tanjm Wrote:Supposing the SG gov gets an average of 100 billion dollars at 2.5% for an average duration of 10 years. Where do you think it can put 100 billion dollars risklessly to earn more than 2.5%? The short answer is: it can't. The money that CPF members "lend" the government is just sitting on the books. Effectively, the government is giving you money via the interest.
A look at the CPF Board's 2010 annual report is instructive:
http://mycpf.cpf.gov.sg/CPF/About-Us/Ann...F_2010.htm
The financial statements can be directly downloaded here:
http://mycpf.cpf.gov.sg/NR/rdonlyres/703...ements.pdf
Turn to page 4 and look at the list of assets. You will notice that out of the CPF Board's $188bn in total assets, only $675m is in cash. The bulk, $185bn, is in "investments". So what the heck are these "investments"? Let's go to page 19, where under Note 6 (a)(i) it is shown that $160bn is in
floating rate special issues of Singapore Government securities.
What is so
special about these securities?
From the annual report itself, verbatim:
The floating rate special issues of Singapore Government securities are bonds issued specifically to the Board to meet its interest and other obligations. They do not have quoted market values and the Board cannot trade them in the market. The interest rates of 2.50%, 3.50%, 4.00% and 5.00% (2009: 2.50%, 3.50%, 4.00% and 5.00%) per annum for the securities are pegged to the rates at which the Board pays interest to the members of CPF.
In other words, the Singapore government has borrowed $160bn from CPF members. It pays various rates of interest which match what the CPF pays its members.
The CPF Board cannot sell these special bonds. So if members draw down their accounts to pay for housing etc, beyond the cash on hand, the CPF Board can only pay these withdrawing members with money coming in from other members' contributions. The observant will immediately see the parallel with Ponzi schemes, where one person's withdrawals are funded by another's contributions.
I am not saying that CPF is a Ponzi, just that the cash flow mechanics are similar.
Now, what could the Singapore government do with $160bn? Officially, the Budget is usually balanced or runs a small surplus, so the $160bn hasn't been spent. Logically, then, the government still has this money. WHERE could it put this money? The only government entities I know of that could possibly use such large sums of money are Temasek and GIC.
So the logical conclusion is that the government has borrowed money from the CPF members in order to give Temasek and/or GIC funds to invest. Have Temasek and GIC made more than 4% per year? According to published media reports, yes, which means Temasek and/or GIC may have made (and kept) excess profits.
If the bonds were created
solely to allow the CPF Board to pay interest to its members, it seems like a very convoluted way to do it, since the Government could simply make a direct payment of the required interest to the CPF Board to pass on to its members, without having to go through the mechanism of creating these special bonds, issuing them, paying coupons, tracking maturities etc.
But by creating these bonds for the CPF Board to buy, the government can not only pay the interest to the CPF Board, but also get access to the
principal sums that CPF members have socked away over the decades. $160bn is not small when you consider that Singapore's GDP is around $200bn. In other words, our national debt-to-GDP ratio is actually 80% even though we all think that Singapore is financially very strong etc.
Of course, since the debt is owed internally, to ourselves, the government can always print money if needed. This is similar to Japan which has a debt/GDP ratio of over 200% and most of the debt is held by Japanese. Fortunately, unlike Japan where the borrowings are used to fund the budget, and inability to borrow more could precipitate economic collapse, in Singapore's case the budget is funded from tax revenues, so if the government suddenly becomes unable to borrow more from CPF members, there should not be any material impact.
This is not meant to induce a panic among CPF members. But they should understand that the statement of accounts the CPF Board sends them is
completely fake - the various balances are mere paper entries and the money is not there at all - it's been lent to the government. Of course, the same can be said of bank statements, that the money is just book entries, but at least you can take out your bank account balance in physical cash... whereas with the CPF you have all sorts of restrictions, among them the Minimum Sum.
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