EU Crisis Unabated

Talk about diminishing returns. The Greek bailout managed to calm markets for a few days. Now, even before the ink is dry on the Irish bailout, the markets are again sending credit default swap rates for various EU sovereign debts sky high. While I had expected the crisis remain unresolved, I didn't expect the market to shift its focus so quickly onto the other EU debt-ridden countries.

Result: Closed a small speculative gold position out too early.

Merkel Pledges Permanent EU Bailout Fund

The BBC has reported that German Chancellor Angela Merkel has vowed to implement a permanent bailout mechanism for the EU. As I have written earlier, the debt crisis will continue, and that's why the EU politicians deem that there is a need for a permanent bailout fund.

There was speculation earlier in the day as to the course that the Germans would take given that the continued bailouts have started to affect the country's credit ratings, as reflecting in the credit default swap market.

It seems to me that while the German people are unhappy with having to pay for the mistakes of other EU nations' banks (I believe that such bailouts benefit banks and shift the burden to taxpayers), their ruling elite has decided that the half-a-century political effort to build a united Europe and to prevent another war is worth the financial sacrifice. To make matters worse, several EU countries have started to take money from pension funds to support their fiscal shortfalls.

Given the protests that have taken place all over Europe, one has to wonder how much longer the political elite of the EU can continue to ignore the views of the people and pretend to be democratic.

In response to the Irish bailout, financial markets have sold off the Euro against the USD, and stock markets in Europe have ended Monday largely down.

Looking at the USD/SGD price chart, it would appear that the USD has reversed its downward course against our local currency. We could perhaps see the 1.40 level again if a big financial event occurs in the near future.

Debt Crisis Will Continue

Even as EU ministers rush to cobble together a bailout package for Ireland before Asian markets start trading tomorrow morning, one has to really wonder about the effectiveness of bailing out banks as a means of solving the ongoing debt crisis in the developed nations. Such bailouts merely shift the debt onto the taxpayers of the problem countries, who are themselves hard-pressed to solve their own financial troubles. Furthermore, the EU's bailout fund basically involve financial contributions from EU nations that are all in financial dire straits. Again, this does not make sense to me.

There are only 2 ways to solve problem of too much debt: Either default or monetise it. A default will likely mean a breaking up of the Euro grouping, and so politicians may be tempted to follow in the footsteps of Bernanke's 'QE2'. Who knows?

I just wonder how long more such schemes can last before the current financial system crashes once again, possibly with a ferocity that greatly surpasses that of 2008.

Cutting Our Defence Budget?

The papers today carried a letter from Ms Hazel Pua of the Reform Party written in reply to MND Minister Mah Bow Tan's op-ed piece some days back defending the affordability of HDB flat. Various very good points were made in the letter to argue that HDB flats are now less affordable, with Minister Mah's assumptions taken part rather cleverly.

That said, I would disagree with part of the following:

The Reform Party is happy to offer some other options for consideration: Cutting the defence budget; reducing the payments made by HDB to the Singapore Land Authority for the purchase of land to build HDB flats; and cutting ministerial salaries.

To my mind, the above statement appears to suggest that our current level of defence spending is unnecessary. But in the absence of a war to test out the adequacy of our military, such a claim is untestable. To draw an analogy from IT, it is like trying to argue whether one's off-site backup system is cost-effective when there had been no data disasters before to quantify the range of possible losses.

I think cutting the defence budget is a terrible idea. As I have maintained throughout my writings on this blog, the world is moving into a period of greater geopolitical risks, driven largely by resource scarcity. Given our dependence on foreign resources for our most basic needs, it is paramount that we have a strong military as a kind of leverage against any hostile foreign intentions. Furthermore, such military force will likely be required to keep our sea lanes open in the face of terrorist threats. Ms Pua and the Reform Party have made the rather common error of thinking that if Singapore is friendly towards other countries, they will reciprocate. I would suggest that they read some of the local language newspapers of our neighbours if they have not seen the vitriol poured out against Singapore on a fairly regular basis.

The Reform Party's letter again shows, in my view, that the coming elections will only be about domestic issues. The bigger storm clouds coming over the horizon are being ignored by all political parties.

North Korea Attacks South Korea and Irish Troubles

South Korea's Yeonpyeong Island, near the disputed maritime border with the North, was shelled by the latter today, killing 2 South Korean marines and injuring several others. The attack has been criticised by the United States, Europe and Russia, while Japan is demanding action from both the US and the United Nations. I think China's reactions should be interesting.

Apart from this, the Irish bailout by the EU and IMF appears to be in trouble. This just in from Dow Jones Newswires:

German Chancellor Angela Merkel Tuesday underlined the grave situation facing the single currency in the wake of the financial woes facing Ireland.

"We're in an extraordinarily serious situation, as far as the situation of the euro is concerned," Merkel said during a speech at the German employers association annual conference.

She labelled the Irish crisis "very worrying" but different from that faced by Greece in spring this year.

Thus, financial markets around the world have been rattled by these 2 events today. Interesting times in the markets.

Possible Food Crisis in 2011 - UN

The UN's Food and Agriculture Organisation's latest Food Outlook has reported that there could be a global food crisis next year, and asked that the world be prepared for greater price volatility.

According to the report:

• World cereal production will contract by 2% instead of the 1.2% expansion in an earlier forecast.
• Inventory in world cereal is expected to drop by 7%. Barley will decline by 35%, corn by 12% and wheat by 10%
• Only rice stockpiles are expected to increase, by about 6%.
• Prices of some food types may rise up to 2008 levels.

If the FAO report is accurate, it will mean food riots next year as had happened in 2008. I think for the problem to be fixed at least partially, we have to stop the idiocy of biofuels, especially palm and corn-based fuels. It's ridiculous to devote so much land and resources to produce motor fuel when people run the risk of starvation.

For us here in Singapore, it is perhaps time again to look into preparing for this possible crisis by means of food storage and some limited forms of urban agriculture. Preparing early could mean saving some money if food inflation should become a serious issue. In China, it already is. So we need to be watchful.

Preparing For A Less-Friendly World

At the recent G20 Summit in Korea, PM Lee Hsien Loong rightly called for the G20 group of nations to work together towards policy measures that will sustain global economic growth. Unfortunately, as the aftermath of the meeting showed, his urgings fell on deaf ears as the Americans went ahead with QE2 despite opposition from China, Brazil and others. It looked to me like 'every nation for itself' and the possible outcome would be some kind of 'Nash equilibrium' when it comes to the trade and currency war situations.

As I have written before, I believe that we are moving into an era of reverse globalisation where there will be more friction of various kinds between countries. Here in Singapore, based on public information, it would appear to me that the government's economic assumptions are still predicated upon the continuation of the old free-trade system that has started to unravel since the 2008 financial crisis, with only a change in leadership from the developed world to Asia. What I would hope to see from our government is first an acknowledgement that we could be going into a rough period in the international scene, followed by concrete policy measures to prepare for such a possibility.

Realistically, I don't expect any change in our national economic thinking any time soon. Neither the government nor the opposition parties appear to have considered the risks of the era of reverse globalisation, at least not publicly.

COE prices: Irrational exuberance?

COE prices have reportedly reached 10-year highs in all categories, at a time when economic growth is expected to slow down globally and in Singapore as well. The proximate cause of the price increases is the expected reduction next year in vehicle quotas by the LTA.

One the demand side of the equation, I wonder whether some Singaporeans continue to be overly optimistic about the country's economic prospects next year and beyond. It also looks as if no one is paying attention to peak oil and the risk of another economic crisis.

Foreign funding of local politics

A member of a local group that had recently been classified as a political organisation under the Political Donations Act (PDA). wrote a piece in an anti-government website criticising the policy of restricting funding of political bodies in Singapore to local fund sources as a self-serving rule of the PAP government. He cited our openness to foreign influences in many other aspects as a kind of counter-argument.

