atans1

Big breasts like triple A status and budget surpluses have a downside

In Financial competency on 25/05/2016 at 1:53 pm

(I’ve juz binned the piece I did this morning and rewritten it.)

When a PAPpy boasts about S’pore’s Triple A rating, e-mail to that PAPpy or post a comment asking: “What benefits do the issuer get for a triple A rating versus a double A and what benefits do they give up?”. A bond strategist at BlackRock quoted by the FT asked this question in the another context. He was talking about corporations issuing bonds, but the reasoning applies to countries too.

Triple A status is a virility symbol like extra-big breasts or muscles. Btw, a UK celebrity (She was the partner of Dwight Yorke — Remember him?) with extra-large breasts had to undergo surgery to make them smaller. She was suffering from backache from her frontal heavy load.

Here’s two FB posts from Chris K who was a capital markets man, and self-confessed geek on the impacts of macroeconomic policies on capital markets that explain why triple A status and budget surpluses are not good for S’poreans. (Emphasis mine)

Minister in the Prime Minister’s Office Chan Chun Sing also said at the rally that Dr Chee wanted to give the impression that “we are cheating Singaporeans”. But the market was not stupid, he said.

“Why is Singapore one of 11 countries in world that has triple-A ratings from all three credit rating agencies?” he pointed out.

I’ll answer it for Chan Chun Sing even if he avoided the essential truths of the triple-A rating. That rating is mainly based on

1. The constitution rule that forbids the government from running deficits over the parliamentary term.

2. The massive year-on-year budget surpluses ran by the government, amounting to an average of nearly 10% of GDP per year over the past 15 years alone.

Those budget surpluses that underpins the government finances do not appear out of the blue and they certainly do not result from some magical fiscal policy formula. Those surpluses results from selling land at ever increasing prices, excess returns from investing debt proceeds which includes CPF and low social expenditures.

In other words, those triple-A ratings are paid for by the people and by denying them financial security in retirement and healthcare.

And just to be clear, Norway and Singapore are the only ones among the 11 triple-A rated countries that have long term budget surpluses. That means countries do not need to have budget surpluses to be rated triple-A, sustainable deficits will be enough. Norway’s long term surpluses are from natural endowments, Singapore’s…… let’s put it this way, a transfer of wealth from households to the state.

And

Despite being backed by the nearly 10% of GDP a year long term budget surpluses, the triple A ratings have little direct to benefit to households. The surpluses are not without consequences to households since they are derived from land sales at increasing prices and denial of social benefits both leading to inadequate retirement and healthcare funding, and to an acceptance of high levels of inequality.

Do read the full post

https://www.facebook.com/notes/chris-kuan/tax-benefits-and-singapores-barely-useful-triple-a-rating/481998245323602

To conclude,  triple A status and budget surpluses, like big breasts can be a problem.

Advertisements
  1. But LHL don’t see AAA or superD-cups as problems perhaps it’s because what his uncle is trying to hide through the Panamanian law firm is?

  2. […] Thoughts of a Cynical Investor: Big breasts like triple A status and budget surpluses have a downside – Mostly Economics: How Capitalism created modern motherhood.. – Mothership.sg: GIC’s […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: