Friday, September 30, 2011

ISA : Interesting Video from the past...

As countries around us move further away from the authoritarian regimes of the past, the difference in terms of political progress between Singapore and other countries starts to increase and the desire for change among an increasing segment of the populace will increase. 2 decades ago, Taiwan & S. Korea were under martial law and dictators so were Indonesia and the Philippines. Today these countries are full blown democracies and citizens have greater freedom of speech, right to assemble to speak up against injustice and free press. Their govts have also undergone several peaceful transitions. Economic development has continued at the same pace if not faster after these countries move away from authoritarian rule. Corruption and crony capitalism in general declined in these countries. As these countries move ahead, Singapore tries to preserve its political system with little change. The refusal to repeal the ISA and replace it with a more suitable anti-terrorist act is symbolic of this refusal to change.

This old video (courtesy of The Online Citizen) from 1990 is interesting in several ways. Lee Kuan Kew explained that the detention of the Marxist conspirators was  decided by the next generation of leaders led by Goh Chok Tong. He than praised them for it by saying "Singapore would have been a different place" if they had not acted. A very young James Gomez then stood up to ask if the Singapore would consider abolishing the ISA given the region had become much more stable. Lee then tried to justify the ISA by saying that it was recently used on a group that was hoarding firearms - this is a bit strange as a justification because firearms are illegal in Singapore and these people could have been arrested and jailed under some other law. Lee then went on talk about how we were not yet a nation and hardly a community so these powers were needed to stifle "destructive" groups before they gained so much influence and power before they become mainstream groups.

Whenever laws are enacted to for the purpose security, there is a reluctance to repeal them because some people will argue that society will become less secure. That is why Malaysia's move to repeal the ISA is perceived as a bold step even when most countries provide a safe environment for their citizens without such a law. Most fringe groups are intercepted and stopped through intelligence operations that will yield sufficient evidence for a court case. There is a real risk of the ISA being abused by a bad govt to stifled legitimate opponents and used to preserve a power structure no longer beneficial to the ordinary citizens. Psychologically, the existence of such laws that are closely associated with police states, creates a climate of fear among citizens. 21 years ago, a young Arts and Social Science student in NUS asked Lee Kuan Kew about the need to keep the ISA. Today, many more young people are asking the same question. ISA symbolises the refusal of the present govt to begin moving away from our authoritarian past now that times have changed. For the hundreds of thousands of Singaporeans who want political progress, the existence ISA symbolises the frustrating lack of political progress. At the end of the day, as we fall further and further behind other countries support for the PAP will simply erode. The PAP has to remember that  one-off economic transformation that made the people accept some form of authoritarianism is over.

Wednesday, September 28, 2011

Fiat Money System : Money is Debt Part 2.

UPDATE: Today a group of protesters known as Occupy Wall Street[Link] frustrated with the workings of the current financial system protests in USA. One commenter wrote that the video unfairly vilifies banks and bankers when they play an important role in the economy. While that is true, the video warns us not to fall into the trap of de-regulation and always monitor and regulate our financial institutions strictly.  When Franklin D. Roosevelt spoke during his inauguration speech[Link] after the stock market crash of 1929 and the subsequent economic depression, he warned of bankers and their system and how it led to despair in the 1930s - the greed will do us in. 70 years later look around you in the past 4 years -  Goldman Sachs,, Lehman Brothers,, the sub prime crisis, the sovereign debt crisis - which one is not caused by debt...and money is indeed debt.

When you go out to buy your next television set, it is likely that you end up with something better than your existing TV sold for the same price. Like many things around us, man made systems tend to improve over time - if you take Boeing's newest aircraft, The Dreamliner, you will expect that to be build with more safety features than the old Boeing 747.

There is however one exception, our financial system - it seems to get less stable with each passing year and generates crisis, turmoil and recessions much more often that in the past yet we seem to accept this all encompassing system because most of us are born into or do not really understand what goes on in the banking system. Here is an interesting video that explains quite clear how money is created, how it drives the economy and why we are seeing so many crisis and so much in stability in the current system.

Tuesday, September 27, 2011

PSLE : The Great Sieving Machine....

For parents with children that are 12 year old this must be a period of anxiety as the PSLE starts this week.

When I took the PLSE many years ago, students only had pass/fail results. There was no score. The better students were broadly identified as belonging to the top 8% - I was not one of them and it didn't really matter. Many of the students in the top 8% chose to go to average secondary schools so you get a mix of good and bad students in the same secondary school - you sometimes have both good and not so good students in the same class. Today we differentiate primary school right down to the fine resolution of 1 in 300 points. You pass by a tuition center these days and you will notice they put up a list of top students - score of 280 for the top student...anything below 250 and you won't get on anybody's list. Competition starts young and differentiation starts young. Using their PSLE and reference entrance score from past years students usually choose the best ranked secondary school possible with their score. In the secondary school the students will again be sorted .with the best students going to the best class and so on. By the time the student walks into his first class in secondary school - every thing is sorted out based on PLSE scores. You have the best class in the best school and the bottom class in the worst secondary school. Other than differentiation using PSLE scores, we have NUS High which picks out gifted students so they can get out of the regular system and be educated in NUS High for direct entry into NUS.

What we have done is intensify the competition between people at an early age and accentuate the difference in outcomes for these people - the NUS High gives the best training and highest quality of education to those who make it there and neighborhood schools typically get the average teachers teaching unmotivated students who discourage each other from doing well.

Our current president, Dr. Tony Tan, completel his primary school education 60 years ago chose to go to a lesser known less prestigious secondary school called St Patrick's Secondary School rather than Raffles Institution like the rest of the presidential candidates. I thought that was a selling point he could have used in his campaign because he would have mixed, mingled and made friends with children who later move on to various strata of our society. We did not have so much differentiation of children at a young age and in a typical secondary school you would find a good mix of students. Today's system is completely different.

Our education system has turned into the great sieve machine and it sorts students obsessively. Once every few years we get 12 year old children leaving the exam hall crying because the maths paper is so difficult they couldn't do many of the difficult questions[Link] - if you pick up a PSLE maths paper, I think many of you will be baffled by the some of the questions. All this to try to differentiate between students so some will get A* and others just A.

We should really roll back to the basics and ask ourselves what is the purpose of an education system? Is the main purpose just to sort students based on exam scores? What happened to the joys of learning? What happens to childhood and friendship? Is it healthy to put students through such intense competition at such a young age?  What does such a system achieve at the end of the day?

Strangely, after putting our own children through such a tough education system, the govt is very happy to have foreigners from England, Australia and Phillipines take up some our best jobs. It looks like the tough education system does not give you too much of an edge when you join the workforce.  Based on what was reported in WikiLeaks, the govt does not even encourage all Singaporeans to reach their full academic potential if they are able to get degrees. So what does all this energy and time spent on doing well for exams achieve for our society as a whole? For individuals it is very clear, you try to beat the others to get into better schools and later on scholarships that lead to opportunities in govt and SAF. But collectively will our society do better with such a system when it comes to differentiating oiurselves from economic competitors and giving our people a better quality of life?

Many Singaporeans being in this type of system for so long can't even imagine that there other forms of education system that work well. If I suggest we go back to the system of my time when students are just award a pass grade instead when they clear their PSLE exams, I'm sure many parents will say that system is no good because it doesn't help their children get ahead of others and secure the best secondary schools and so on. Singaporeans have come to believe competition is inevitable and intense competition is unavoidable.

To understand the alternatives, we have to look at systems that work well and are at the other end of the spectrum.

"The basic compulsory educational system in Finland is the nine-year comprehensive school (Finnish peruskoulu, Swedish grundskola, "basic school"), for which school attendance is mandatory (homeschooling is allowed, but rare). There are no "gifted" programs, and the more able children are expected to help those who are slower to catch on."  - Wikipedia, Finland's Education System[Link]

The number one education system in the world is the Finnish education system - an egalitarian system in which tremendous effort to taken to provide high quality pre-school to everyone. Contrast that with Singapore's approach where pre-school is not compulsory and poor students skip pre-school while richer parents send their children for pre-school that cost $20K per annum. Our govt's idea of levelling the playing field is to give some poor students 1 month of pre-school that cost their parents $10 (read Stark contrast between of the rich and the poor...). Richer Singaporeans would even buy property next to a prestigious primary school known for training students to get good results so their children have better odds of getting into these schools.