I would say that his piece is also highly self-serving, given that his organisation's foreign funding sources have been cut off by the ruling under the PDA. No country in its right mind would want to allow foreign funding of political organisations. Even a superpower like the US, where vast amounts of money change hands in political donations, bar foreigners from donating to American political bodies. Given the size of the US, it is obvious that foreigners trying to influence US politics would have a lot less leverage. For example, donating US$20 million to a political party there would be a drop in the bucket. In contrast, that amount of money would have a huge impact on any political organisation here, even for the PAP.

To my mind, we have enough foreign influences as things now stand. Maintaining the restrictions on foreign funding of local political bodies is one of the last bastions of 'local sovereignty', even if it is merely symbolic. I don't want to see my pink IC's meaning being eroded further.

UK University Subsidy Cuts

I had a foretaste of the recent protests this week when I was a graduate student in the UK more than 10 years ago, when the British government wanted to enact a small increase in the fees to be paid by local students. The usual 'this will hurt the poor' chorus was sung out very loudly. At my school, the irony of course was that most of the local students were from well-to-do families, and were expected to join the country's elite given the pedigree of the qualifications that they were in the process of acquiring.

I'd say that I was in full support of the fee increases back then, and even more so now, given the dire state of the UK's fiscal health. Like it or not, British higher education is a waste of taxpayers' money. I would say that more than half of the universities are not more than what in Singapore we would consider as polytechnics, producing graduates that lack the level of skills and knowledge that would accrue from a proper university education.

As an illustrative example, I met one of my house-mate's university buddy. He got a 2nd lower honours degree from a university that was near the lower half of the 2nd tier of universities in the UK. He only managed to get a local council job that paid GBP 9000 per year at the time (That's like, after tax, making S$1 k a month as a graduate). My house-mate, a British PhD candidate in biochemistry, told me that in most cases, if one fails to get a 2nd upper honours degree, it was as good as not having a degree when it comes to assessing one's prospects in the job market. That to me was the key to the issue of quality - if employers are not willing to hire people below 2nd upper honours, it means that the pieces of paper held by most graduates didn't count for much.

UK under the Labour government has pursued extremely socialistic policies, and now the taxpayers are asked to pay for that overwhelming burden. Cutting university spending is a move in the right direction. The higher-education bubble should be popped sooner than later.

Minimum Wage and Competitiveness

In the recent debates about the possibility of a minimum wage in Singapore, both the government and the Singapore National Employers Federation came out against the idea with the textbook objection that higher wages will lead to jobs being moved overseas to cheaper locations. The argument implies that in an era of free-trade and globalisation, a minimum wage policy will lead to high wages and thus job losses.

In this context, I would like to share quotations from a blog post by Charles Hugh Smith entitled Why America Is Slouching Toward Third World Status:

Free trade fanatics would do well to study Germany and South Korea, two blatantly mercantilist export giants. German wages are among the highest in the world, yet their industry has not been boxed up and shipped to China; why?

Germany made a series of political and cultural trade-offs. Please examine their apprenticeship programs, the manner in which their unions accepted cuts in pay, benefits and working hours in order to sustain their own jobs, and that nation's political balancing of issues around jobs, trade, currency and security. Please educate yourself about the trade-offs made by South Korea.

To believe that an open market would solve everything is akin to believing in a Marxist paradise: all trade is deeply, fundamentally political. Free trade, like Marxism, promises an emotionally appealing perfection but in the real world, it is a tangled series of trade-offs that are guided by those Elites with the most to gain from one "trade" or another.

While Germany does not have a national minimum wage, it does set by law the minimum pay for several types of jobs. For the rest of the economy, wages are set by collective bargaining and are enforceable by law. As Smith rightly pointed out, the high wages in Germany has not resulted in the wholesale loss of manufacturing jobs to China, unlike in the US.

Some food for thought for us here in Singapore, especially when examining textbook arguments in economics.

