Singapore and southeast Asia and tapering

by on August 27, 2013 at 6:11 am in Uncategorized | Permalink

This is from a comment by mbka at Scott Sumner’s blog, I had exactly the same impression:

…here in Singapore, the consensus of semi official and private chatter on investment matters, newspaper analysis etc., has long been that QE has fuelled Singapore’s real estate boom through unnatural capital influxes and that it caused all sorts of bubbles elsewhere in the region too. Further, consensus is that all this is going to come down now that QE is about to end. All this is practically presented as fact. (Counter-measures are being taken as well, for instance Singapore just introduced much tighter credit checks to limit the escalating debt service ratios of families to a maximum of 60% of income. That is because everyone expects interest rates to rise globally.)

Come to think of it, this means that bankers and officials in the region have an Austrian model of the world (printing hot money in the US leads to bubbles elsewhere).

Scott’s post is interesting too, as it represents his attempt to come to terms with the apparent bubble collapse from the unwinding of QE.

1 Michael G Heller August 27, 2013 at 7:02 am

I already have a brimming (extensively sub-divided) folder labelled Activist Macroeconomics Hubris. Yesterday I started a brand new folder labelled Activist Macroeconomics Nemesis, in recognition of the fact that dead ducks are definitely coming home to roost.

This little MR post is the second doc to be included the Nemesis folder. The first was yesterday’s superbly accurate and pithy WSJ article by John H Cochrane, compared with which Scott Sumner’s wish-wash wring-ma-hands-ma is trivial.

Here’s a spot-on passage in John Cochrane WSJ article:

“Willy-nilly financial dirigisme will inevitably lead to politicization, cronyism, a sclerotic, uncompetitive financial system and political oversight. Meanwhile, increasing moral hazard and a greater conflagration are sure to follow when the Fed misdiagnoses the next crisis.”

2 mofo. August 27, 2013 at 8:36 am

Can i has a link?

3 mofo. August 27, 2013 at 8:48 am

NM i found it. Someone once said that central banks fail for the same reason centrally planned economies fail. Truer words were never spoken.

4 Bill August 27, 2013 at 9:06 am

Maybe you can creat a “Gold Folder” to your collection for those who predicted a run up in gold prices last year due to QE and lost their shirts,

and maybe pants.

5 Andrew' August 27, 2013 at 10:02 am

Money can go anywhere, but those who started buying gold years ago are still WAY up.

And it must be reiterated they are WAYYYYYYY up for buying…GOLD!

6 Bill August 27, 2013 at 10:27 am

Andrew, I love your comment, because it illustrates a point, which I won’t make here, but think you should discover for yourself. The comment: gold increased from one period to another presumes other items did not increase as well from one period to another.

I can’t attach the link, but look up Dow/Gold price ratio over time, or S&P prices/Gold Price over time. Or Russell 2000/Gold over time.

7 Andrew' August 27, 2013 at 12:26 pm

It’s GOLD, Bill.

8 Andrew' August 27, 2013 at 12:27 pm

You are trying to make me feel at home. I have to go back three steps to convince you that yes, I got your whole point.

9 JWatts August 27, 2013 at 10:06 am

QE1 started in late 2008. Gold is up roughly a third since that time frame. Granted it peaked two years ago and is down substantially since then, but anybody who bought gold at the start of QE hasn’t lost anything.

10 Andrew' August 27, 2013 at 10:37 am

Besides, it is gold. It could be a protracted buy the rumor sell the news. The drop could have been the early signal of the end of QE.

11 derek August 28, 2013 at 2:29 am

It seems the hubbub is due to quick unwinding of positions that were based on the stable state that QE manufactured. Treasuries and gold both have been considered of some value and useful for collateral. Interesting that both have lost value in the sudden unwind.

I find it interesting how resistant economists are to the signs of a price fixing scheme collapsing.

12 Z August 27, 2013 at 7:06 am

Maybe I’m wrong, but I thought it was fairly well established that we have been exporting inflation to India and Asia for five years. All that extra credit money has to go somewhere and the stock market can’t soak up all of it. The US economy remains stagnant along with Europe so that leaves Asia and India. Perhaps I spend too much time reading Zero Hedge, but I’m pretty sure this has been discussed at length years ago by those dismissive of the neo-Keynsian money printing.

13 Bill August 27, 2013 at 9:16 am

Z, Re: “exporting inflation to India and Asia for five years.” Z, their economies have been growing faster than the US economy, so what would you expect if you were an investor having to choose between investing in the US or investing in another country which is growing faster? Or, to put it a different way, imagine the counterfactual: what if US investors were prohibited from investing these extra dollars in India, for example. I would imagine they would have some real inflation, as they would be constrained in expanding output without foreign loans.

