Sub-prime mortgage, Credit market and economy
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Speculatist
Aug 12, 2007, 2:37:50 AM8/12/07
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Recent credit market melt down was directly triggered by US sub-prime mortgage market crash.
Basically , a lot of financial institutions securitized those Sub-Prime mortgages as a kind of product to sell to investors, hedge funds or other banks , Financial institutions with the promise of higher yields.
It is just like Junk Bonds, high yields implies high risk, including risk of default.
If those financial products' underlying, low credibility mortgage defaulted, those product will face a crash on values, and a lot of investors will withdraw from their investment in those products.
That's why , the crash of those values, caused the close of three hedge funds so far,
the withdrawn of investors caused the liquidity issue, which made the overnight lending rate shoot up and central banks need to inject liquidity into banking system.
Why the impact was so big?
One important reason was the well spread of all kinds of derivatives products based on similar set of assets or same underlying securities.
So the impact we have seen , or we will be seeing , are leveraged impacts.
US economy is well famous for debt spending, if putting it in a nicer term, it is spending money in the future. I always hold strong objection over this kind of economy model and its fundamental theory, Keynesian theories. That's why I did not get surprised if US economy slow down in this event or going into recession for next few years.
Deficit spending final end is crash and another round of boom after all dust are settled.
How is Singapore's Economy?
After all, it is the economy we are living in mostly concerns us.
Fiscal policy: Singapore's fiscal policy has some important features:
1. Prudent government spending (to contrast again US government spending)
2. Fair tax systems (no high tax to personal or business incomes, considering fair)
3. promote savings growth and investment growth, discouraging credit spending
With this above three points,and the recent year data of budget surplus, scoring system will put at least 4 out of 5 to this fiscal system
Monetary Policy: Singapore monetary policy: To keep Singapore dollar gradually appreciate, with its fluctuation kept in a undisclosed band against a basket of currencies.
This policy enables SGD's stability and strength, and controls well the inflation at a 1.5%annual rate. It at least scored a 4 out of 5.
Singapore's net export business are 31.7% of the total GDP, considering a moderate to high weight in a country's GDP.
Out of this 31.7%, top ten destinations to export to are:
Top 10 exports
% of GDP
Malaysia 13.10% 4.15%
EU-25 11.10% 3.52%
Hong Kong, China 10.00% 3.17%
United States 9.90% 3.14%
China 9.70% 3.07%
Indonesia 9.20% 2.92%
Japan 5.50% 1.74%
Thailand 4.20% 1.33%
Australia 3.70% 1.17%
Taiwan 3.50% 1.11%
Out of these trading partners, the weight increased from last time most was
Hongkong China, 20.90% increasing
China 27.8% increasing
note: net export increased about 12.7%
In any case US economy goes into recession, the direct hurt to local export business is that 3.14% in GDP, well that is considering there are no export to US at all , which is not possible.
From trading partner point of view, top 10 are
Malaysia
EU-25
United States
China
Indonesia
Japan
Hong Kong, China
Tai Wan
Thailand
South Korea
There is quite some dependency to US economy from local business, as we can see from the top 10 listings above, however, things need to be noted are increasing trade relations with Hongkong and China, and Middle East market.
Since MTI raised the forecast for GDP 2007 from 5 to 7 % to 7% to 8%, even the situation in US market and world credit market worsens, Singapore's economy might only undergoes a short storm, but far from a big recession.
With this information and own assessment worksheet,
My long term view of the economy remains bullish.
(ps: Only some analysis work was put here , with some other analysis not able to release in public place as the data might be sensitive,and assessment model is not made public.)
All data are from
http://www.singstat.gov.sg/
http://www.mas.gov.sg
http://www.mti.gov.sg
Basically , a lot of financial institutions securitized those Sub-Prime mortgages as a kind of product to sell to investors, hedge funds or other banks , Financial institutions with the promise of higher yields.
It is just like Junk Bonds, high yields implies high risk, including risk of default.
If those financial products' underlying, low credibility mortgage defaulted, those product will face a crash on values, and a lot of investors will withdraw from their investment in those products.
That's why , the crash of those values, caused the close of three hedge funds so far,
the withdrawn of investors caused the liquidity issue, which made the overnight lending rate shoot up and central banks need to inject liquidity into banking system.
Why the impact was so big?
One important reason was the well spread of all kinds of derivatives products based on similar set of assets or same underlying securities.
So the impact we have seen , or we will be seeing , are leveraged impacts.
US economy is well famous for debt spending, if putting it in a nicer term, it is spending money in the future. I always hold strong objection over this kind of economy model and its fundamental theory, Keynesian theories. That's why I did not get surprised if US economy slow down in this event or going into recession for next few years.
Deficit spending final end is crash and another round of boom after all dust are settled.
How is Singapore's Economy?
After all, it is the economy we are living in mostly concerns us.
Fiscal policy: Singapore's fiscal policy has some important features:
1. Prudent government spending (to contrast again US government spending)
2. Fair tax systems (no high tax to personal or business incomes, considering fair)
3. promote savings growth and investment growth, discouraging credit spending
With this above three points,and the recent year data of budget surplus, scoring system will put at least 4 out of 5 to this fiscal system
Monetary Policy: Singapore monetary policy: To keep Singapore dollar gradually appreciate, with its fluctuation kept in a undisclosed band against a basket of currencies.
This policy enables SGD's stability and strength, and controls well the inflation at a 1.5%annual rate. It at least scored a 4 out of 5.
Singapore's net export business are 31.7% of the total GDP, considering a moderate to high weight in a country's GDP.
Out of this 31.7%, top ten destinations to export to are:
Top 10 exports
% of GDP
Malaysia 13.10% 4.15%
EU-25 11.10% 3.52%
Hong Kong, China 10.00% 3.17%
United States 9.90% 3.14%
China 9.70% 3.07%
Indonesia 9.20% 2.92%
Japan 5.50% 1.74%
Thailand 4.20% 1.33%
Australia 3.70% 1.17%
Taiwan 3.50% 1.11%
Out of these trading partners, the weight increased from last time most was
Hongkong China, 20.90% increasing
China 27.8% increasing
note: net export increased about 12.7%
In any case US economy goes into recession, the direct hurt to local export business is that 3.14% in GDP, well that is considering there are no export to US at all , which is not possible.
From trading partner point of view, top 10 are
Malaysia
EU-25
United States
China
Indonesia
Japan
Hong Kong, China
Tai Wan
Thailand
South Korea
There is quite some dependency to US economy from local business, as we can see from the top 10 listings above, however, things need to be noted are increasing trade relations with Hongkong and China, and Middle East market.
Since MTI raised the forecast for GDP 2007 from 5 to 7 % to 7% to 8%, even the situation in US market and world credit market worsens, Singapore's economy might only undergoes a short storm, but far from a big recession.
With this information and own assessment worksheet,
My long term view of the economy remains bullish.
(ps: Only some analysis work was put here , with some other analysis not able to release in public place as the data might be sensitive,and assessment model is not made public.)
All data are from
http://www.singstat.gov.sg/
http://www.mas.gov.sg
http://www.mti.gov.sg
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