"The Fins adamantly oppose any form of divisions or ranking, and 'advanced' or 'elite' divisions are major taboos. Separation into different classes is also not practiced in the system. Heidi, a 28 year-old employee at the University of Helsinki, recalls that she was good at math in primary and middle school, but the teacher never praised her work in front of anyone else, only stealthily handing her more advanced texts to read on her own." - Secrets to Finland's World Topping Education System

In Singapore's elitist system where the best resources are allocated to the best exam-scoring students who later on secure the precious prestigious overseas scholarships and later on the best jobs and opportunities in the SAF and civil service. This system elevate the importance of exams over learning, amplify the inequality in our society and emphasizes competition over co-operation.

The strength of a society is build on the arms of the strong pulling up the weak so that no one is left behind. Children at 12 should have a childhood spending time making friends, cultivating the love of learning, learning to help one another and building  core values....much of these important developments fall into the background when young children believe that they are better than someone else because he scored 10 marks higher for the PSLE. All the energy we spend to sort our students then later allocating disproportionate resources to a small number identified as the elite weakens what can really make us competitive - a cohesive workforce able to work closely as a team and not individuals perpetually trying to get ahead by breaking away from others. The one reason the MOE gives for all this sorting and sieving is they want to best develop each student based on their ability. If you believe that you have to believe that neighborhood schools like Bedok Green Secondary have better teachers than ACS(I) or Raffles Institution because they have weaker students that need better teachers to guide. The Finnish approach is to put everyone in the same school and teach the material at a pace that everyone can learn and give additional attention to those who are slower. If we want a cohesive society, we have to start with the young and teach them that to work to help each rather than against each other.

Sunday, September 25, 2011

MHA Statement tells us why we should abolish ISA....

MHA responded to a statement by former detainees calling for ISA to be abolished by attempting to justify the arrest those detainees. Please read the statement for yourself and think about what the MHA is saying.

MHA statement found here.
"Nine were actively involved in Communist United Front (CUF) activities in
support of the Communist Party of Malaya (CPM), which was committed to the
violent overthrow of the constitutionally-elected governments in Singapore and
Malaysia. They infiltrated legally-established organisations like trade unions
and student associations, and instigated illegal strikes and demonstrations to
cause mayhem and civil strife, to complement the CPM's armed revolution.

The saboteur had been conveying a bomb for an attack in Singapore, and was
travelling along Still Road (Katong) when it detonated prematurely, injuring him
and killing his two accomplices. Such was the volatile and dangerous security
situation then prevailing in Singapore. Following the CPM's call in 1968 to its
underground networks to return to armed struggle, new CPM organisations were
formed in the 1970s which included killer squads to carry out sabotage,
assassinations and other acts of violence."

In the past it was very easy to accuse people of being communists unless they were on the side of the colonial govt. Trade unions, student unions and people fighting for independents were hauled up and locked up by the Special Branch. During this tumultous period, the working conditions for workers were poor and strikes and demonstrations often broke out . MHA assertion is that these people were communists who instigated workers to strike amd demonstrate - strikes and demonstrations were common in developing countries and they still break out very often today in developing countries. There are laws to handle labor strife without resorting to something like ISA. Even in developed countries such as USA we often see strikes when workers are badly exploited by employers - the most recent on involving  45,000 workers from Verizon[Link].  Countries that ban strikes without strong legislation to protect workers expose their workers to abuse and poor working conditions. Those strikes, whether they were legal or illegal, instigated or not - can a strike ever occur without 'instigation'? someone has to call for a strike and lead it - is besides the point and does not help to support the retention of ISA because many countries handle strikes without the ISA.  The MHA then says that these 'instigators' were linked to the CPM (Communist Party of Malaya)  - surely if these people were linked of CPM, the evidence can be produced - otherwise the ISD can just haul up anyone and accuse them of being linked to the communists when they are just peaceful socialists with good intentions. Let me ask you....where is the CPM today? It no longer exists!  So why should we retain ISA for a threat that no longer exists?

In the 1980s, seven of the sixteen ex-detainees were involved in a Marxist plot
to subvert and destabilise Singapore. The plot was part of the CPM's renewed
efforts to rebuild the united front by penetrating and manipulating
legally-established organisations. Three of them infiltrated and manipulated several religious organisations and, exploiting the religious cover, pursued
activities towards subversive ends

The Marxist Conspiracy was 24 years ago and I'm still trying to figure how Vincent Cheng and Teo Soh Lung were supposed to be able to subvert the govt of Singapore by defeating the SAF, SPF and hoodwink the entire nation into a violent revolution to overthrow their beloved PAP govt.  Vincent Cheng the alleged mastermind of the plot must have handwritten his entire plan on a piece of paper somewhere otherwise how could the ISD have known about such a plan? Vincent must have swallowed the paper prior to his arrest because no evidence (no weapons, no paper)  was ever produced to prove this allegation. The MHA now justify Vincent Cheng's arrest simply by repeating the allegation against him. That allegation was all it took to detain him and that is why people want the ISA abolished. What is there to stop another govt some time in the future from using against its political opponents by making accusations it does not need to prove?

I suggest you go through the entire MHA statement and think about the issue but I will leave you with a simple counter argument against what MHA has said.

Why do we need such a law when all other developed countries can ensure the safety of its citizens without it?  Do you feel insecure in Japan, Finland, Sweden or Australia?.....We spend far more on defense, intelligence and the police per capita than most of these countries. Many of them are bigger in geographical size than Singapore with a bigger population to look after yet they do not need such a draconian law.

The PAP govt is very unwise to keep such a law that it cannot justify because its existence links the PAP to an ugly past. The PAP govt with the help of the British eliminated an entire generation of prominent socialist opponents including the likes of Lim Chin Siong and members of  the Barisan Socialis using the ISA when they were conducting a legitimate constitutional struggle and getting ready for elections they were likely to have won. The PAP then  ran this place with authoritarian leadership and its brand of authoritarian capitalism. 4 decades of unbalanced policies later we find we have the most economically unequal society among all developed nations. By retaining the ISA, the PAP reminds us what it has done in the past including holding the world record for the longest period of detention for a prisoner of conscience - Chia Thye Poh was detained by the ISD for a period longer than Nelson Mendela without a single charge or trial - how does one justify the detention of a 25 year old physics professor for a period of 32 years?

Economy : Unsatisfactory until The Great Revamp....

The above chart shows the income inequality in the US from 1918 until today. If you plot the chart of income inequality of countries around the world, you find the pattern of rising inequality in the last 30 years. Among developing countries, Singapore and USA have the highest income inequality. The only time during the last 100 years when the income inequality is as high as it is today was in 1929. The global economic system fell apart after the stock market collapsed in Oct 1929.  There are numerous similarities between 1929 and 2007, the consumer debt was extremely high as individuals borrowed to spend because the income gap means that ordinary workers make too little to generate the aggregate demand for the total goods produced in the economy. Household borrowings help to close the gap i.e. the economy depended on rising debt levels to keep it going.

After the US economy fell apart in 1929, Democratic president Franklin Roosevelt implemented The New Deal empowered labor unions and ethnic minorities. The 3 decades after World War 2  are known as The Great Compression - the income gap became compressed as the US  govt allowed labor unions to wield more power, implemented high progressive tax on the rich and implement major social programs. As wealth became more evenly distributed, the middle class expanded, unemployment fell and the US experienced sustainable growth withour significant rise in the household debt. However, that began to change roughly when Reagan took office.
The policies to reverse what The New Deal policies - weakening of labor unions, tax cuts for the rich, together with the spread of free market capitalism, globalisation and deregulation combined to erode the middle class. While there were other economic benefits of the new directions, income gap grew and much of the gains concentrated in the top 10% of the income earners.
.If you look across countries, there is a general trend of rising inequality:

A few things to note from the above charts.  Among developing countries, the income gap is falling as they become more developed with the notable exception of communist China. With the exception of socialist Fracne all developed countries have seen a rise in inequality.

