MRT breakdowns

Major system faults on 2 consecutive days. Sign of the times as far as I am concerned.

I was affected by the outage on Wednesday morning, although the impact was minimal as there were good alternative methods of getting to work.

We need to be prepared. Start by thinking of alternative travel plans for use when the MRT has problems. That would be a good start.

I expect problems in other areas of our public infrastructure as well. Got to start being more aware and prepared.

Gold Breaks Above US$1650

Gold has finally achieved the price target of US$1650 set by the legendary Jim Sinclair many years ago.  Based on the movements in the US stock market overnight, it appears that market players are fleeing risk and that gold has finally become a safe haven play along with silver.  Unlike the last time round, the USD has not really been a safe haven play.

While many people were relieved by the debt-ceiling agreement in the US, the fact remains that nothing has been fundamentally fixed with regard to the untenable fiscal position of the US federal government.  I expect a full blown crisis soon, probably within the next 2-3 years.  I hope to be able to write more about this issue when I have time from my work.

Over in Europe, we have more rumblings as markets now attack Italian sovereign debt.

I think we are in for a rough ride in the markets over the short-term.

Oil Supply Disruptions Likely - US Military

Following the Joint Operating Environment 2010 report by the US military warning of supply shortages in the oil market of up to 10 mbpd by 2015, the US Department of Defense's latest Operational Energy Strategy report to Congress has again highlighted the risk of disruptions to global oil supplies.

Page 8 of the report states:

The volatility of oil prices will continue to be a budgetary challenge for the Department, and the realities of global oil markets mean a disruption of oil supplies is plausible and increasingly likely in the coming decades. The Services have already taken steps to certify aircraft, ships, tactical vehicles, and support equipment to use alternative liquid fuels, a prudent insurance policy against future oil supply disruptions and high prices.

The reason why I think we should pay attention to what the US military says is that these people tend to take a hard, long-term view of things when it comes to assessing threats to their country.  For example, more than 20 years ago, they were already warning Congress about American foreign dependence on Rare Earth Elements technology in US weapons system.  Of course, now that risk has come to pass has China effectively controls 97% of the REE market.  Given such a track record of long-term thinking, I tend to take their views seriously.

The full OES report can be found here.

Singaporeans Are Whiners

I didn't know whether to laugh or cry (啼笑皆非) when I saw the following post on REACH Singapore's Facebook page:

Suggestion to school to review their policy to adopt to recent climate changes.

Today I witness outside the primary school:
1. student perform duty in walkway, was caught in rain.
2. students stay in HDB block to wait for rain stop and go to school late.
3. security at school gate leave on dot and those late had to walk to school drive in gate under rain.
4. security not able to react fast enough to open gates when the rain pour suddenly.
5. thunder voice hear from school gate when rain pour suddenly.

I believe the parents need support from the school too and wish to suggests:
1. find out the way to limit the expose to rain when students on duty.
2. take consideration of recent climate changes and have the security stay in duty long enough to takecare those might be late.
3. open the gate when the sky turn dark, so that parents can send their kids to school without get caught in rain.

Going to the extent of asking the government to protect people from inclement weather really takes the cake. I was very much tempted to reply to the author that perhaps we ought to ensure that the SAF issue our kids with umbrellas when they enlist, so that they won't get wet during field exercises.

Freedom and asking for protection from the Nanny State are fundamentally incompatible political arrangements. Unfortunately, many Singaporeans who demand more freedom from the PAP government's control in the same breath will ask that same government to help fix their problems. This is not political maturity - it's more like a bunch of spoilt kids throwing tantrums when things don't go their way.

These are days when preparedness advocates like me feel that we are spitting into a tornado.

Food inflation and Price Caps

Someone, in a letter to the Today newspaper published on Monday, suggested that the government implement measures to cap price increases in essential food items to fight what he perceives to be profiteering. The example of Malaysia was used by the author to justify the feasibility of price controls.

That the idea is unsound is very obvious when one considers the following points:

• Malaysia has significant domestic food production capabilities, and doesn't have to be a price-taker on the international food market.
• It has an elaborate government bureaucracy designed to subsidise various parts of the food production value-chain so as to keep prices low.
• Capping food prices in Singapore's context will mean a fall in supply if the caps make selling some items unprofitable for importers.
• Price caps benefit both the rich and poor, so that if subsidies were involved, it would be an inefficient use of taxpayers' money.

