Speaking at the Network ASEAN forum on Friday morning, Singapore’s Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said there was never a realistic prospect of a smooth and easy exit from quantitative easing (QE).
But the QE tapering will not be bad for the ASEAN economies as it is not in anyone’s interest for very low global interest rates to continue indefinitely.
It also signals an economic recovery in the US — a major market for ASEAN. [Channel News Asia last week].
Investors who have suffered from the flight from regional markets and currencies should look on the bright side. What he said is one gd point to remain calm.
Another reason why tapering is gd: The Federal Reserve is forcing Asia to kick its addiction to hot money. The prospect of higher U.S. interest rates had made the region’s dwindling trade surpluses look an increasingly dangerous habit. Though markets may be turbulent, pricier local money or cheaper currencies will improve the trade balance for most Asian countries. http://blogs.reuters.com/breakingviews/2013/08/22/fed-liquidity-curbs-will-act-as-asias-detox-plan/
But QE tapering is gd news only if investors are not leveraged to their eyeballs and counting, bringing me to the issue of Lawrence Wong (a board director at the central bank, where Tharman is the chairman) talked cock on “over-leveraged” borrowers.
Most heavy borrowers in Singapore have above average income levels, which means they are less likely to default on their loans.
Acting Culture, Community and Youth Minister Lawrence Wong said this [on 11 August] in response to questions in Parliament on household debts from Nominated MP Laurence Lien and Non-Constituency MP Yee Jenn Jong.
He went on to say: On borrowers who are “over-leveraged”, or those with debt service burdens exceeding 60 per cent of their income, Mr Wong said most of them have incomes higher than the median household income of S$6,000.
He added that nearly 90 per cent of these borrowers are servicing private property loans, and more than 80 per cent are servicing only one loan.
The reasons to be concerned about these people is not that they earn a lot and can service a loan while leading the gd life, or that they only got one loan. The issues are:
– What happens if they lose their high playing jobs. Will they find another high paying job before the bank manager starts calling? And if they can’t?
– Do they have the cash to cope with a rise in interest rates, whether they have a job that pays them a high a lot or not?
That they have incomes higher than the median household income of S$6,000 is irrelevant, or only one loan is irrelevant to the issue of whether the level of over-leverage poses a danger to the system. Going by the numbers available, over-leverae borrowers do not seem to pose a danger to the system. But the minister’s explanation does worry me: it could indicate the complacency of the central bank and the govt. Hopefully, I’m wrong about their complacency.