Temasek To Increase Stake in China Construction Bank

Looking at the streaming news feed on my brokerage screen a few minutes ago, I saw a story by Dow Jones Newswires that Temasek Holdings has decided to take Bank of America's entitlement in the latest China Construction Bank (CCB) rights issue exercise:

(Dow Jones)--China Construction Bank Corp. (0939.HK) said Thursday that Singapore state investment firm Temasek Holdings Pte. Ltd. will take up Bank of America Corp.'s (BAC) entire entitlement in CCB's rights issue, confirming an earlier comment made by a Temasek spokesperson to Dow Jones Newswires.

According to the article, CCB had announced in April of its intention to raise up to USD 11 billion to shore up its capital base, which had deteriorated due to a government-directed lending boom. From what I can remember, this lending boom was part of the multi-bullion Yuan monetary stimulus that the central government had implemented to artificially shore up economic growth in the mainland during the recent financial crisis. For its efforts, China was widely regarded as the 'saviour' of the world economy after all the developed economies tanked.

From an Austrian School perspective, we know that a government-mandated credit boom usually lead to malinvestments as borrowers recklessly invest in projects that are unprofitable without cheap money. This is typically followed by a credit bust and loan defaults.

While the CCB is prudent in shoring up its balance sheet, it does look to me like Singapore is indirectly paying for China's monetary stimulus.

Sign of The Times?

In recent years, I have read or heard various political and financial commentators like Harold James ("The Creation and Destruction of Value") and Russell Napier ("Anatomy of a Bear Market") talk about the increasing level of intervention that governments will assert in both markets and in our lives. Looking at what's been happening since the 2008 global financial crisis, such assessments appear to me to be correct.

In a sign of things to come, the following is a story that I received from the newsletter service Casey's Daily Dispatch:

Basically, a man was arrested and taken in by anti-terrorist police in Sweden after complaining to a friend on the phone about having an “explosive headache.” How did this happen? Apparently, Sweden has had blanket surveillance of all phone and Internet traffic since 2009, and the use of the word “explosive” triggered a keyword rule that made the anti-terrorist troops come out in force. After invading the man’s privacy by listening in on his phone call, police with automatic weapons stormed his house, scared the hell out of his family, and proceeded to arrest him and three relatives, all because the guy had a headache. As if to add serious insult to injury, the guy was denied a public defender, presumably because of the “terrorist” nature of his crime. Way to go Sweden.

If you can read Swedish, the original news article can be found here.

My point is this: Those who criticise Singapore for our lack of freedom should note that increasingly, we may not be alone in having our freedoms restricted by government actions. That's the new reality, in my view.

IEA's Tacit Nod to Peak Oil

The International Energy Agency's World Energy Outlook 2010 has just been published, and in the Executive Summary of the report, we find the following noteworthy passage:

Oil demand (excluding biofuels) continues to grow steadily, reaching about 99 million barrels per day (mb/d) by 2035 — 15 mb/d higher than in 2009. All of the net growth comes from non‐OECD countries, almost half from China alone, mainly driven by rising use of transport fuels; demand in the OECD falls by over 6 mb/d. Global oil production reaches 96 mb/d, the balance of 3 mb/d coming from processing gains. Crude oil output reaches an undulating plateau of around 68‐69 mb/d by 2020, but never regains its all‐time peak of 70 mb/d reached in 2006, while production of natural gas liquids (NGLs) and unconventional oil grows strongly.

The part in bold font is consistent with what leading peak oil experts have been saying for the past few years, namely that conventional crude oil output peak at around 75 mbpd in the 2005-06 time frame, and that what has keep output growing in pace with demand has been the rising role of NGLs, coal-to-liquids, biofuels and other non-conventional liquid fuels.

Unfortunately, this important piece of news has received little or no coverage in Singapore. Given the importance of trade to our economy, and the dependence of trade on fossil fuels, this is disappointing although predictable.