14 collin August 27, 2013 at 10:07 am

I really get tired of QE being behind all the other developing markets “busting” because isn’t the role of the foreign banks to stop the negative impact of bad decisions of the Fed. If we are exporting inflation to Southeast Asia, isn’t Southeast Asia exporting deflation to the United States? With stagnant US wages, the growth of call centers and IT backrooms has severely slowed down for India and causing a 1970s like wage inflation in the economy. India has picked the falling ruppee for increased wages compared to the US and other developed economies.

15 Bill August 27, 2013 at 10:30 am

Collin, I do too. Particularly when foreign governments were purchasing US bonds to keep their currencies low. Gee, maybe that wasn’t such a good idea for them.

16 mpowell August 27, 2013 at 1:16 pm

Yeah, if you have a exchange rate monetary policy with the dollar, you can’t really complain about the fed’s inappropriate for you policy-making. Nor is the result surprising. Is it a victory for the Austrians? I don’t see how.

17 Bill August 27, 2013 at 10:52 am

The “they” in my last sentence of the comment was India or any other country that was growing faster.

18 david August 27, 2013 at 8:34 am

Er… once you model bankers and officials as being aware of the oncoming decline in interest rates, and still pursuing the proposed investment anyway, this stops being Austrian malinvestment by definition. Clearly its profitability was never conditional on high interest rates to begin with.

If I had to guess, policymakers in Singapore – and China – just want to pour a lot of concrete while the cost of doing so is cheap. Why not? After the boom has come and gone, and some rich idiots on the other side of the planet have been wiped out, you’d still have the concrete. And even Singapore could do with a lot more concrete, given that it wants to replace much of its existing mass housing stock with new mass housing.

19 Alexei Sadeski August 27, 2013 at 1:00 pm

If interest rates are going to rise, shouldn’t one *maximize* their debt ratio???

20 mpowell August 27, 2013 at 1:18 pm

AFAIK, The 30 year fixed loan is pretty much unique to the US. The answer to your question depends a lot on the terms of debt available to you.

21 Alexei Sadeski August 27, 2013 at 5:18 pm

Ah, of course.

Actually, before the Great Depression (GD1, as Krugman probably calls it), home loans typically had a five year term.

22 TallDave August 28, 2013 at 10:25 pm

I always wonder how much that’s a function of tax policy.

23 HH August 27, 2013 at 2:53 pm

“Further, consensus is that all this is going to come down now that QE is about to end. All this is practically presented as fact.”

Perhaps a silly question, but if this is treated as fact, why hasn’t it come down already? Shouldn’t the crash have already begun a while ago as more and more people started treating this as “fact” and acted accordingly? Perhaps it’s just the econ 101 talking, but if everyone expects X in the future, shouldn’t that accelerate X into the present?

24 TallDave August 27, 2013 at 11:40 pm

The important thing to remember is that the Fed has not historically been able to pump up equity valuations. As Scott has written about several times, that correlation which began in 2008 is unusual and that suggests the equity “bubble” is rational — the markets are saying looser money means more growth right now, i.e. money is too tight.

A stock market “bubble” — irrational valuations — based on monetary policy is hard to accept conceptually. The Internet bubble was driven by revenue projections and wasn’t totally irrational — look at what Google and Amazon and Facebook are today — even if many valuations turned out to be wrong. The housing bubble was driven by all sorts of deliberate, explicit efforts by government to get people to buy more housing — and it was very uneven, many places did not see valuations fall much.

But QE is really the wrong policy in service of the right policy, the Fed is hitting the brakes and the gas at the same time by sticking to the inflation target while doing QE. It’s schizophrenic, they should prove they’re serious by changing the inflation target or targeting NGDP.

25 Clam August 28, 2013 at 1:35 am


Spend some time in the real world. Or observing financial markets.

26 TallDave August 28, 2013 at 10:26 pm

Sorry, I couldn’t discern your argument.

27 8 August 28, 2013 at 3:29 am

Since 2009, the stock market has been moving higher, but look at when the corrections happened. If you pull up a 5 year chart of the S&P 500 you will see two big extended dips since the bottom in March 2009. Those two periods are when the QE policy completed.

QE1 ended in March 2010. The wheels were falling off of Greece in Q1 and the euro plunged into June.
QE2 ended in June 2011. Greece back in crisis, China slowdown, and then the debt ceiling debate for some superfluous volatility.
QE3 taper preannounced in May. China immediately suffers liquidity crisis, interest rates spike, global assets decline in price (commodities, bonds, equities, real estate), India and Indonesia headed for major financial crisis.

I wouldn’t argue that QE made the stock market go up, more like QE has kept the economy from sinking back into deflation. The growth in Indonesia wasn’t fueled by QE, it was fueled by Chinese money printing. QE more or less plugged the hole created by credit deflation, but it was growth in China (leading the emerging markets) that delivered the optimism and global growth. The end of QE seems important because people place a lot of faith in the central bank, but it is misplaced (even by the inflationists who overestimate its power). If I was the Fed and I was worried about perceptions, I would start the taper in September and let people think I was responsible for what happens, rather than show that everything that happened thus far is just the beginning of a much bigger economic trend that the Fed is powerless to stop.

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