I think the government's approach of targeted help for the lower income group is a better method as it does not create as much distortions in the food market and help is only given to people who need it. For the rest of us in the middle class, we can adjust to higher food prices by cutting back on other discretionary spending.

That said, the government can help to some extent by using its influence on NTUC Fairprice to have the latter introduce more price competition in the food market, so as to minimise the risk of profiteering. Using competition to fight profiteering is far better than using legal sanctions, as anyone who understands elementary economics will know.

Up Next: More Food Inflation

It's now official: the government expects more food inflation this year. According to a Bloomberg report, Finance Minister Tharman Shanmugaratnam told Parliament that the government expects food prices to rise further this year and that there are efforts to look at how to cushion the lower-income and elderly people from such inflation.

Apart from the traditional transfer payments, it would be of great interest to me to see what other innovative ideas the government can come up with to ameliorate the effects of food inflation. For the rest of the people who are in the so-called 'middle-class' and are unlikely to be the target of any such government measures, it's time to take defensive actions such as the adjustment of eating and purchasing habits, or even of growing vegetables where feasible.

Protecting Our Financial Reserves

According to a Reuters report, in a speech made on Jan 5, Kansas City Federal Reserve Bank President Thomas Hoenig called the gold standard 'a very legitimate monetary system'. He was the second financial big-wig following World Bank President Robert Zoellick to call for a debate on the efficacy of using gold in the monetary system.

What I find interesting about this is that it would appear that there are signs that the US Establishment is starting to look at the gold standard issue. As a Singaporean, what concerns me is the extent to which Singapore is prepared for such a possibility. And looking at official IMF data, I would argue that there is cause for concern as Singapore only has 2.5% of its foreign reserves in gold, a paltry 127.4 tonnes. This is even lower than the Philippines, which has 175.9 tonnes of gold in its reserves.

Risk of Monetary Reset

From a monetary perspective, foreign currency reserves represent claims on other countries, and are thus in effect a form of unsettled debt. Under a gold standard, the gargantuan accumulation of foreign reserves amongst oil exporters and Asian countries would not have been possible since balance of payment accounts have to be settled in gold, which cannot be created by government fiat. Thus, when (not if!) the debts of the developed countries become unsustainable, there could be a reset of the global monetary system and in such an event, gold could play a pivotal role in the settling of accounts between nations. Should gold be re-introduced into the global system, then those countries that hold the most gold will obviously be the wealthiest in the new regime, since all asset classes will be revalued against gold as the new currency. The effect would be similar even if gold were used only as a component of the new currency system together with other fiat currencies (e.g. RMB). In such a scenario, we should not be surprised if we see Singapore suddenly becoming 'poorer'. Consider also what may happen to the value of our CPF savings.

Protecting Our National Wealth

In order to hedge against such an outcome, it is important that the government consider following in the footsteps of the People's Bank of China and other central banks in terms of quietly accumulating gold reserves without disturbing the market. (As an aside, if Dr. Goh Keng Swee were still Finance Minister, I would be very confident of this quiet accumulation of gold being done.)

To further enhance Singapore's position as a global financial centre, we may also want to consider partially backing the SGD with gold, something which the Swiss had done for years and which they had rather unwisely abandoned recently. The added benefit of backing the SGD with gold is that it will enforce financial discipline on the government in terms of restraining the latter from reckless deficit spending. This discipline will be a market-based one as the financial markets will be able to judge whether the country's financial position is under threat from the outflow of gold. Such an external monitoring mechanism is also far simpler to operate and more reliable than depending on the Elected President's good judgement in the exercise of his 'second key' discretion in unlocking our financial reserves.

Food Crisis 2011 - Riots in Algeria

The Associated Press has reported that youth in Algeria had rioted on Thurs over rising food prices and high unemployment. This could be the first salvo in what may become a global food crisis in 2011 as developing countries cope with food inflation brought about, in my view, by the reckless money printing of various countries trying to devalue their respective currencies in order to export their way out of economic troubles. Chief amongst these is of course the US Federal Reserve and the People's Bank of China.

