You think we can be sheltered forever? Do you guys think that the world can fall apart one by one and we remained untouched.

The QEs are out there, we dun see the $ cos the $ is back in wall street to grow more $. More $ from where, from rising commodities. So as these greedy Americans try to earn more, their trading to causing food prices to go up, thus countries have pple who cant afford food anymore.

People aren't starving cos they dun have enough food, they are dying cos food prices are too high, they cant afford it. Because of these greedy traders.

I think it would be soon when we see rationing exercises come back on for Singapore. Be it food, fuel/gas or water.

HDB and stuff goes up because no ones seeing the real picture, they are still living the life b4 2008. They think we are recovering cos the media and governments of the world say so. Go ask Greece, Egypt about recovery...

We live by the day and spend by the month. We dun think much about anyone but ourselves. We dun realized how much we depend on others. Can you imagine if import of food just stops cos we cant afford it? perhaps due to hyper-inflation?

I am not old too, and if the MONEY report about 70% of countries will go into default in 50 years. I will surely witness it if I am still in good health.

I dun understand why our population has to grow, why dun we just take it as it is and deal with it. Expanding the population year after year would just be prolonging the prob to our next generation only.

If we hit 6.5 mill then what next? Why should the success of a country be based on GDP? Shouldn't the success of the country be based on how happy the people are living? I dun get it

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Income Protection said...

Proper economic reform and careful planning are the ingredients to prevent a financial crisis.