MAS’ ‘excess’ reserves should not be used for risky investments, better to reduce government debt

Phillip Ang

* The author blogs at LikeDatOsoCanMeh.

 

 

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10 Responses to “MAS’ ‘excess’ reserves should not be used for risky investments, better to reduce government debt”

  • oxygen:

    @ Phillip Ang, VERY INTERESTING OBSERVATIONS on LTA from an economic/finance perspective.

    LTA raised two bonds this year totaling $2.9 billion. It seems strange given our supposedly strong reserves.

    I have compelling apprehension it has something to do with our failing Population Recycling Economic modeling. With an fast expanding and ever escalating population, public transport spending has to go up in tandem and this has to be funded either

    - out of capital (reserve) or
    - borrowings (via bond issue)

    It is a decision choice of return on equity vs the costs of debt funding. If the cost of bond is 1.5% and the opportunity costs of return of equity is 2.5% or lower (if LTA capital spending is funded out of reserves), it makes sense to rely on debt. If still gain by 1% on the $2.9 billion invested elsewhere. If the return on LTA infrastructure spending is less than 1.5% might be justified even though LTA is unlikely to be a tax entity with allowable deduction of financing costs.

    If the return on investment is so low below the costs of borrowings via bond issue, it means the population recycling economic yield very little economic gain for the economy. Better transfer that risks and burden of this low-yielding “unproductive” investment to bond investors.

    SO WHY CONTINUE WITH THIS FAILED AND FAILING POPULATION RECYCLING ECONOMICS MODEL?

    Transport infrastructure is a necessity, with long lead time to profits, sometime illusive, and payback is doubtful. Which is why debt financing is really the last residual option except in ONE CIRCUMSTANCE.

    What is it?

    IT IS BACKDOOR FISCAL STIMULUS TO LIFT UP GDP numbers. Spending on MRT infrastructure adds to GDP growth statistics EVEN IF FUNDED BY DEBT.

    THAT IS WHY THE US GDP GROWTH NUMBER POST-GFC IS FAKE ECONOMY. in 2018, the US Dept of statistic reported correctly that its GDP grew by 5% BUT OMITTED TO TELL AMERICANS THAT NATIONAL DEBT GREW BY 6% in the same year.

    THAT IS REAL GDP WOULD BE NEGATIVE without that borrowed funding spend on govt services like infrastructural maintainance.

    Read this writing of J. Gundlach.

    U.S. growth would have contracted without trillions in government, consumer debt: Gundlach

    https://www.reuters.com/article/us-funds-doubleline-gundlach/u-s-growth-would-have-contracted-without-trillions-in-government-consumer-debt-gundlach-idUSKCN1SK2KW

    IT IS THE DUMB ECONOMICS OF BORROWING SOMEONE’S MONEY TO SPEND TO FEEL AND BOAST ONE IS VERY RICH!!

    So my question is – IS PAPpypolitics/PAPpynomics doing the same thing – BORROWING SOMEONE’S AN*S TO BALANCE UP PIMPLES ON THE FACE of false economic growth TO PRETEND ITS POPULATION RECYCLING ECONOMICS IS WORKING WHEN IT IS NOT??

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  • TruBlu:

    Good caution.
    G should not be a *speculator* by throwing MAS money( nation’s wealth) to GIC to * gamble* in RISKY ASSETS like failing giant banks.

    The G always preaches PRUDENCE N AYSTERITY when asked to grant more SOCIAL ASSISTANCE to our NEEDY N POOR but RECKLESSLY SQUANDER AWAY OUR NATIONAL RESERVES like playing masak-masak.

    Time to be transparent.
    Throwing $45 billions at GIC is no small change.Sgs need to know where the money goes to.

    G must be more RESPONSIBLE N NOT FLIMSILY USE OUR MONEY TO PLUG THE HOLES THEIR LAPDOGS DIG IN FOREIGN FORAY$.

    WITHOUT REAL TRANSPARECY, IRRESPONSIBLE CONDUCT WILL TEND TO OCCUR.

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  • Singapore Fooled Again N Again:

    Maybe they already factored in the upcoming 2% extra GST which will bring in mega bacon $b into the coffer so borrow and spend first, the citizens will pay for it sooner or later?

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  • Harder Truths:

    ‘Excess Reserves’ – this term has no meaning. Just something cooked up by pappies to make it appear there is something in the bare cupboard.

    There are no Reserves – period. If there was why tax us more and more each year?

    The undisclosed loans used to pay off the failed investments by GIC/TH are being repaid by our taxes and all the other made-up charges and surcharges.

    Worse – it could be that we are just paying off the interest on the loans. No one knows what the actual losses really are.

    it is very possible all $G assets have been put up as collateral in case of debt default – just like Greece and Cyprus.

    All the system needs is for an investor run on invested capital in $G securities and we are kaput. People who vote pappies think this can never happen. History teaches us otherwise.

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  • patriot of TUMASIK:

    Selling “BONDS” is raising cash for a FIXED period tied up with interest less than what they can earn???

    AND…when unable to pay??? declare INSOLVENCY and go Belly up no need to pay leh!!!

    The IDIOTIC sheeple will lan2 pay & pay lah!!! PAP is good never fail leh!!!

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  • Very Powerful:

    Now you understand why she is one of the most powerful lady.

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  • brigadier:

    Haha,notice not a few members have left TRE.
    Where are these keyboard warrior?
    Old uncles like LIONS suddenly disappeared from the scene.

    Must be tired out.
    Come and wrestle till drop dead.

    Hahaha.

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  • PAP sure win:

    Told you,PAP sure win.
    All the smart singaporeans vote for PAP.
    Stupid warriors will just be losers.

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  • True facts:

    They play too big currently v serious to cover the big hole.

    That’s why unable to pay back cpf at 55 yrs old and local old dies need to work until 100 yrs old even no employers willing to employ old folks.

    They still need to get fts to get the vevies to cover the hole.

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  • True facts:

    If really so good with reserves why should they get Indian as malay president to sit there.

    Common sense.

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