In India, food inflation for Dec 2010 was over 18% in a situation that is worsening, contrary to the expectations of government officials there.

In Singapore, the situation is also getting worse. Someone who runs a food stall at the canteen in my office building told me over lunch that food inflation is serious enough to have an impact on the stall's selection of food inputs and the type of dishes that can be sold profitably.

We need to get prepared. Remember to stock up on essential food items when there are cheap sales.

Be on Guard Against the Welfare State

In recent years, I have noticed that Singaporean bloggers who write about politics in a manner critical of the government also show a tendency to support increased government spending on welfare transfer payments. There is a similar tendency amongst the opposition parties such as the Reform Party and the Singapore Democratic Party.

That there should be such support of a welfare state amongst Singaporeans at a time when such a system is on the brink of fiscal and social collapse in the US, Europe and Japan is somewhat disheartening to me, a symptom perhaps of a lack of understanding and critical, independent thinking. The underlying premise amongst welfare state supporters such as the Reform Party appears to be that we are smart enough to avoid the pitfalls of the West. Being Singaporean, I think we are not smarter or dumber than the rest of the people in the world, and given similar economic incentive structures, we will exhibit the same kind of bad behaviour that has made welfare states the failures that they are.

As this is not the place to enter into a serious discussion about the ills of the welfare state, let me introduce to you the writings of American blogger Charles Hugh Smith and his oftwominds blog. Charles has done a very extensive analysis of the social ills plaguing the US currently, and I was actually inspired to write this blog post because of his article entitled The Normalization of Sociopathology in America. In this article, he gives examples of how being honest and hardworking actually means being financially worse off in the welfare state.

Now, I am not against helping other people who get into trouble through no fault of their own (I grew up very near the poverty line myself). However, instead of showing the typical Singaporean 'the government should take care of this problem' mentality, we should perhaps ask ourselves this - why can't I do something about the poor myself? As an advocate of preparedness and self-reliance, I believe that the government's role should not move beyond setting the rules so that we the citizens can use our own money to the best of our own judgement, and spend that money on welfare causes that we personally deem are worthy. There should not be a need for the government to act as the middlemen between us and the poor, deciding for us what is good or bad. Working through voluntary welfare organisations is, to my mind, a far superior way of helping the poor than through a likely rule-based, impersonal government bureaucracy.

Preparing for higher food prices

Based on anecdotal evidence from my mother's trips to the supermarket and wet market, food prices have been increasing recently.

At the macro level, various disasters in Russia, Pakistan and other parts of the world have resulted in lower crop output, and food availability on the global markets is further exacerbated by the recent Russian decision to ban wheat exports until late 2011. On a longer term basis, that there are increasing worries about global food supplies can be seen in the intense M&A battles over top-quality fertiliser companies, such as the Rio Tinto bid for PotashCorp of Canada.

Given the likelihood of pressure on global food supplies, it would be prudent for us to practise food storage at home. The habit of buying and keeping extra food can help to lower our food costs over the longer term, as it allows us to plan our purchases when items are put on sale by the supermarket chains. Of course, storing food implies having a system for tracking expiry dates so that we consume the items on a timely basis, and rotate them periodically, buying new supplies to replenish the stock levels.

Besides food storage, for those who are so inclined, growing a small set of food crops can also be done, even if one is living in an HDB flat. For more information, one can visit the Green Culture Singapore forum, where enthusiasts provide tips for growing food in small areas.

By doing what are within our means, we can hopefully ameliorate some of the effects of the coming food crunch and help protect our families to some extent.

A Short Introduction

During the last 2 years, we in Singapore have gone through the global financial crisis, a swine flu scare, the escape of a terrorist, flash floods and a major failure of an electronic banking network. Reflecting on these events and looking at the wider global environment that we are now in, I personally come away with the feeling that we are moving into a period of greater uncertainty.

While a lot of things are beyond our control, there are things we can do to better prepare ourselves to face challenges, expected or otherwise. This is somewhat similar to buying insurance, except we do so by 'spending' time and effort in educating ourselves and changing our habits and lifestyles to make them more resilient.

What I hope to do is to share some thoughts on what we can do to live a better-prepared life, so as to safeguard ourselves, our families and communities in times of uncertainty.