World Bank Chief Talks About Gold Standard

The financial media has been set abuzz over the weekend because of comments by the World Bank chief Robert Zoellick regarding the include of gold into a future international monetary system. Calling for a more cooperative system which will include the major currencies of the world, he added the following statement, as reported by the Financial Times:

"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values."

Whether or not this is another one of those 'trial balloons' that senior people like the float before a major policy change I don't know, obviously.

But it is worthwhile considering what impact the inclusion of gold into a future monetary system will have on Singapore. This is particularly so given the low percentage of our foreign reserves that is being stored in gold. Based on IMF data, as reported by Wikipedia, Singapore only has 127.4 tonnes of gold reserves, which is a miserable 2.3% of our total reserves.

In a future system that values gold more than the current one, will Singapore suddenly become poorer relative to other countries that have more gold? How will that affect our CPF savings? Does the government have more gold than what it has reported to the IMF, like China previously? I have not figured it out yet, but like I said, it's something to think about.

Vietnam protests against China mapping

More troubles between Vietnam and China, this time over the way a PRC government agency has drawn its maps marking the Spratly and Paracel Islands are PRC territories. This has been reported by the FT Chinese edition today:

中国政府上月启动的一个在线地图服务受到了越南政府的强烈批评。这是由于中国姿态日益强硬，造成地区摩擦的又一个体现。

Vietnam has protested the PRC action, and this has been reported by the Vietnamese media, an English version of which can be found here.

Definitely something to keep an eye on.

$10.2 trillion problem in 2011

The Wall Street Journal has reported that the developed countries of the world will need to raise US$10.2 trillion in 2011 to finance their budget deficits as well as to repay maturing bonds issued previously.

Given that many investors are now aware of the fact that most of the developed countries' governments are bankrupt, and that China may be increasingly unwilling to buy such sovereign debt as a result on the ongoing currency and trade wars, this could mean another round of shocks to the global financial system next year. If investors fail to show up for those bond auctions, there will either have to be debt default or monetisation. In the US case, the outcome is already clear - the US Federal Reserve will act as the buyer of last resort, buying up US Treasury debt in order to monetise it. As for Europe, I am not sure what will happen, as national politics between the different EU nations are involved. Austerity measures aren't getting much traction so far given the scale of protests that are happening across the EU. So, perhaps the EU may also be tempted to monetise debt? Who knows?

Whatever the case may be, it will definitely mean more 'interesting' times for investors as governments get more and more interventionist.

US Federal Reserve QE2 looks set to fail

Since the US Federal Reserve announced its US$900 billion 'QE2' programme of buying US Treasury debt and other mortgage-backed securities, stocks, bonds and commodities have moved violently in response. Looking at the intra-day actions on Wednesday and Thursday (US time), the market seems to be signalling failure of the new policy. Here's why.

Whatever the ostensible reasons for 'QE2', one important reason for the Fed's actions is to prop up the US stock market, using the 'reflation trade' to try to create enough wealth effect to stimulate household consumption, and thus get the US economy moving again. This is typical Keynesian thinking.

However, when we look at the market movements in the latter part of the week, we find that while US stocks have moved up, commodity prices have increased to an even greater degree. Since commodity prices influence cost-of-living, it means that the weak wealth effect has been more than negated by pipeline inflation. Thus, the market appears to me to be saying that the Fed's leveraging up of its balance sheet ultimately is a lot of 'noise' but no real impact is achieved. This is exactly what economists of the Austrian School have predicted together with some of the more savvy market participants.

For us here in Singapore, what this means is that we have to discount most of the 'good news' that the mainstream media is feeding us about the effectiveness of the Fed's latest policy move in helping the US economy to recover. The risk of a 'double dip' is still out there, probably in 2011.

Biggest Debt Bubble in Human History

This is an article from the Economic Collapse blog arguing that the US is still in the midst of the largest debt bubble in human history.

Living Beyond Our Means: 3 Charts That Prove We Are In The Biggest Debt Bubble In The History Of The World

Apart from the US, there are also debt bubbles in the various European nations. As such, I think it is a matter of time before another financial crisis hits the world, as the size of the debt bubble is at or near a point where it is mathematically impossible to be sustained. And when that happens, Singapore will also be seriously affected.