Based on the latest data from the CIA factbook here's where counttries stand:

For the US, you have to go back all the way to 1929 to find an income gap as high as what we see today.  There is only one developed country with worse or comparable to the US depending on when you measure inequality and that is our tiny island of Singapore. The other place with higher inequality is Hong Kong which is technically not a country - at their level of inequality despite the perceived economic success of Hong Kong, the incumbent govt is almost certain to lose if free and fair elections are conducted tomorrow - that is why they have postponed direct elections there until 2017 so that social programs can kick in and mitigate the effects of the inequality.

In recent months we have seen rising protests around the world, authoritarian govts falling and increasing number of incumbent govt voted out of office in democratic countries. The current economic model is not just unsustainable in purely economic terms, the masses are forcing govts out to bring about change. From Israel to Australia, we see rising frustration among ordinary citizens.demanding change. Today we are facing the 3 economic crisis in  and on the verge of the 4th recession in 14 years. The global economic system is clearly not stable and does not produce outcomes that ordinary citizens around the world want to preserve. In many countries the people will keep voting out govts until they get what they want. We are seeing similarities with 1930s and the whole system will be in a flux until we see the income gap compressing.

So how did Singapore achieve the highest inequality among developed countries at a time when income inequality is at the highest in the last 70 years?  You don't end up here when you implement fair and balnced policies that benefit as many of your citizens as possible. PAP's ideological extreme has led to this situation .Cutting corporate tax rate and taxes for the richest and increasing GST to tax the poor. Weakening the bargaining power of unions through something euphemistically called tripartism - over the years workers' benefits such as retrenchment benefits disappear along with job security. Importing cheap labor to depress wages of the lowest wage earners. Elitism that concentrate the state resources and allocate the best opportunities to a small number of people. Pro-business policies that pandered to the demand for workers to be cheaper, better and faster. The people of Singapore sent a very clear signal to the PAP govt that they want change. The PAP won most of the seats in parliament not because people feel that its policies are correct. The PAP was helped by a combination of other factors. The fragmented Opposition is generally perceived as not  ready to take over as govt and the PAP still enjoy the support of older folks who lived through the great transformation took Singapore from a poor developing country to developed one.  The PAP still enjoys favorable but bias coverage from the MSM. These advantages will diminish  by the time the next election comes.

Having a GINI index of 48 means an inequality much larger those that motivated massive protests in so many countries. Singaporeans are just as unhappy. However, we have a culture of fear and obedience, Singaporeans do not protest to show their unhappiness. The unhappiness festers and grow internally ...hidden in individuals and families. The govt will start to interpret this quiet response as an acceptance of the status quo just as it did before the 2011 elections. The image of huge opposition rallies and collective show of angry will fade and the PAP will go on a path of 'least resistance' guided by the interests of the power elite. We are beginning to see the PAP in 'explanation mode' again - they are explaining why we need more foreigners, explaining why we need the ISA to keep us safe[Link], explaining why they cannot adhere to UN human rights recommendations[Link], explaining why the govt cannot do more for the poor, disabled and elderly. The best we can hope for is some tweaking of PAP policies as we move on from here.

Economic  inequality will drive demand for all sorts of change because when people'\s  lives are not getting better they are less amenable to various aspects of authoritarian rule still preserved by the PAP. Even the govt of Malaysia knows that there is a need to get ahead of the curve with important changes. The PAP needs an ideological shift and revamp the current socio-economic system to compress the inequality. Telling the people that things are acceptable because there is 'social mobility' will not address their unhappines with their own economic situation. Trying to make as little change as possible to get by and leaving the income gap as it is and unhappiness to fester below the surface will simply compel the people to bring about change by voting for the opposition. Shortly after the 2011 election, our PM said 'nothing is sacrosanct'.  However, watching the PAP in the past few months what we see is an inability to change as denial begin to overcome the post-election realisation that the people are very angry and want change.

Saturday, September 24, 2011

The role of peaceful protests in society...

The picture above is that of a protest that occurred in Philippines. The protesters were 'planking' using a new, somewhat crazy, phenomena that has swept the world thanks to the Internet and YouTube.

"Planking" (or the "Lying Down Game") is an activity consisting of lying face down in an unusual or incongruous location - Wikipedia.

They were doing it for what you can call a good cause. The Aquino govt had decided to cut education spending and that made university professors and students unhappy[Link]. Perhaps the protesters were thinking it would be better if they produce more graduates because there are always jobs in a neighboring country which does not believe in encouraging more of its own people to pursue a university education and rather import graduates from other countries to fill jobs. For the purpose of this article it is not relevant whether the Aquino govt is right or the protesters are right because much of it is a judgement call that has to be made because state does not have infinite resources and either side can be correct depending on how the local economy evolves and how wide  one of the neighboring countries will open its doors to graduates from Philippines.

My main point is Philippines used to be ruled by a strongman that disallowed protests, controlled the media and ran undemocratic elections. In facts, 20 years ago, Singapore was far more democratic than the Philippines. Singapore was also far more democratic than S. Korea and Taiwan. Today, these countries are fully democratised. Our immediate neighbor Malaysia is moving along the same direction to abolish ISA and allow public assembly so that peaceful protests can be conducted. Where is Singapore today relative to these countries? Is the Philippines or S. Korea worse off after they moved from authoritarian govt to become democracies?

Peaceful protests allow like minded people to get behind a social cause to get together and express their views more strongly. It levels the playing field for the masses as the monied class and corporations influence decisions in govt. One thousand people separately writing to the Straits Times expressing their unhappiness are not be equal to the 4 property tycoons expressing worries about how they will make a few million less next year due to the slowing economy.

"The more successful you are, the wider your sphere of influence"
- LKY to NTU PhD student, Joan Sim

In LKY's Singapore it is not the more morally correct you are influential you will be. He likes to keep his hierarchical authoritarian system in place. If ordinary Singaporeans cannot assembly and express their views, it is much easier to manage away their concerns and ask them to be more resilient and live with it. A few weeks ago, 500,000 Israelis peacefully marching together to express their unhappiness over the cost of living and the rising inequality in society moved their govt to act with greater urgency. The right for people to assemble to support each other for a worthy cause brings about a more cohesive society,  motivate govts to put the interests of ordinary above everything else and accelerate the positive changes to society.

Saturday, September 17, 2011

QE3 : Operation Twist...will the stock market rally again?

FOLLOWUP: Interestingly, the announcement of Operation Twist had unforeseen and unintended short term consequences. Within minutes of Operation Twist announcement the Dow Jones Index plunged by 280 points and a further 380 points the following day- even before the Fed started the operation itself! Given this was a widely expected move by the Fed, it was hardly surprisinng yet its disruption the markets was massive - the effects was widespread the Korean stock market, for example,  fell by 6%...I think the move is comparable to those after the 911 event. Analysts at a loss to explain this had to come up with something - some say the selling was due to worsening economy, others say it is due to the problems in Europe etc. However, why did all the selling occur just after the US Fed announcement? Why did gold which as been a safe haven also fall if markets are worried about Europe and global economy?

If you go back to the seconds after Operation Twist was announced, you will notice that short term interest rates moved up. No surprise since Twist was suppose to move up short term rates and move down long term rates and bond markets anticipate the effects of the 'twist' reacted accordingly.  Next sequence in the chain of events is the US$ spiking up due to the movement of short term rates. Short term rates is one of the factors that affect the exchange rate between countries i.e. if rates move up, the currency strengthens. Now that takes us to the connection between US$ and risky assets - when US$ falls, risky assets such as commodities and foreign stocks go up. This connection is due in part to the US$ carry trade in whcih speculators borrow cheaply US$ to speculate in all sorts of markets - when the US$ is falling, money will flow into these markets as speculators can profit when the assets they are holding is converted back to the falling US$ ..they will be motivated to borrow more to speculate.  However, when the US$ rises, the reverse happens - money pulls out from markets such as Asian stocks, commodities etc and cause sharp falls.

