Today in Straits Times.
SINGAPORE, Jul 21, 2011 (The Straits Times - McClatchy-Tribune Information Services via COMTEX) -- If the ratings agencies downgrade the United States' credit rating, Singapore's foreign reserves could take a hit amid the collateral damage, although the impact is unlikely to be long-lasting. But the possibility is inching ever closer.
The agencies have already warned that they will downgrade the sovereign rating of the world's largest economy if the US delays its debt payment.
That would be termed as a technical default, but enough to trigger a downgrade -- and massive global market convulsions.
But economists also warn that a downgrade will send US Treasury bond prices falling, and in turn reduce the value of US dollar reserves. This will have an impact on Singapore's foreign reserves, a large portion of which is believed to be held in US dollars and US Treasuries.
The value of the foreign reserves is likely to have already taken a hit, given the weakness in the US dollar. It has declined nearly 10 per cent against the Singapore dollar, to S$1.21, from a year ago.
The Monetary Authority of Singapore (MAS) does not share data on its US Treasury holdings, but US Treasury Department figures state Singapore held US$57.4 billion as of the end of May, just over 20 per cent of the US$242 billion in official foreign reserves it held at the end of last month, preliminary figures from the MAS website show.
But economists said the US Treasury Department figure may not be an accurate reflection of US Treasury holdings.
Citigroup economist Kit Wei Zheng believes it could be much higher, given that countries typically hold about 60 per cent of foreign reserves in US dollars, International Monetary Fund figures show.
But Barclays Capital economist Leong Wai Ho said the figure could be smaller.
"Given that Singapore is a major financial centre, I suspect much of the US$57 billion of US Treasuries is held by local and foreign banks in Singapore, not just officially (by the central bank)," he said.
The impact of a US default may be temporary, as most economists believe the debt ceiling will eventually be raised.
OCBC economist Selena Ling said that after a US technical default in 1995, when it also delayed a raise in its debt ceiling, there was a temporary spike in risk premiums on US Treasury bond yields. This sent yields up and bond prices down.
Ms Ling said if the same were to happen this time, there should not be a flight from US Treasuries. Central banks can look beyond short-term market shocks because a country can typically take a more medium-term view on its foreign exchange reserves, she added.
She said it would be more damaging to Singapore if the US does not get upgraded back to a triple-A rating after the debt ceiling is raised, or "financial markets go into a tailspin for other reasons".
What economists do agree on is that given the troubles in the US economy and its massive fiscal debt, countries like Singapore have likely been diversifying their foreign reserves away from the greenback and into other currencies.
Mr Leong said: "We have seen a conscious shift away from US dollar-denominated safe haven assets to local currency assets in Asia over the last two years. This is not going to change."
The current hottest issue in the US is the default of all federal debt, and when that happens, Singapore will be completely wiped out. Over the years, PAP has made Singaporean worked like slaves, forcing us into piles of debt that take decades to clear, taxing us by means of healthcare, transport etc -- so that they can ship our blood monies and give it free to the US consumer. Over the years, Singaporean has been deprive of our wealth, suffering hugh inequality, living in poverty, seeing our savings chip away by inflation, because our surplus are being shipped to the US.
Everyone know that US debt is unsustainable, and that includes PAP, but their desire to bootlick US is beyond anyone's imagination. Unfortunately, US show their contempt towards us by threatening publicly to default. In my opinion, not defaulting is an even worse solution, because that means US is going to print more monies, result not only in a stealth default, but also hyperinflation around the world that wipe out everyone.
Fully aware of the situation the US is going to repudiate all its debt, crazy PAP bought ever more US bond, increasing its holding by 41% to 57.4 billion, compared to previous years. Singaporean are now screwed. And when things run its course, Singaporean will see our CPF vaporizes in thin air.
SINGAPORE, Jul 21, 2011 (The Straits Times - McClatchy-Tribune Information Services via COMTEX) -- If the ratings agencies downgrade the United States' credit rating, Singapore's foreign reserves could take a hit amid the collateral damage, although the impact is unlikely to be long-lasting. But the possibility is inching ever closer.
The agencies have already warned that they will downgrade the sovereign rating of the world's largest economy if the US delays its debt payment.
That would be termed as a technical default, but enough to trigger a downgrade -- and massive global market convulsions.
But economists also warn that a downgrade will send US Treasury bond prices falling, and in turn reduce the value of US dollar reserves. This will have an impact on Singapore's foreign reserves, a large portion of which is believed to be held in US dollars and US Treasuries.
The value of the foreign reserves is likely to have already taken a hit, given the weakness in the US dollar. It has declined nearly 10 per cent against the Singapore dollar, to S$1.21, from a year ago.
The Monetary Authority of Singapore (MAS) does not share data on its US Treasury holdings, but US Treasury Department figures state Singapore held US$57.4 billion as of the end of May, just over 20 per cent of the US$242 billion in official foreign reserves it held at the end of last month, preliminary figures from the MAS website show.
But economists said the US Treasury Department figure may not be an accurate reflection of US Treasury holdings.
Citigroup economist Kit Wei Zheng believes it could be much higher, given that countries typically hold about 60 per cent of foreign reserves in US dollars, International Monetary Fund figures show.
But Barclays Capital economist Leong Wai Ho said the figure could be smaller.
"Given that Singapore is a major financial centre, I suspect much of the US$57 billion of US Treasuries is held by local and foreign banks in Singapore, not just officially (by the central bank)," he said.
The impact of a US default may be temporary, as most economists believe the debt ceiling will eventually be raised.
OCBC economist Selena Ling said that after a US technical default in 1995, when it also delayed a raise in its debt ceiling, there was a temporary spike in risk premiums on US Treasury bond yields. This sent yields up and bond prices down.
Ms Ling said if the same were to happen this time, there should not be a flight from US Treasuries. Central banks can look beyond short-term market shocks because a country can typically take a more medium-term view on its foreign exchange reserves, she added.
She said it would be more damaging to Singapore if the US does not get upgraded back to a triple-A rating after the debt ceiling is raised, or "financial markets go into a tailspin for other reasons".
What economists do agree on is that given the troubles in the US economy and its massive fiscal debt, countries like Singapore have likely been diversifying their foreign reserves away from the greenback and into other currencies.
Mr Leong said: "We have seen a conscious shift away from US dollar-denominated safe haven assets to local currency assets in Asia over the last two years. This is not going to change."
The current hottest issue in the US is the default of all federal debt, and when that happens, Singapore will be completely wiped out. Over the years, PAP has made Singaporean worked like slaves, forcing us into piles of debt that take decades to clear, taxing us by means of healthcare, transport etc -- so that they can ship our blood monies and give it free to the US consumer. Over the years, Singaporean has been deprive of our wealth, suffering hugh inequality, living in poverty, seeing our savings chip away by inflation, because our surplus are being shipped to the US.
Everyone know that US debt is unsustainable, and that includes PAP, but their desire to bootlick US is beyond anyone's imagination. Unfortunately, US show their contempt towards us by threatening publicly to default. In my opinion, not defaulting is an even worse solution, because that means US is going to print more monies, result not only in a stealth default, but also hyperinflation around the world that wipe out everyone.
Fully aware of the situation the US is going to repudiate all its debt, crazy PAP bought ever more US bond, increasing its holding by 41% to 57.4 billion, compared to previous years. Singaporean are now screwed. And when things run its course, Singaporean will see our CPF vaporizes in thin air.
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| Source: US Treasury |
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