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Are MAS’s Losses Part of a Sinister Global Conspiracy?


Being curious as to why a foreigner would be so interested in MAS’s performance, I checked out his website. He appears to have no economic credentials other than a background in US military intelligence. Yet he has apparently managed to create a successful business out of peddling fear to the gullible and helping the rich evade tax or the elite from third world countries acquire residency or stash their ill-gotten gains in the West. His articles contain very few hard statistics and no economic analysis. Instead they are peppered with phrases like “monetary madness”, “hyperinflation” and “the coming economic collapse”. The author even rails against gun control. Indeed it is easy to see why you might need your own arsenal of subatomic weaponry if, as Black says, the apocalypse is just around the corner. In essence its just high pressure sales and the same scare tactics are used to sell homeopathic remedies against cancer or other diseases. For a few dollars a month you can subscribe to the basic newsletter. For a whole lot more he promises to give you the names and contact details of people who can help you set up secret bank accounts or trusts without bothering with legalities like money laundering checks or provide second or third passports with no questions asked.

Black also acts as promoter and salesman for the global gloom-and-doom school of investment gurus. For the very reasonable sum of US$1,000 you can download a video to hear pundits like Jim Rogers (who moved to Singapore a few years back), Jim Rickards, Ron Paul (the former Congressman and well-known libertarian), Paul Schiff and Nigel Farage (leader of the UK Independence Party who seems an odd bedfellow) give their insights at a conference in Santiago, Chile, into the future. High on the agenda is how to protect your assets from greedy governments intent on confiscation, improvident central bankers determined to debase the currency, supranational organisations like the EU determined to impose dictatorial rule and a lazy Western populace hooked on welfare. All these individuals cater to what an Asian audience wants to hear, predicting the fall of the West, the rise of Asia and the bankruptcy of the US under a mountain of debt.

What these pundits including Black all have in common is that they are adherents to the Austrian school of economics of which Hayek was the best-known exponent. While I am no fan of socialism, I take exception to a major Hayekian premise, which is that economies left to themselves are inherently self-regulating without the need for government intervention. In particular Hayekians believe that governments should never run deficits and that currencies should be freely convertible into gold. The Great Depression of the 1930s should have finished off these zombies. However, despite all the empirical evidence demonstrating the very real harm such policies have done and continue to do to the economy wherever they are practised, the zombies have come to life again after the financial crisis of 2008 should have administered the coup de grace. They have captured the Republican Party in the US and influenced a lot of the policies of the UK Coalition Government, with detrimental effects on the economy.

Another notable characteristic of these professed libertarians is their willingness to get into bed with rather nasty authoritarian or even communist states if they can benefit from a lower tax rate. Jim Rogers is based in Singapore and is always singing its praises along with China’s. Yet perhaps if they had to do National Service or live in government-owned housing or have their property acquired for a pittance or have to pay enormous damages in defamation suits for saying things that they regularly say about their own countries’ leaders , they would not be so fulsome in their praises. They clearly are blind to the reality of a state capitalist economic model where most domestic enterprises are ultimately controlled by the government. So their libertarianism is not genuine but just self-interested cant.

Once we understand where Black is coming from we can see why he is writing about MAS’s losses. He is not criticising MAS since he praises Singapore as an “ultra-healthy” economy. Rather he is hitting out at Ben Bernanke and the Federal Reserve for debasing the US$. to gain a trade advantage. MAS’s losses are only a peg to hang his constant theme of coming monetary collapse, hyperinflation and the breakdown of civilisation. It is immaterial whether Black believes in his ravings or has any evidence to back up his contentions. He is just a good salesman who could be selling anything from health products to time-shares to guns. Spreading fear boosts sales of his newsletters, briefings and videos, money from which undoubtedly lets him live a luxurious lifestyle.

It is also what his presumed audience in the BRICs and other developing countries wants to hear. Attacking the US for quantitative easing also puts him on the side of governments like China, Japan, South Korea, Brazil, and Singapore, which manipulate their currencies to get a competitive advantage. Naturally the governments of these countries are apoplectic with fury that the US, through quantitative easing, is playing the same game and making their exports more expensive in the US market.

While Black draws attention to last year’s MAS loss his rushed and superficial analysis obviously had no time to look back at earlier years. MAS has been making losses for some time as it accumulates foreign currency reserves that become worth progressively less and less when converted back into appreciating Singapore dollars. The total income (losses) for the years 2009 to 2013 are given below:

2009 S$ (7.4) billion

2010 S$ 9.4 billion

2011 S$(10.0) billion

2012 S$ 3.3 billion

2013 S$(10.0) billion

Since 2009 MAS has lost a cumulative total of S$ 14.7 billion. In 2009 it lost $7.4 billion, which prompted the government to bolster its capital through an injection of nearly $17 billion in fresh equity. I pointed this out in my submission to the Court of Appeal over the constitutionality of to show that MAS could not be considered an independent entity as the AG tried to argue. MAS’s losses should not be considered in isolation. GIC also appears to have only made around 2.5% p.a. when measured in S$ over the period 1980-2011, a shockingly low return given its access to cheap leverage in the form of forced lending from Singaporeans’ CPF funds (see links to series of articles on below).