I think most savvy investors know of the individual links between rates and US$ ...and US$ and risky assets. However, it is the ferocity of chain reaction that caught many by surprise - much of which caused by computerised trading algorithms that automatically sell certain assets when parameters of their model change. I went through analysts forecast of what will happen if Operation Twist was announced and the consensus was nothing much since it was expected a few predicted it will be short term positive for stocks. Apparently, the collective behavior of man, machine and feedback loops eluded everyone. The main opponents of Operation Twist didn't like it because they fear it risks inflation and they believe it will prove ineffective  - nothing to do with what we have seen since the announcement in fact inflation fear should subside since price of commodity and oil fell . I don't think the US Fed figured it out ahead of the announcement because the chain reaction triggered by Operation Twist was so large and disruptive, it may undermine what Operation Twist set out to achieve.

So after the stock market falls, will we see a rally once chain reaction stops and reverses? The US$ spike up 8% in 3 weeks vs S$, my take is once it starts to weaken against $S, we may see a reversal of 'negatives'....and it may come sooner that anyone expects.

UPDATE : Despite criticism that the earlier QE1 & QE2 did little for the actual economy, thee is another perspective to this. Despite high unemployment, it could be the US economy might be in far worse today if not for QE1 & QE2. A research paper published recently estimated the UK's QE boosted its economy by roughly 2% in 2010[Link]. It is easy for critics to point to the poor shape of the US economy and say various stimulus and Fed action have failed but the Financial Crisis of 2008 could have resulted something far worse if not for the actions of the Fed. The poor US economy is likely to by used in the 2012 US presidential elections by various right wing groups such as the Tea Party to promote ideologically driven solutions. Lets not forget how we got here into this global mess - globalization, banking deregulation, privatization and free market capitalism as the cure for everything. 
Here's a chart that shows the movement of the US stock market relative to the point in time the US Federal starts its money printing operations better known as QE1 and QE2. QE2 ended sometime and in Jul 2011 and when it ended the stock market plunge shortly after that. Same with QE1 when it ended in May 2010, the stock market fell sharply until QE2 was in effect.

Printing money is no free lunch. It causes inflation and basically erodes the savings of retired Americans who have their money in fixed deposits. Tharman has so far protected Singaporeans by allowing the S$ to appreciate against the US$ each time the US Fed turns on the printing press. This keeps the price of imported food and fuel steady in S$ There is a limit to how much MAS can do this - our exporters are suffering due to the strength of the S$ and their profit margins are getting squeezed.

The Fed will do another round of QE despite the political opposition he faces - one Republican president threatened to do something unspeakable to Bernanke if he does another round of QE [Link]. While it is politically unpopular due to its inflationary effects, each time they stop doing QE the economy and the stock market seems to start sagging. QE gives 2 kinds of boost - first it keeps the US dollar down and US exports competitive and it hopes to keep interest rates low to encourage consumers to borrow and spend...and businesses to borrow and expand. The unintended effect is a lot of the money is borrowed for speculation causing unwanted flows into developing/asian countries - the speculators borrow US$ cheaply and move it into S$ to buy Singapore property and stocks to make money from capital appreciation and the strengthening S$.

The Fed is expected to announce QE3 this week. It uses a different mechanism from QE1 & QE2 and is expected to have roughly 70% of the effect of QE2.  Here is a professor who made a video to explain Operation Twist and potential problems clearly:

It will be interesting to see if the stock market rallies again on QE3. QE3 buys some time for the US economy ....but unless the economy improves dramatically, I suggest you watch out for the end date of this QE because so far the end of earlier QE has coincided with very nasty market selloffs.

Financial Markets : The Vandal's Crown.....and the road ahead..

This article contain some amount of financial jargon and is targeted at those with more than a passing interest in the financial markets.

If you roll back the clock a little and go back to back to examine a few fateful days in early August, you will realise that the massive losses and movement in financial markets took place over a 4 day period as if the world economy has dived down suddenly. After that, every one from Tony Tan to Tharman to LKY started talking about the impending double dip recession. Many Singaporeans including a group of developers started to get worried and went to the minister in charge of housing to persuade him to review the cooling measures so they can continue to make their millions. If you grab a man on the street and ask him, you will find he too knows that the stock market has plunged and recession is on the way. I too jumped same conclusion because stock market falls ahead of recessions.  However, after sieving through the data, I think the future is more uncertain than depressingly bleak - it is not a bright future but is it going to get very dark very fast?

The event that cause most people to think that the global economy has taken a turn for the worse is the stock market plunge in early Aug 2011. But if you look at economic data from the US, it does not look that bad hasn't looked good for months with things bumping along sideways and things did not really get any worse  Here is my favorite realtime data that measures the realtime activity in the US economy - it is compiled by a group of researchers in UCLA (

The chart tells us the US economy never recovered to where it was in end 2007 - it has plenty of spare capacity i.e. unemployment. The US economy did not recover all the way because some of the jobs lost in the housing sector e.g. construction, furniture, renovation etc did not come back as housing remains in a slump. Despite the blame Obama has been getting due to the high unemployment, it was the bursting of the US housing bubble and continued slump in the housing market that caused the unemployment in the US to remain stubbornly high. The chart also show us there is no massive deterioration in Jul 2011 just before the stock market sold off in early Aug 2011. There was a bigger economic deterioration in Aug 2011 caused by the market turmoil rather than the other way around - market was causing economic uncertainty rather than economy dragging down the stock market.

The US housing market never recovered at all since the housing bubble burst:

What really caused the stock market meltdown in Aug 2011?  Those who are familiar will say it is due to the crisis in Europe. This crisis has been with us for more than a year and in Jul 2011, the Europeans came up with a plan to tackle this crisis called the EFSF (link to EFSF news), While this rescue fund is not a cure all, it is massive enough to help kick the can further down the road to forestall the crisis.  There is sufficient money to completely take Greece out from the debt market for 2 years i.e. Greece does not need to go back to the market to raise funds until 2013.. So why did stock markets fall so hard in Aug 2011. The real reason, I believe, is linked to regulatory mis-steps that open the door for speculative attacks.

In Jul 2011, the EU published the results of a stress test that was suppose to show that its major banks are safe and sound. However, when the stress stress test results were examined closely, investors found a few things - many of the banks were holding large amounts sovereign debt and were very vulnerable (Forbes Report : Euro Stress Test Reveal 8 Banks Would Fail, 16 Barely Survive Adverse Conditions). Not very wise to let the whole world know how weak your banks are and where are their vulnerabilities.

The 2nd mis-step by the Europeans that also occurred in Jul 2011 was the failure to repeal the mark-to-market accounting rules. Until the recent past, banks account for the value of their loan portfolio based on various models that take into how the debt is service. For example if you owe the bank $30K in credit card bills due to overspending, your loan with the bank is good as long as you service it so the bank will account for this debt. Suppose a bank is holding Italian bonds these bonds are valued at full face value as long as Italy does not default on any of its debts. Mark to market account is different as it requires the bank to value these bonds based on market prices. Before mark to market was introduced in 2006, a few researchers warned that it can cause instability as a negative feedback loop can be constructed - it is widely believed to have caused the market shocks we saw during the Financial Crisis. The accounting rule change to allow some securities to be valued at cost known as IFRS 9  was put on the table in mid-Jul 2011.  The EU was urged to give it the green light to ease the crisis - remember in Jul 2011, things were pretty stable but the proponents of this rule change wanted it in place to break any negative feedback look should the sovereign debt crisis worsen[EU's Barnier says won't budge on accounting rule]. This rule change was postponed by the EU to 2013 and the doors were thrown wide open for speculators to start manipulating the markets.

Hedge funds knowing the banks are unstable and carrying large amount of sovereign debt from the PIIGS European countries started shorting both the soverign bonds and bank stocks. As the bonds fell, the balance sheet of european banks deteriorated and they moved one step close to insolvency.....and a banking crisis is created from the sovereign debt crisis. Day after day European banks shares were sold off along with the bonds of PIGS countries cause a financial panic that spread around the world. The speculators were able to transform the sovereign debt crisis into a wider banking crisis and panic ensued causing US bank stocks to plunge - Buffett took the chance to buy some preferred stock in Bank of America in a really sweet deal. The market chaos started to affect business and consumer sentiment and caused an economic slowdown in Aug 2011.

