Singapore 'likely to be hit' if US defaults

[Musicwhiz]

Jul 29, 2011
Singapore 'likely to be hit' if US defaults
By Aaron Low, Economics Correspondent

SINGAPORE is likely to be among the worst-hit countries in Asia should the United States default on its massive debts leading to a financial crisis, warned Credit Suisse yesterday.

This is because US banks account for almost 15 per cent of total domestic bank lending here, said the bank in a report.

In such a default cum credit crunch scenario, American banks would almost certainly withdraw their funds from the region, including Singapore, said Credit Suisse head of India and South-east Asia economics Robert Prior-Wandesforde.

'Should the US default and a credit crunch happen, it would make the fall of Lehman look like a picnic,' he added, referring to the collapse of Lehman Brothers investment bank in September 2008, an event that triggered the financial crisis.

US lawmakers have been locked in heated, partisan talks over raising a statutory limit on the US borrowings ceiling ahead of an Aug2 deadline.

If the US fails to raise this debt ceiling, it could default on its obligations - sending shock waves across global financial markets, said analysts.

For Singapore, Mr Prior-Wandesforde noted that banks and financial institutions here are the second-highest holders of US debt and equities after Hong Kong.

The size of US debt and equities held by the private sector here is as high as 22.7per cent of Singapore's gross domestic product, said Credit Suisse.

Mr Prior-Wandesforde noted that banks here are very well-capitalised but this would 'not matter in the event of an extraordinary credit crunch'.

As US politicians try to hammer out a deal, several senior American trade officials yesterday said they expected a deal on the trade deficit to be done.

While the current wrangling may be alarming to people watching the Washington debates from the outside, it is what an open, democratic society needs to go through, said US Assistant Secretary of State for Economic, Energy and Business Affairs Jose Fernandez.

'We need to keep in mind that while the current wrangling here is intense, it is the kind of debate an open democratic society ultimately goes through to reach the right solution,' he said, speaking to reporters in Asia via a conference call. 'We understand the concern and also understand the stakes involved here.'

In the longer term, it is more important to pay attention to the economic engagement the US seeks in Asia, he said.

Mr Fernandez reiterated the pledge made by US Secretary of State Hillary Clinton that the US is committed to staying in the region and that the Asia-Pacific is important for US and global economic growth.

Likewise, US senior official for Asia-Pacific Economic Cooperation (Apec) Kurt Tong noted that the US is actively engaged in the region through various trade fora like Apec and the on-going Trans-Pacific Partnership free trade talks, a nine-country regional free trade agreement.

[sgd]

Interesting ... if singapore comes in second largest after hongkong then I guess singapore must be ranking 20th largest holders of US debt.

See --> Business Insider

[newborn1000]

It's amazing how 100+ people in Washington has so much influence over the world..........

If USA defaults, u can almost be assured the greek's sand castle will fall this time......dont think EU can take that kind of impact

[redcorolla95]

1. It is better to be well-capitalized than not-well capitalized. In Tier 1 capital (Sgp banks are some of the world's best capitalized) & in loans to deposits (less than 1), Singapore is extremely sound.
2. The govt has solid reserves in MAS, then there's GIC & Temasek.
3. So if the assets are worth less, at least some of the liabilities are worth less too.
4. And even if some liquidity goes out and rates rise, that could increase the affordability of housing, so couples can get married and have kids earlier and save more for retirement.

[sgd]

Even if assuming the republicans themselves all agree they still need to debate with the democrats and get them to all agree before hammer out a deal and bring it to the president get his signature before pass into law. Is there even enough time to do all these things just few days away.

[touzi]

The following article from Bloomberg was reproduced in today's edition of the Straits Times. Please note that if US politcians do not reach an agreement next week, it does not mean that the US will default. And if they reach an agreement in time, it does not necessarily avoid a downgrading. Maybe it is becoz the event is not as significant as it has been portrayed by the media that the politicians are willing to go on with the great Washington blockbuster.


===================


I’m sitting at my computer, watching the national debt clock tick relentlessly higher, as if to challenge me to make mental computations. How long does it take the U.S. to accumulate an additional $1,000 in debt?

Answer: Faster than my eyes can move from the screen to the second hand of my watch. At that pace, how long would it take to add $1 billion? $1 trillion? Too many zeroes for my brain.

