BG Chan’s Words Not Only Insulted The Intelligence of Singaporeans But Were Deeply Worrying
Yesterday I wrote about how Chan Chun Sing had patronised Singaporeans by giving them the benefit of his Cambridge Economics education by explaining that if you spent a dollar from the reserves today then the next generation would not have a dollar plus whatever returns that dollar had earned available for spending (Shock! BG Chan Chun Sing Reveals He Passed Primary School Maths). Clearly BG Chan must have got his First for his incisive understanding of the time preference theory of interest and intergenerational resource allocation.
However while it is easy to see the funny side of BG Chan’s patronising lecture on the other hand there is reason to be seriously concerned by his attempt to convince Singaporeans that we would be better off if we never took any money out of the reserves but left them for the next generation. Thirty or forty years ago they were telling Singaporeans the same thing and undoubtedly if they continue in power for another thirty, forty, fifty, a hundred years as looks very likely they will be saying the same thing to the next five generations after ours.
As I have said in my blog over many years (see Smoke and Mirrors in the Government’s Accounts for just one example), no money seems to come out of the reserves and no actual spending takes place. Instead the Budget is an endless recycling machine, with the Net Investment Returns Contributions (NIRC) being channelled into obscure long-term funds where it becomes increasingly difficult to keep track of the money. In 2014 Tharman placed the entire NIRC of $8 billion into the Pioneer Generation Package which was touted as actual spending on the healthcare needs of the Pioneer Generation. After four years the fund still stands at $7.6 billion. This year Heng set aside $5 billion for a so-called Rail Infrastructure Fund and $2 billion for the GST Voucher fund. In addition the Budget includes large amounts in Grants and Capital Injections to Organisations which it is difficult to determine whether they represent actual spending.
An example of a fund that totally lacks transparency is the Productivity Fund which is under the control of the Prime Minister. Heng put another $1 billion into the fund last year but as far as I can tell no accounts have been published and it has not been audited. I have called repeatedly for the accounts to be published but of course the Government ignores this.
The point I wish to make here is that BG Chan saying that we must not spend anything from the reserves but leave them to grow for the next thousand generations is exactly what one would expect a textbook fraudster like Bernie Madoff to say. All that Madoff required for his fraud to continue indefinitely was that cash inflows be greater than cash outflows. If more people redeemed money than put money in then the whole Ponzi scheme would come crashing down. The financial crisis of 2008 exposed him because suddenly everyone wanted to redeem and he could not replace the redeeming investors fast enough.
Among the tell-tale signs of a financial fraud are promising returns that are too good to be true and a lack of transparency. BG Chan, Indranee Rajah, Tharman and others all tell Singaporeans that if we spend the money now (or a tiny bit more of the money now) that we will be missing out on the returns that we would get if the money is left in to accumulate for future generations. Yet they never warn that your money could be worth less and that markets can go down as well as up which is normally a requirement for all advertisements asking people to invest money. BG Chan is asking Singaporeans to put their money into the equivalent of a zero coupon perpetual (an old joke from the 1980s) which never returns your capital and pays no interest either. Clearly all the PAP ministers would receive a reprimand or even a suspension or lifetime ban for misleading advice from the regulator were they working in the financial sector in the UK or most other developed economies. The PAP Ministers also try and scare you that the Singapore dollar will collapse (and your daughters and wives will be forced to work as maids in other countries as LKY used to warn!) should Singaporeans ever get to spend any money from the reserves on themselves.
Temasek is not above goosing up its reported returns in ways that would be downright illegal if they were a public listed company. They report returns of 15% annualised since inception in 1974 but omit to mention that much of that gain was achieved through the transfer of state-owned companies to its portfolio at a fraction of their true worth. When these companies were later IPO’ed, like SingTel, Temasek was able to book enormous gains. I suspect similar shenanigans are going on at both GIC and Temasek with their big moves into private equity investments where valuations are notoriously opaque.
In any case it is ridiculous that we need to save so much. The current generation of Singaporeans are far richer than those of a hundred years or even fifty years ago, just like everyone else in the world, and in a hundred years time we probably will be at least five times richer than we are today with goods and services available that we cannot even dream of today.
So apart from laughing at BG Chan’s rediscovery of Primary School maths there is a serious point. We should worry that just maybe there is cause for concern about the state of our reserves. You will never know until there is greater transparency and for that to happen you need to take charge of your lives. The problem is that you have allowed the PAP to treat you as not very bright children for so long that they think they can get away with fooling you forever.