The problems with the European countries are widely known since early last year. The huge debt will no doubt weigh on the European economy for years to come. The best way for them to manage it so they have some form of graceful degradation and give themselves a good chance to recover later on. They have to be mindful that there are "vultures and vandals" waiting to profit from EU's misery and spread this crisis to the rest of the world.

Like many, I thought that a double dip recession is a foregone conclusion - heck, even ex-MM Lee is talking about it. Relooking at the data, I think the outlook is not so certainly bleak. To be clear we are not in good shape ....but then the global economy has been in pretty bad shape since 2009  even as it starts to recover. The thing to note is the US never fully recovered and if you look at past recessions, they are often caused by the need to correct excesses of the good times. In 2000 we had the dot-com bubble that burst and that caused the recession. In 2008, it was the US housing bubble...remember everything was full steam ahead and extremely rosy in 2007. The 1998 recession was ushered in by a period of 'prosperity' that saw overinvestment and excessive borrowing in Asia. Today, we have 2 years of struggling growth in the US and Europe whose chonic debt problems has been economically painful for more than a year - many thought Europe was about to collapse a year ago in Aug 2010 ...we also had market turmoil then and there was talk of a double dip recession at that time. The global economy tends to leap into recession when things that were going very well then something goes wrong and everyone is caught off-guard ...a good example is the good times in 2000 of the dot-com bubble and 2007.

Rather than a leap into recession - leap from where? the global economy didn't climb up that much in the first place, we are going to see something more like a  long drawn sluggish slow growth. We may still slip into recession but in a less dramatic way than in 2008....the American consumers and investors have been behaving as they are already in recession keeping cash and cutting down on their debts. What can get us into some trouble is mis-steps in Europe just like the ones we saw in Jul 2011 when they let their guard down. There are several factors that will help us trudge along - one is the policy "de-synchronisation" between the US and the BRICs countries. While the US has been cutting rates to record lows (now zero), China and India have been tightening and interest rates there are at multi-year highs. If global growth slows and inflation threat abates, China & India can get out of tightening stance and help move the global economy along. What will spur economic growth and create jobs in the US is the recovery of the US housing market which is  still no where in sight.  The other wild card is whether some equivalent of the computer/IT revolution emerges - it was suppose to be renewable energy an area that Obama stake some of his reputation by actively supporting but that turned out to be a false dawn.  Other measures to such as the Fed's Operation Twist [Link] will support financial markets just like QE1 & QE2 and buy some time to allow the economy to recover but sustainable recovery will come only when the US housing market recovers.

In Singapore, the govt is still importing foreign labor to grow the economy by increasing head count. The painful rise in cost of living is no different from the pain caused by a recession - in a recession you fear the loss of your job but in reality most people get to keep their jobs during recession but see a pay cut or less bonus - during the 'good times', you get more bonus but the rise in housing cost or cars simply outstrips the extra you're getting. An economic boom these days means little to the ordinary Singaporean who usually just see painful rise in the cost of living relative to his wages. The govt keeps saying that GDP growth will generate more opportunities for Singaporeans but we have been there and done that in 2000 and 2007.  There is a limit to how much Singaporeans can benefit from GDP growth given we have the most unequal distribution of wealth among developed countries. What we need is not more GDP growth, GDP growth at all cost or more focus on GDP growth. What will improve the lives of Singaporeans are reforms to our healthcare, transport, housing and medical care ...and we don't need to keep GDP growing at its fastest to do that. Does it matter if our economy is growing at 2% or 5% when people are still worried about whether they can afford hospital care when they are sick. Providing affordable universal healthcare and making our public transport more comfortable will improve the quality of our lives than 6% annual GDP growth which is meaningless to ordinary Singaporeans when you import 100,000 foreigners and pander to the demands of businesses to hit that target.

Friday, September 16, 2011

Malaysia to abolish ISA

Malaysia will replace its ISA with 2 new anti-terrorism laws to better tackle the real security threats of today's world. They will also allow freedom of assembly according to international norms.

We should not do it just because Malaysia is doing it - that is not what I suggest. But we should really ask ourselves why we need these laws when all developed countries and hundreds of countries around the world can ensure security of its citizens without compromising their basic human rights - is this a false compromise? Is our police and intelligence so inefficient? In Singapore, the ISA has a history of being used against legitimate political alternativies, in particular, socialists who were trying to bring about a more equal society. Today these archaic laws are part of the climate of fear that persists in Singapoream society. As long as they exist, they will tie the PAP to an unglorious past and can be used if the regime feels it is under threat from progressive forces in this country. It makes it so much harder for this country to move forward politically and advance the interests of ordinary citizens.
Malaysia to abolish unpopular security law
KUALA LUMPUR, Malaysia (AP) — Malaysia will abolish an unpopular,
colonial-era security law allowing detention without trial and relax other
measures curbing the media and the right to free assembly, Prime Minister Najib
Razak announced Thursday.

The policy changes are the boldest by Najib since he took the helm in April
2009 and are seen as a move to bolster support for his ruling coalition ahead of
general elections, which are not due until 2013 but are widely expected next

Najib said the Internal Security Act, which allows indefinite detention
without trial, would be replaced with two new anti-terrorism laws that would
ensure that basic human rights of suspects are protected
. He pledged that no
individuals would be detained for their political ideologies.

Critics have long called for the security law to be repealed, saying that the
government has abused it to silence dissidents.

Najib said the government also would lift three emergency declarations and
amend police laws to allow freedom of assembly according to international norms.
He said a law requiring annual printing and publishing licenses would be
repealed, giving more freedom to media groups.

The move to have a more open democracy is "risky but we are doing it for our
he said in speech on national television.

The speech was to mark Friday's anniversary of the 1963 union of peninsula
Malaysia with Sabah and Sarawak states on Borneo, six years after the country's
independence from British rule.

"It is time for Malaysians to move forward with new hope," he said. "Let
there be no doubt that the Malaysia we are creating is a Malaysia which has a
functional and inclusive democracy."

Najib's National Front has been working to regain public support after
suffering its worst performance in 2008 polls, when opposition leader Anwar
Ibrahim's alliance wrested more than one-third of Parliament's seats amid public
allegations of government corruption and racial discrimination.

The National Front's popularity recently took a dip after authorities
arrested more than 1,600 demonstrators and used tear gas and water cannons
against at least 20,000 people who marched for electoral reforms in Kuala Lumpur
on July 9.

Thursday, September 15, 2011

Developers to Khaw : Review cooling measures...

Here's a picture of our new Minister of National Development Khaw sitting at a table next to one of Singapore's richest billionaire Kwek who was there together with other developers urging the govt to review its cooling measures in light of the unfolding economic turmoil.
If you're cynical enough, you might be tempted to interpret this as big business exerting pressure on govt to safeguard its own interest and profits at the expense of Singaporeans.  I would urge readers of this blog to refrain from jumping into this conclusion. Minister Khaw works for us and billionaire Kwek is after all an ethical businessman and philanthropist - there is no reason to believe he is not would put society and his fellow Singaporeans above the profit motive.  The developers were urging Khaw to consider reviewing the measures that 'artificially' suppress demand should the economy worsen and cause the property prices to fall. It is not just developers who should be worried but Singaporeans who have taken up huge loans to purchase their homes will be adversely affected by a fall in property price. The problem with a sharp rise in property prices is not just the un-affordability of homes on the way up but the negative impact of falling prices when the high prices can no longer be sustained. The dilemma for Minister Khaw now is whether he should allow prices to fall or whether he should roll back the cooling measures to give developers more time to unload their remaining holdings.

For me, in this whole property saga, the PAP govt missed out a good opportunity to show it is extraordinary  and to prove it offers a great difference compared ordinary govts in other countries. All the ingredients were there to give the PAP a chance to show a great distinction - the public housing experience, the rising income gap, lessons from the collapse of housing bubbles all over the world. The PAP could have done something innovative, something different and something that will prove once and for all it stands head and shoulders above the govts of other countries. But it didn't and fell into the same traps, stumbled into the same problems and had miserable outcomes that were the partial cause of its poor election results.