Black may blame these losses on the fiat currency system and what he calls “Ben Bernanke’s journey into monetary madness over the last several years”. This obliges “healthy nations like Singapore…to lose billions”. But the blame should really attach to the PAP government’s perverse and outmoded economic policies, it is much more unhealthy for Singapore to run a current account surplus of 20 to 25% of GDP than it is for the US to run a relatively modest current account deficit of about 3% of GDP currently. This huge surplus represents foregone consumption (in 2012 private consumption expenditure was only 36% of GDP). Furthermore it is a direct consequence of the PAP government’s enormous budget surpluses. Singaporeans lose out because depending on the leakage to imports we could probably raise consumption expenditures by at least 50% and still have current account balance or a small surplus. Clearly the current level of surplus is unsustainable in the long run and the resultant economic austerity has no longer any justification.

This chronic current account surplus puts continuous upward pressure on the Singapore dollar and forces MAS has to lose billions by accumulating depreciating foreign exchange reserves. Though capital account flows (presumably GIC and Temasek’s overseas investments) partially offset the current account surplus this is not enough to prevent a big increase in reserves of nearly 10% of GDP that is the result of MAS intervention.

One solution would be for the MAS were to stop intervening in the foreign exchange markets. The S$ would then appreciate to the point where exports become sufficiently uncompetitive and imports sufficiently attractive to bring the current and capital accounts into balance. However this would be likely to have adverse consequences for output and employment in Singapore. Counterbalancing this would be the higher real incomes of consumers as imports became cheaper. On the positive side it might hasten the restructuring of the economy away from low productivity industries dependent on foreign labour. However foreign labour may be more willing to accept nominal wage cuts because foreign workers have a real income target expressed in their home currency. This could lead local employers to substitute even more foreign labour in place of Singaporeans. This would obviously be an undesirable consequence. Another adverse consequence is that this would impose even greater valuation losses on the portfolios of our Sovereign Wealth Funds which must dwarf MAS’s already substantial losses.

A better solution would be to consume more and save less. Singapore’s consumption of 36% of GDP contrasts sharply with the US where it amounts to 70% of GDP. It is difficult to believe that investment returns in Singapore are so much higher than in the US to justify this disparity.

This underconsumption and overinvestment is driven by the PAP government’s desire to continue accumulating overseas assets. This has got to the point where relatively small movements in the value of the stock of government financial assets dwarf changes in GDP. The result is the situation where MAS’s loss last year swallowed up almost the whole of GDP growth. The government is turning Singapore into a gigantic investment fund with a small operating company (the economy) attached! It deliberately prevents us from finding out how the managers of our money are doing but all indications are they are performing poorly. Secrecy has historically been highly correlated with fraud and mismanagement.

To illustrate how the additions to the stock of investment assets now dwarf movements in GDP, the government ran a huge surplus of $36 billion in 2012 or over 10% of GDP according to the past issues of the Monthly Digest of Statistics. This was just the government surplus whereas a wider measure known as the general government surplus and published annually until very recently in the Yearbook of Statistics has traditionally been much bigger. (The Yearbook has now changed its format to the same as the Budget presentation and this suggests that the PAP government is worried that it has been providing too much information to critical analysts like myself. ) Including the net incurrence of liabilities, which represents the increase in government debt through the growth in CPF funds, the government took in around 20% of GDP from the corporate and household sectors. Coincidentally or not, this almost exactly mirrors the current account balance.

My preferred solution would be to invest more in infrastructure, spend more on health and education, improve social safety nets and cut taxes. The government could thus reduce the current account surplus and relieve the upward pressure on the S$. Singaporeans would also enjoy a higher standard of living. As an added by-product we would be good global citizens, contributing our own small bit to rebalancing the world economy.

However that is unlikely to happen as long as the government continues to pursue insane economic objectives (see the link to my last article below). The government’s rationale is that we need to continue saving for a rainy day. When currency appreciation wipes out most of the investment returns that our Sovereign Wealth Funds are able to generate that argument becomes increasingly absurd. It snake oil salesman SImon Black and the group of professed libertarian pundits whose half-baked economic analysis and doom-mongering he peddles, should push a country which does not believe in freedom, pursues insane economic policies and gives its own citizens such a raw deal!


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