Singapore's Energy Strategy

While it has been reported recently that foreign experts have opined that Singapore's national energy strategy is on the right track, I feel that much remains to be done to move to a more sustainable energy infrastructure. Thus, although LNG is a good way to diversify our natural gas needs, we still can't escape the reality of well depletion, especially the rapid rates of offshore wells (since our LNG supply will come from the fields off the west coast of Australia).

And as much as it is good news to have a solar plant operate here, I still feel that we are not aggressive enough in putting in solar infrastructure. Yes, at current oil prices, it makes no economic sense, but if we look at the investment as one of providing a partial backup solution, it will make a lot of sense when (not if) there are disruptions to our natural gas or crude oil supplies.

And as for nuclear power, unless new technology making use of thorium becomes viable, if we have to wait 10-20 years as some experts have suggested, uranium-powered nuclear reactors may not be relevant as we might have reached 'peak uranium' by that time and all the known supplies would have been locked up by big countries like China and India.

NEA Website Overloading - A Simple Solution

During the recent haze problem some forest fires in Indonesia, many Singaporeans were using the NEA website to check the PSI readings. As a result, the website became overloaded and this caused a lot of unhappiness amongst users.

In response to a complain letter, the NEA posted this reply to the Today newspaper:

We refer to Mr Lam Wei Guang's letter "Frustrated by NEA's weather info hotline, site" (Oct 16-17).

We wish to apologise to Mr Lam for the inconvenience that he experienced. The lightning information on NEA's weather hotline (6542 7788) is being replaced with a newer and better system and is expected to be ready in October next year. We will inform the public when the new system is operational.

Mr Lam was unable to access to NEA website at 4.25am on Oct 10 as the website was undergoing routine maintenance on that day between midnight and 8am. We will ensure that users are kept informed of the period of scheduled maintenance.

We thank Mr Lam for his feedback.

Instead of spending time and money calling for a tender to build a new system, which will only produce results next year, a much simpler solution could have been implemented during the time of the overloading and had the problem fixed within hours.

The NEA web page showing the PSI reading was a very 'heavy' page filled with graphics and other extraneous information. What the NEA could have done is to put up a stripped down page with only the bare PSI reading information, which will not only cut down server load significantly, but could also be marketed as being 'mobile phone friendly'. This is a very common practice among popular websites, as they seek to attract mobile phone surfers such as those using the iPhone.

This simple solution could be implemented in PHP or even the current ASP framework within a few hours (including UAT) for less than S$1,000.

Now, what we get is a new system, possibly over-sized to take care of peak traffic while idle most of the other times when the air is clear. Or we get a refactoring of the website code to move to a cloud-computing solution. Both of these are complicated ways to solve a simple problem. Complexity of course means more energy, money and time expended, with doubtful benefits.

Storm Clouds Over the Horizon

While the drumbeat of Singapore politics has become louder in recent months, I am of the opinion that the focus of the discourse has so far been too parochial. There are some of the storm clouds that I see over the horizon and that could have impact on Singapore within the next 5-10 years, but which has so far not been covered in the discourse.

In this article, I shall outline some of the issues that I think will have major consequences for the long-run viability of our country. Admittedly, since I don’t have the power to predict the future, these points are somewhat speculative, although I have done some homework in all areas.

Peak Oil

Some experts such as Dr. Colin Campbell and Prof. Kenneth Deffeyes have argued that global peak oil production had actually peak in 2005, based on current available data. Production of liquid fuels has kept up with demand so far due to other sources like coal-to-liquids and gas-to-liquids technology. While new ways will be found for extracting oil and gas, the fact that the Brazilians have to drill for oil more than 7 km below the earth's surface for their Tupi field shows that the era of cheap oil is over.

Peak oil will result in very high volatility in the crude oil market, as high oil prices triggers recessions in economies. Such recessions will bring down demand and thus prices for a while until recovery takes places, at which time prices move up again and the cycle repeats.