Going into 2008, we saw the bursting of the US housing bubble and the failure of the US bamking system caused by the fall in property prices. The bubble was there the result of Alan Greenspan cutting interest rates to get out of the post-911 recession. The housing bubble was not restricted to US but seen happening in Spain, Ireland and earlier we saw the effects on Japan - until today they have not recovered. We saw the lack of govt intervention in the housing market in US and parts of Europe resulted in a catastrophic consequences. Singapore has all the tools in place when we got out of this recession - a large public housing programme, experience from the 1996 property bubble and various social conditions e.g income gap, rising poverty to justify the provision of affordable homes. Yet the PAP became entrapped in an ideology that allowed home prices to rise far faster that workers' incomes and cause so much financial pain to ordinary Singaporeans looking for a home. Ex-minister Mah who defended govt policy to the end and had this awful last argument that if homes are sold cheaper than suggested by market prices, it is equivalent to robbing the reserves.

The effects of high home prices has far -reaching effects. A worker will find it hard to live on the same or lower wages if housing cost is high - we are an expensive workforce not because Singapore workers are greedy but because the cost of living is high and housing is a large part of it. It undermines the Singapore worker's ability to compete. High housing prices means lower disposable income which leads to a lower standard of living, and pressure on businesses that depend on domestic demand. High housing prices amplifies the wealth inequality among Singaporeans - the "have too much" who owns buildings ...right down to those who work full time jobs but struggle to own a home. Inequality in terms undermines meritocracy as it makes it steeper and harder for those who have to climb from the bottom....the high debt levels of poorer Singaporeans due to housing means the slope they have to climb is greased up so they can slip fall easily.

Minister Khaw works for us but he finds some time to listen to these billionaire developers asking him to review cooling measures as a new economic crisis erupts. But remember when the recession comes, Singapore workers' income will fall and they will cheaper more affordable housing when their incomes are depressed ....the mistake was already made by Khaw predecessor Mah who did not listen to the hundred thousand Singaporeans who had difficulties buying a home...billionaires were not too concerned  as housing prices rose and ordinary Singaporeans have to take up higher debt burdens to own homes.

Tuesday, September 13, 2011

How people can just fall into policy blackholes....

Quite incredible how this type of incidents can happen and bureaucracy cannot make exceptions. Its amazing people apply rules like robots and some of these rules are so obscure that people neither expect they exist or can possibly guess they are there. Yet, when they violate them unintentionally, the penalty can be hefty - in this case, it cost the woman a new flat in the SERS programme. She was happily and legally living in her flat until the govt implemented SERS for hlock triggering a chain of events that left her without a home and under compensated for her flat - she was paid $192K for her flat based on 2004 housing price and disallowed from buying the replacement flat under SERS. The whole idea of SERS was to knock off old flats so that better and taller flats can built in their place - it was supposed to be a win-win for residents who get to buy a new flat in the nearby location and HDB gets to reuse the land more efficiently. Really amazing how obscure rules can get in the way of the basic principle of SERS and cause people to lose their homes.

Last year I wrote about this incident of a fuming Singaporean who called up the radio station to explain his plight and how he ended up homeless. Remember how the rental flat system ran into problems because HDB failed to meet demands for these flats - the waiting time was more than 1.5 years at one point. To solve this problem, HDB announced a set of rules to kick people who shouldn't be in the queue out[Link].

".....prevent abuse of rental flats include a rule that bars those who have sold their HDB flats in the open market from applying for a rental flat from HDB for 30 months after the date of sale. Some sellers, said Mr Chan, make profits from the sale of the flats."  - Straits Times Report.

The caller needed a rental flat because he ran into financial difficulties and was forced to sell his flat. After paying his creditors he had nothing left. He  had a low monthly income of about $1000.and was the sole breadwinner Although he was poor and had no money, he was barred from applying for a rental flat for 30 months....when he becomes eligible to apply he may have to wait for another year so that is a total of 3 does he house his family in the meantime? He appealed several times and went to see his MP but can't get his problem solved. The basic idea of providing rental flats is to house those who are so poor they cannot afford to own a home - yet the HDB created a rule to knock out people whom the scheme is designed to help.

"...I regret making the decision because, in the end, the baby continued to be in intensive care, and KKH now runs up a total bill of more than $300,000..."- Lim Hng Kiang, regretting the decision to save a baby's life because KKH ran up a $300K.

One of the worse case such rules is the one created by Minister Lim Hng Kiang when he was the Minister of Health. This is one sickeing example and shows the extent the PAP govt can go to deny help to the people who needs it. When Lim Hng Kiang was health minister, he found out that parents of babies who needed to go into ICU would downgrade to a lower class to save cost. What happens is middle class families often sign up for class A or class B or private packages for delivery at hospitals. Most of the time the baby is alright and the hospital stay is a few days. However, in a few unfortunate cases the baby is born with complications - there was no Medisheld coverage for babies born with health problems during the time Lim Hng Kiang was health minister. When the baby was born with health complications and had to go to ICU, the parent would quickly downgrade to class "C".  The reason for doing this is very practical ICU stay can cost up $1000 per day and sometimes $3000 when some kind of procedure has to be performed on the baby. For prematured babies who have to stay in hospital several months it is not uncommon to run up bills of several hundred thousand or more. ICU is the same for class A, class B and class C - hospitals have only one ICU and distiguish between the classes only in the computation of bills. Because the PAP govot does not provide universal healthcare coverage and leave out babies with congenital health problems, downgrading is the only way for middle class parents to avoid the risk of financial ruin.

When Lim Hng Kiang became health minister he decided to stop parents from downgrading when their babies needed to go to ICU. If they came in to deliver the baby as a Class A patient, thei baby would have to go into ICU as a Class A patient. This is a horrible rule as couples signing up for a Class A delivery package that cost, say $3000, get stuck in Class A if their baby needed to go into ICU incurring bills of hundreds of thousands. Imagine the trauma of having a baby that has a serious health problem and needs care in ICU - instead of giving you a helping hand, the govt put in a rule to maximise your financial pain at a time when your family is having a crisis.

One day this rule kicked in when a couple in a private hospital (Mount Alvernia?) had a prematured baby that urgently needed surgery that can only be be done at KK hospital. With this in "mo downgrade" rule place, the couple were not able to transfer the baby as private patient to KKH unless they were able to pay a hefty deposit. The reason why the hospital administrators had to call up Minister Lim Hng Kiang in the middle of the night in order to transfer the baby from private hospital to public hospital  was the rule was implemented without any avenue for appeal....only Minister Lim could make the decision to allow a downgrade to lower class so that the parents didn't need to put up a financial deposit. Lim Hng Kiang not being his usual self that night decided to allow the exception and allow the child to live. He later said in parliament that he regretted his decision that allowed the child to get the operation in KKH because the final (unsubsidised) bill came to $300K. .he preferred to have the young couple shoulder this burden..but the basic idea of a "public hospital" is to provide affordable care. It is quite amazing that they created a rule that get in the way of the basic reason for having a public hospital then express regret for making an exception that allowed the hospital to do what it was suppose to do - saving lives.

There are very few things worse than falling into a policy blackhole in the PAP system. You can get into a really unexpected painful situation....and the PAP govt is not going to help you.

Saturday, September 10, 2011

Why using current birth rate to justify foreign influx is wrong....

If you watch the video I put up in the last posting, you will hear Mr. Lee explaining why we need so many foreign workers because our TFR (Total Fertility Rate) has fallen to 1.01 per couple. He said that Singaporeans needs 60,000 foreigners per year to keep our workforce young and if we have a TFR of 1.80 we can do with a much smaller influx of about 20,000. Then he turned to Joan Sim to ask her if she has a boyfriend and when she will complete her PhD as if people like her are to be blamed for the need for foreign workers. Over the years the explanation for why we need such a large influx has morph from Singaporeans refusing to do certain jobs, Singaporeans lack certain skill sets and now it is blamed on Singaporeans' low fertility rate.