This is just a distraction -- for me and for Washington politicians. We’re both trying to avoid getting down to work.

For Washington’s part, the short-term focus on raising the $14.3 trillion debt limit by the Treasury’s Aug. 2 deadline has become a diversion from the nation’s long-term fiscal problems. The federal government has to rein in the growth of its debt so that it becomes manageable in relation to the size of the economy.

You wouldn’t know it from listening to the lecturer in chief Monday night. In his address to the nation, President Barack Obama resorted to many of his favorite divide-and-conquer techniques, more suited to warfare than politics, in an attempt to demonstrate he is rising above the fray.

He blamed George W. Bush, this time for squandering the budget surplus the former president inherited. He played the class-warfare card, setting up a choice between corporate-jet owners and senior citizens, between hedge fund managers and their secretaries. He compared himself to Ronald Reagan, a comparison that challenges even the wildest imagination. And he scared the public and investors with the threat of default, even as he insisted on a debt-limit extension through the 2012 election to spare the economy further damage.

Default Defined
All this while invoking the spirit of compromise and the need to “come together as one nation.”

Obama’s Washington-knows-best attitude was on display Monday night when he said most Americans outside of Washington had probably never heard the term “debt ceiling” before.

The only way Americans could possibly be unfamiliar with the term is if they had tuned out the president for the last few weeks. The president and his Treasury secretary, Tim Geithner, have taken every opportunity to fan the default flames, even though such an outcome is highly unlikely.

Default is defined as the failure to make timely payment of principal and interest. Standard and Poor’s uses that definition, specifically as it pertains to market debt, when it issues its sovereign debt ratings.

Scare Tactics
The Treasury is not going to default in August, nor in subsequent months for that matter. An estimated $172.4 billion of tax revenue next month is more than enough to cover the $29 billion of August interest payments. For fiscal 2011, which ends Sept. 30, the Treasury is expected to take in revenue of $2.2 trillion, while only $214 billion is needed to service the debt.
And even if it lacks the authority for new borrowing, the Treasury can continue to roll over existing debt.

Instead of dangling the default threat every chance they get, Obama and Geithner should be telling the world that the U.S. has every intention, and the resources, to meet its debt obligations. They should shout it from the rooftops, put a banner on the Treasury Direct website, and use the Sunday talk shows to reassure investors, not frighten them.

The administration’s stated desire to remove the uncertainty hanging over the economy flies in the face of their saber-rattling. Why, one might even conclude that they are -- perish the thought -- playing politics with the debt ceiling! (Oh, wait, it’s the Republicans who are doing that.)

Signs of Stress
Until this week, financial markets were taking Washington’s fiscal follies in stride. Surely these folks won’t prevent the government from making good on the spending decisions of prior Congresses.

In the past two days, the discount rate on Treasury bills maturing on Aug. 4 has gone from 0.05 percent to 0.15 percent. This week’s 5- and 7-year note auctions met with tepid demand. The price of a one-year credit default swap on the U.S., a derivative contract that offers default protection, rose to a record 80 basis points from 46 basis points last week.

Just because the U.S. isn’t going to default doesn’t mean it can pay all its obligations, including Social Security and veterans’ benefits, payments to defense contractors and money distributed to the states. The federal government borrows about 40 cents of every dollar it spends, so it would have to prioritize its payments if Congress fails to raise the debt ceiling by next week.

A failure to pay its bills may be cruel and unusual punishment for seniors who rely on their monthly checks; it may hurt an already weak economy; it may cause chaos and disruptions in financial markets; and it may leave a scar on a great nation. But it does not qualify as a default.

Likelihood of Downgrade
That said, an increase in the debt ceiling is no guarantee the U.S. will retain its AAA rating. When S&P put the U.S.’s top rating on CreditWatch on July 14, indicating a 50 percent chance of a downgrade in the next 90 days, it made clear that its decision would be contingent on both a debt-limit increase and a “credible solution to the rising U.S. government debt burden.”

One way or another, Congress will raise the debt ceiling by Aug. 2. I wish I had the same confidence watching the Washington play-by-play that S&P’s second criterion will be satisfied.

(Caroline Baum, author of “Just What I Said,” is a Bloomberg View columnist. The opinions expressed are her own.)

To contact the writer of this article: Caroline Baum in New York at cabaum@bloomberg.net.

[sgd]

I read some reports last week investors have pulled nearly 40 billion off from the money markets. If they default there's going to be a sell off anyway.

It was during bush presidency when he went on a binge and spent 7 trillion dollars fighting 2 wars and created "homeland security" but if America defaults the people will remember that this happened on obama's watch ... under a black president even though it's very clear the republicans are deliberately stalling and using this leverage to their maximum.

[memphisb]

'Tough ride for 3 to 4 years'
DPM Tharman on how Singapore can brace for slow growth, recessions in world economy

04:46 AM Aug 07, 2011

Singaporeans have to be prepared for slow growth and periods of recession in the advanced economies in the next three to four years, said Deputy Prime Minister Tharman Shanmugaratnam. -- ST PHOTO: DESMOND WEE

SINGAPORE - Deputy Prime Minister Tharman Shanmugaratnam has braced Singaporeans for a "tough ride of slow growth and occasional recessions" in the next three to four years in the world economy, even as he spelt out four priorities for the nation to stay afloat.

Amid a global market correction fuelled by worries over the European debt crisis and a faltering United States economy, Mr Tharman - speaking at a National Day dinner at Bukit Batok yesterday - said confidence in the world economy is weaker than it was three or six months ago.

Noting the weak fundamentals of the United States economy, he said it would not take much for flagging confidence to lead to recession. "Whether there's a recession or not in the next six months, no one can tell in the US, but it is very likely that the next three to four years will be a tough ride of slow growth, and occasional recessions. So we have to accept this as the reality of the world," he said.

"Fortunately, Asia is still well. China is achieving a soft landing in its economy, South-east Asia and India are still by and large doing well, but we will all be affected by the slowdown and troubles in Europe, US and Japan."

Separately, in response to media queries on the downgrading of the US' credit rating, the Government of Singapore Investment Corporation said it has a long-term investment outlook and monitors "closely developments that affect this outlook".

Yet Mr Tharman, who is also Minister for Finance and Manpower, is optimistic for Singapore's future, if the country adheres to four priorities in its next stage of national development.

Even as the recent General Election was a symptom of the change in the political and social landscape, Mr Tharman stressed the need for Singapore to "develop a spirit of consensus and avoid divisiveness". It must "become a mature and functional democracy", as opposed to the dysfunctional ones in Europe and the US.

"The debate in the US over the debt ceiling was a symptom of that: A divided Congress unable to agree on something that really should have been fairly straightforward, because of political posturing and an unwillingness to give and take."

In particular, the discussion in both the Singapore mainstream media and online sphere must "keep the tone of openness, respect and understanding", rather than devolve into contempt or pretending there are simple solutions to all problems.

At a separate event last night, Foreign Affairs and Law Minister K Shanmugam also urged Singaporeans to stay united in the face of a worsening global economy.

Mr Tharman reminded Singaporeans that dealing with crises is part of life - the key is dealing with it decisively and in a spirit of fairness.

Citing rising living costs as an issue that has hit Singaporeans, he noted the Government's provision of assistance packages is worth five to six times the S$600 increase in the costs of a typical low-income family.

Calling for "a sense of perspective", he noted that the latest transport fare hike would result in most commuters seeing an average S$8 increase a year - a low-income household gets S$3,000 in assistance, while transport vouchers are available to those in need.

Mr Tharman also stressed the need to keep investing in the future, especially in education, transport and raising productivity. Singaporeans should also develop a spirit of volunteerism, as inclusive growth "is not just about Government helping the poor but also Singaporeans helping each other", he added.


'Market turmoil a reminder of President's custodial powers'

The turmoil in the financial markets is a "reminder of the important custodial powers" of the President in protecting Singapore's past reserves, said presidential hopeful Dr Tony Tan in a Facebook post yesterday, adding that the downgrading of the United States credit rating will have repercussions across the globe.

He noted that Singaporeans were concerned over the latest public transport fare increases, "which is linked to wider worries about the rising cost of living", and said he shared the concerns.

On Thursday, Dr Tan had said that he expected a "perfect storm of problems" which will affect the global economy, and eventually Asia and Singapore.

Dr Tan - one of six Presidential hopefuls - also remarked on the "lively discussion" at the Institute of Policy Studies forum on Friday, where Law Minister K Shanmugam spoke on the role of the Elected President, and said he would share his own views on the subject in the coming "days and weeks"