As high prices take its toll on the global economy, trade will be reconfigured as businesses seek to move their production closer to their customers in order to cut down on the distance over which they have to ship their goods in order to cut transportation costs. A preview of this happened in 2008 when some US manufacturers found that moving production from China back to the US or Mexico made a lot of sense when oil was over US$100 per barrel. Besides this, tourism will be affected as high fuel prices forces airlines to cut routes and ground planes, as had happened in 2008.

Since the Singapore economy is very dependent on trade and tourism, peak oil could have a very large negative impact on our livelihoods.

To make things worse, high fuel prices will definitely lead to higher food prices since we import almost all of our food from abroad, sometimes over long distances.

Resource Scarcity

Due to changes in the weather cycles (not anthropogenic global warming), global food production could consistently fall short of demand. This explains the current ‘land grab’ that many countries are engaging in over in Africa and South America, as previously covered by this blog. Furthermore, the availability of potash and phosphorous could also be constrained, resulting in lower fertiliser production.

In terms of other minerals, peak oil proponents like Richard Heinberg have argued that we will soon experience declines many key industrial commodities.

And let us not forget the issue of water scarcity. As covered by the National Geographic magazine in April 2010, water conflicts are starting to surface, especially in the Tibetan plateau (China and India) and the Nile region.

As resources get scarce, there could well be conflict between countries competing for those limited supplies to satisfy their own economic needs. Global cooperation will decline and the world will become more unstable, again not good for Singapore's economic model.

End of USD as Reserve Currency

If the US Federal Reserve continues current policy of debasing the USD, it could well only be a matter of time before confidence in the currency collapses and the world is forced to move to a new currency regime.

While I don’t claim to know what the likely impact of such a scenario will be for Singapore, the fact that our country is a large holder of US government debt makes the possibility of financial losses quite high should the USD lose its reserve currency status. What this means for us as citizens is that our CPF savings will suffer losses as well.

Besides this, since our independence, we have only had experience with a USD-based global currency system and nothing else. One could even argue that our economic policies were designed to take advantage of the global trade system made possible by the USD’s reserve currency role and the attendant global credit expansion cycle since the early 1970s. Once that changes, we will have to figure out how to adjust our economy to the new global architecture, and whether or not we will be up to the task remains to be seen.

War

That the US is in decline is by now quite obvious, except for people like Stratfor’s George Friedman. As we move toward a multi-polar world, there could actually be more instability, if the Hegemonic Stability Theory is correct. This is especially so as the world faces the reality of resource scarcity and there is heightened competition.

Besides this, based on historical analysis, some cycle theorists and market experts believe that we are now in a Kondratiev Winter, and some believe that major wars have to occur before the next upswing in the global economy. From a generational cycle perspective, John Xenankis of Generational Dynamics predict a war between China and the US.

If the world were to move into a period of conflict, it would again mean that Singapore’s economy will be affected, since we depend on peace for our economic model to work.

Conclusion

Since this article is about threats to Singapore, I have not covered the more optimistic factors that will affect our future (e.g. Asia’s rising economic power etc). What I hope is that more Singaporeans will take a look at these possible threats and make preparations to deal with them in whatever way they can, and of course, pray that they don’t come to pass.

More Bad News on Inflation

With bakeries in Singapore reportedly raising prices for their products due to the sharp rise in the price of sugar, there is now more bad news as Bloomberg reports that cooking oils are poised to see price increases as record demand has brought inventories down to 17-year lows.

"Inventories of soybean oil and palm oil, used by Nestle SA and Unilever and in everything from Hellmann’s mayonnaise to Snickers candy bars, will drop 12 percent in the coming year as China and India increase consumption 11 percent, U.S. Department of Agriculture data show. Food prices climbed in September to the highest level since the crisis in 2008 that sparked riots from Haiti to Egypt, the United Nations says."

Indeed, China and India will be the prime drivers of demand for agricultural commodities for years to come.