Here is the chart of the fertility rate in Singapore:

In order to maintain a stable population with a constant profile you need a TFR of just over 2.
See, uing today's fertility rate to justify the need for foreign influx is wrong because the people entering our workforce are born about 23-25 years ago roughly in the 1985-88 period. During that period the fertility rate averaged 1.71 with a high of 1.96 achieved in 1988. We need roughly 60,000 babies a year for a stable population -  a shortfall of 0.1 in the TFR translates to about 3000. In the late 80s we have a TFR of about 1.7 so the shortfall is about 9000-12000 entering the workforce today.  However, the PAP was importing people at a massive rate:

“Between 2005 and 2009, Singapore’s population surged by roughly 150,000
people a year to 5 million—among the fastest rates ever there—with 75% or more
of the increase coming from foreigners,”
Wall Street Journal.

Today's TFR of 1.01 means we have a shortfall of 30,000 that means we need 30,000 babies today to balance up or 30,000 20-year olds in 2030. ...we do not need 30,000 20-yr olds now.

The real reason for the large influx, I believe,  is to expand the workforce rapidly so that we can show very fast GDP growth - more input more growth. It panders to business demand for cheaper labor and benefits GLCs that are service providers as the aggregate demand expands due to population expansion. This generally works against the ordinary workers and in particular lower wage workers. Singapore has a very high rental to wage ratio due to high concentration of people+business. High rentals forces businesses to seek cheaper labor to stay competitive and it is a vicious cycle. Our labor chief Lim Swee Say tells workers to be cheaper but never says that rentals should go down to make Singapore more competitive. By growing the economy through workforce expansion rather than productivity growth, we are seeing very poor outcomes for ordianry Singapores - high cost of housing, overcrowded public transport, and stagnant wages. These are also the causes of low fertility among Singaporeans. The worse part is the govt turns around and blame all this problems on Singaporeans' themselves for having low fertility.

It is not Joan Sim'x fault that we need to import so many foreigners. It is not the fault of ordinary Singaporeans whom the PAP govt likes to blame. The truth is PAP's unbalanced policies, poor planning and pro-business attitude have put the interests of ordinary Singaporeans right at the bottom in its decision making....that is why so many Singaporeans are angry with the PAP.

Friday, September 09, 2011

Ex-MM Lee to PhD student : Do you have a boyfriend?

 Mr. Lee  spoke about declining birth rate, the ageing population and why we 60,000 foreigners a year to keep the economy young. I'll discuss the population demographics and low fertility rate later in the posting.

PHD student Joan Sim's drama found 5:07 minutes into this video:

Mr. Lee's very personal somewhat humorous questions must have left  Joan Sim rather stunned. However, there are a few points in Mr. Lee's reply to Joan Sim that has to be examined carefully.

Mr. Lee said that poor demographics due to an ageing population is the cause of Japan's economic stagnancy. This is not true. Japanese economic stagnancy came after its bubble economy burst and left the entire banking system ladened with bad debts and zombie banks. While Japan's ageing population does contribute to a longer term gradual decline its economy, the 'lost decade' in the 1990s had little to do with its ageing population. Today, the US has good demographics but people are worried it will become another Japan following the collapse of its housing bubble and the high level of debt in American households[Link]. One of the many early suggestions to get America out of its economic slump was to simply open the flood gates to millions of immigrants from Mexico and Asia to shore up the housing sector to give the economy a boost...but it was considered by many to be highly irresponsible and against the interest of Americans[Link]. Can you imagine what will happen to Japanese soceity if they open the floodgates to immigrants to solve a economic problem caused by the fall of its bubble economy? They can get their GDP to tick up, just like what the PAP did in Singapore by forcing input into the economy, but the long term impact on Japanese culture and tradition..and medium term negative impact of sinking the lower income and temporary workers further down the poverty trap makes the cure worse than the disease.

I visited a professor in NUS a few weeks ago and he told me that he has 8 PhD students and none of them are Singaporeans. Joan Sim is a very small minority among female Singaporean students doing PhD so asking her to find a boyfriend and get married is not going to solve our birthrate problem. Anyway how did Singapore attain such a low birthrate - lowest in the world if you leave out Hong Kong and Macau? There has to be something artificial and different about Singapore to achieve this. Shortly after the PAP got into power, they implemented population control policies asking couples, in particular poorer couples, to have fewer children and they discouraged women from marrying early. Due to PAP's population control policies,  Singapore, at some point, had the highest per capita abortion rate in the world. Women were encouraged to join the workforce instead of staying at home to have more babies- remember this simple PAP trick more input more GDP growth. At some point, the PAP realised its population control policies had to be reversed...but instead of fixing it, they wanted only graduate mothers to have more children not everyone to have more children. This selective eugenics based policies are doomed to failure because they provided no incentives and help for average and below average income families to have more children.  The miserable end game of having our economic future dependent on foreign influx is the outcome of a chain of bad PAP polices.

Thursday, September 08, 2011

Gambling Addiction on the rise in Singapore....

".....about seven in 10 of them say the casinos at the integrated resorts are the main reason for their money woes. "  - See article below.
The PAP govt had many options to keep the economy healthy but it decided to take a short cut by building 2 casinos which it chose to call Integrated Resorts to obscure the harm caused by gambling. The govt collects large tax revenues from these entities and passes the big problems an under-funded agency known as the NCPG ( - the amount of funding for the NCPG is not even enough for the finger food and free drinks they give out at the casinos. The other organisations that chip in are churches and volunteer groups. Who benefits the most from these casinos? The shareholders of  Las Vegas Sands and Resorts World who now make several billions a year in profits from these casinos. The Singapore govt held out this bogus argument that the casinos will create jobs for Singaporeans - what kind of jobs? ....If you visit the IRs many of the workers are foreigners. The Singapore economy does not face a job shortage otherwise why do we need to import so many foreigners to fill jobs. What we need are higher paying good quality jobs that casinos do not create.The casinos are a big mistake by the PAP govt as they bring far more harm than good to our society.
More gamblers in Singapore seeking help for addiction 
MCYS acknowledges increase and will keep reaching out to them

Published on Sep 8, 2011
The Straits Times

The number of gamblers seeking help for their addiction has risen over the past year. And according to the counselling centres, about seven in 10 of them say the casinos at the integrated resorts are the main reason for their money woes.

A check with six of the bigger voluntary welfare organisations offering counselling to gamblers showed they have been seeing more people since Resorts World Sentosa opened in February last year, and Marina Bay Sands in April last year.

For example, a year ago, volunteer organisation One Hope Centre used to see 40 to 50 people at its weekly support sessions for gamblers. Today, it sees between 70 and 80 a week.

The Hiding Place halfway house in Jalan Kayu used to see 10 people at its weekly sessions. This has risen to 30. We Care Community Services in Kampong Bugis used to have one 15-member support group for family members of gamblers three years ago. Today, it has three groups totalling 45 people. The surge took place after the casinos opened.

WikiLeaks : Structural Inefficiencies due to GLCs.

Structural Inefficiencies caused by GLCs[Link]5. (C) Entrepreneurs continue to face obstacles in a number
of sectors in the form of Government-Linked Corporations
(GLCs), which account for nearly 60 percent of the national
Temasek Holdings, the government's investment
arm, is by far the largest investor in Singapore, with an estimated
50-percent stake in Singapore's GLCs.  GLCs often compete
against each other in key markets, making entry by an
independently-held company difficult.  For example, SingTel
and Starhub, both Temasek Holdings companies, compete
directly in the wireless service market and will soon do the
same in the cable television market. 
The strong GOS role in
directing the economy likely has the unintended result of
"crowding out" natural economic development, according Dr.
Sha Reilly, Chief Knowledge Officer at the National Library
Board (NLB), which has a mandate to encourage creativity and
entrepreneurship among young Singaporeans.  She believes Singaporeans look first to the government, rather than the private sector, to be the innovation leader. 

