We Are Today, A Result Of Spending Yesterday

On 1st May 2012, I made a series of postings as the economy grew from having too much cheap money. It started with an innocent query on why thoughtless, lavish spending encourages unhealthy inflation instead of helping to stimulate the economy.

People were rushing madly into property launches buying more homes than they could live in, buying second and even third cars and living the life of dreams … even though they couldn’t afford it (read: debt).

Here are the links to all three original postings;

Inflation on the Little Red Dot had grown from less-than-nothing in 2009 to top out just below 6% by 2011. While fears of higher inflation or even hyper-inflation started making its rounds, I wrote about the similarities between Singapore in that current situation being akin to South Korea in the late ’60s/early ’70s, Taiwan in their ’80s heyday, Japan in the late ’80s and Thailand during the mid ’90s – they all grew so quickly and astronomically, only to fall dramatically into Deflation/Recession.

In hindsight, I was right. The fear of inflation/hyper-inflation was misguided. What I feared was scarier and soon realised.

Singapore fell into Negative Inflation (Deflation) for two years between November 2014 to November 2016. Growth since 2012 has been erratic, frequently falling into negative (q/q) contractions every three to five quarters (upside revisions were made regularly to eradicate those negative quarters).

The ramification of such an economic situation would bring about some long-term pain and keep growth muted for longer. Prices would continue to stay high and hurt the middle to lower income earners. They would in turn, borrow more or spend money they didn’t have.

And they did.

By 2014, it was clear that interest rates would rise. I wrote that the rising rates would magnify the debt that these free-spending people had accumulated. This nightmare would come back to haunt them; they would get stuck with the cars they couldn’t afford, mortgages that would likely be defaulted or fire-sold and have debts that they couldn’t clear with 20 months of salary.

We were in an economy flooded with foreign talent seeking to find greener pastures here. All they found was expensive and unaffordable grass that looked good on the surface but was a struggle to upkeep because the cost was too high. They packed up and departed. The ones that stayed behind were the upper income earners who could afford the lofty costs, who in turn kept prices high.

Since then, Singapore has earned the title of the most expensive country in the world to live in, winning that ‘accolade’ for five straight years while our growth remained muted.

Through the six years since I posted those three comments, I have taken a lot of flack from people who accused me of being a party-pooper, a wet blanket and an envious soul who couldn’t live the life of dreams.

For the last one year, I have been busy counselling/advising people who are in financial dire straits, facing bankruptcy and even struggling with psychological trauma as a result of the circumstances from six years ago.

This is one vindication I cannot be happy about. This is not something I would gloat about by being right.

What scares me more is that I have written about the next downturn possibly being one that stretches out over a long period of stagnation in what I call a “slow bleed”. Such slow bleeds widen the rich-poor gulf and makes life extremely difficult to get by on a meagre salary. The precursors of such an economy are a higher monetary policy situation, fewer job opportunities from massive redundancies, record high costs against a low or negative inflationary economy and a draw-down on spending/consumer consumption – all of which are happening right now.

The worst thing from hereon in is a bail-out to help us continue living in denial.

And it will happen.

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