Again there is nothing new here but I just want to add that the elite-power structure has become intertwined with the GLCs which creates an extremely unbalanced system. If you traced the careers of top ranking officers in the SAF or civil service, very often they move to GLCs and a large number of MPs/ministers come from GLCs. Not only do GLCs have the effect of crowding out SMEs and stifling their development, the close relationship between the govt and GLCs has resulted in very unlalanced policies that serve to benefit these companies over the interests of ordinary Singaporeans. For example, even as corporate profits in GLCs reached record highs as a % of GDP, the PAP govt increased the GST from 3% to 5% ...then later to 7% so that they can cut corporate taxes for these companies shifting the tax burden regressively to ordinary Singaporeans at a time when the income gap and inequality is expanding. The PAP govt pandered to the demands of these businesses for cheap foreign labor reaulting in the highest per capita influx of foreigners among developed countries. All this done at the expense of Singaporeans many of whom saw their wages stagnant or falling while the cost of living rose. SMEs find it hard to compete with GLCs as GLCs have better sources of funding, contacts and are in a favored position when it comes to govt contracts. The long term outcome is a darth of homegrown businesses relative to places like Taiwan, S. Korea and Hong Kong.
The close association between business and the ruling elite has also led to unfavorable labor laws which over they years make it easy for businesses to 'hire and fire' with little or no compensation in the name of efficiency - very often such laws allow  poor planning and lack of long term strategy that see businesses as workers can be treated as expendable resources. All this tuck under what is knows a tripartism a euphemism for compromising away the rights and status of workers. A union leader that tells workers to become cheaper, better and faster says it all. How does one's life become better if it is cheapened by PAP policies? It does not and an increasing segment of the populace works harder than ever yet cannot to make ends meet - the PAP govt keeps their head above water by giving out a supplement known as workfare - something known as slavery in some circles as it is only necessary when workers cannot enough when they are working and the govt supplements their income so that have just enough for necessities but nothing to put aside ...they will have to work forever as they don't make enough to retire. Today, 311000 Singaporean workers are on workfare[Link]....the consequence and tragedy of PAP's unbalanced policies is the emergence and rise of poverty in Singapore at a time when this country has more wealth than ever...more concentrated in the hands of the few.

Wednesday, September 07, 2011

Taxes, Income Inequality and the fallacy of trickle down economics...

Someone brought my attention to this interesting video in the comments section.

The only other developed country with comparable income inequality as Singapore is the USA.  They have numerous social programmes to mitigate the effects of the income gap such as Medicaid for sick, unemployment benefits for the jobless, social security for the aged etc. Unfortunately, over the years the tax rate was cut as the income gap grew and the US govt borrowed heavily to spend on defense and these entitlement programmes. The American society became a divided one with the top 1% controlling 25% of the wealth and the top 25% controlling 84% of the wealth. The rich assert their political control and influence through donations to right wing politicians who promote tax cuts, cuts in social spending and increase in defense spending to appease the military industrial complex. Under George Bush, a series of tax cuts was implemented for the rich and that caused a cut in govt The one redeeming aspect of the American system is that it is a democracy and they elect people from the other side to get some balance in place. Unfortunately, the division in American society has run so deep extremist groups such as the Tea Party has emerged who sole interest is small govt and low taxes...and they did not hesitate to take the country to the brink to get what they want during the debt ceiling negotiations.

Singapore like America has also become a divided nation. During the PE, one common theme that the candidates adopted was they aspired to be a "uniter" if elected to office. The political divide is ultimately linked to the economic divisions that has deepened in our society. It does not help that we have a govt that subscribes to an ideology that generate policies that will drive this society further apart/ President Tony Tan says he is independent and will heal the rift in our society by reaching out to everyone. Does anyone know what "reaching out" means? If he does not have influence to change divisive policies how is he going to play the role of "uniter"?

Tuesday, September 06, 2011

Wikileaks : PAP recruits from lower tiers...

Charles Chong on poor quality of PAP candidates and inablity to
Link] 7.
(C) PAP MP Chong admitted that the party had not succeeded
in recruiting a number of "high-flying" business leaders to
run.  In fact, the party had to reach down to some of its
second and third tier candidates
to fill out its ticket.
Those new candidates will all run in the Group Representative
Constituencies (GRCs) helmed by higher profile
ministers -
- for example, four of them will run in Senior Minister Goh
Chok Tong's uncontested district.  Overall, the opposition
will compete in only 7 of the 14 GRCs.

This is an admission by a PAP MP of the difficulty of recruiting good people to fill MP positions. The PAP has to pick "second and third tier" candidates and bring them into parliament using the GRC system so they can ride on the coat-tails of a higher profile minister.

There is nothing new here and most discerning voters are able to judge the quality of the candidates. The frustration of voters being "forced to vote" for candidates they did not want in parliament using the GRC system is causing this scheme to backfire as voters start to vote against the whole team if there are candidates they really do not want in the team.

In the past few elections, a growing number of ministers are recruited from the SAF and civil service - typically from highest echelons. It is hard for career officers who benefited greatly from the PAP system to say no when asked to join the PAP even though they probably prefer to be parachuted into jobs in GLCs such as Singapore Technologies, SingTel etc where they can escape public scrutiny and criticism. In the long run this is a unhealthy trend for Singapore - it undermines the ability of the govt to transform and changeas they recruit senior people from their monolithic power structure into govt.

In order to overcome its recruitment problems, the PAP govt used financial incentives - high ministerial salaries, pensions, high MP allowance etc. Given the private sector is seeing the same "over-compensation" problems as we see in US - the US is the only developed country with a comparable income gap - the astronomical ministerial pay cannot attract \talent from the private sector into govt and the PAP has to get ministers from its network of GLCs, SAF and civil service. As a result there is a lack of diversity of ideas and a tendency for inertia to preserve the status quo. Singaporeans wanting diversity of ideas and debate in parliament have little choice but to vote for a capable opposition willing to push for change and question the status quo.

In recent years, the PAP has lost its attraction for people who truly want to serve the community. Its right leaning ideology limits MPs that want to do more for those in need to the current policy framework. A PAP MP can't ask the PAP to shave off 1-2% of the defense budget so that there is more financial aid for the poor and the underprivileged children can have better a pre-school education. They can't fundamentally change  policies related to housing, retirement and medical care - all of which ideologically puts as much burden on the individual and their families as possible to keep taxes for the rich and corporations low....something painful and far less acceptable today because the PAP has allowed to income gap to grow to such an extent that a large segment of the population is unable to shoulder these financial burdens anymore and have fallen into poverty. For this reason, the opposition is again on the rise and anyone seeking to advance our society will seek out ideological alternatives that has greater potential to solve the social problems Singapore faces today.

Monday, September 05, 2011

Wikileaks : Govt does not want more Singaporeans to have university education...

In the next few postings, I'll go through the wiki-leaks revelations and explain each one in greater detail.

Govt does not want more Singaporeans to have degrees[Link]
¶9. (C) Singapore boasts a highly competitive and
well-regarded primary and secondary education system, but the
number of Singaporeans completing a tertiary education is
relatively low. Only 23 percent of Singaporean students
entering primary school complete a degree at a local
four-year university. In other knowledge-economies such as
Japan's, around 50 percent of students complete a university
degree. However, according to Cheryl Chan, Assistant
Director of the Planning Division at the Ministry of
Education (MOE), the government does not plan to encourage
more students to get a higher education. The university
enrollment rate will continue to be maintained at 20-25
percent because the Singaporean labor market does not need
everyone to get a four-year degree, she asserted.

This is an important revelation because the PAP govt has promised openly to develop every Singaporean to his full potential. If what Cheryl Chan said is true that there is some kind of quoto to be maintained, this promise is bogus. This promise was again repeated in the PAP's 2011 election campaign manifesto:

We know that hundreds(( if not thousands?) of Singaporeans have to go overseas for further education because they cannot get a place in our universities. Yet the PAP govt educates the children of foreigners for free by giving out scholarships. Singaporean children from lower income families miss out on a university education because they are too poor to go overseas when local universities reject them in favor of foreigners who are granted scholarships. This makes the PAP promise to go all out to develop Singaporeans to the fullest bogus and if anything, there are fewer opportunities here than in elsewhere because of the tight quotas imposed on the number of Singaporeans getting university degrees.