Obama's US economic revival game plan and its impact on Singapore

23 Dec 08

To understand the game plan, a quick brief on the state of US economy (USD13 trillions p.a.) would be able to frame the issue. Being the world's largest economy and consuming nation, her economic contraction has triggered a global financial crisis and recession.

As P. Krugman rightly point out, there is no real difference between Madoff and the overly paid bankers and the senior executives of some US largest corporations; they simply ripped cash off the balance sheets of US financial institutions and companies (and some other major nations too). In place of it, they filled the books with toxic assets or unrecoverable debts that are as good as worthless papers. Figuratively speaking, they had blown the banking system apart such that instead of the banks standing, they are all deep holes in the ground of the Wall Street where the banks used to stand.

As we know by now, US FED had poured in close to USD2 trillions of cash in to fill up the balance sheet's holes and a further projected USD700 billions was needed to reconstruct mainly financial institutions. Based on the EU 3% government deficit rule for a stable economic development, US had busted that limits, way beyond the condition of a stable economy development.

Obama's economic team has just floated a USD850 billions rescue package. In April Y08, USD120 billions were sent out as free cheques and tax rebate to US individuals or companies, which only managed to delay the recession by a few months. Obama’s USD850 billions will be the second fiscal injection or stimulus into the real economy or Main Street. This initiative will be the turning point of the US economy where currently, it is sliding into a severe recession, but again, it will be only for short upward reversal in later part of the year, instead of a linear long drawn recession. Mr. Greenspan has called for a US economic recovery in 6 to 12 months' time and he is going to be right, but only for a short while.

What about Singapore's economy? An international bank pointed out that in Y2005 that Singapore directly exported 15% to US, but there is a high correlation of 0.84 between Singapore export growth and US domestic demand, due to indirect export to US through third-countries’ export to US (example like China,...etc) As such, any US contraction and vice-versa, will have significant impact on Singapore economic growth and unemployment.

We are about to enter into the year of the slow ploughing Earth Ox. The Y08 Rat has managed to wriggle itself through the year without suffering from any obvious effect of economic downturn (on the Singapore Main Street) that is to come. Singapore will feel the growing severity as Y2009 months passes. Though US will shows signs of recovery in the later part of the year, Singapore and Asia in general will only see some form of recovery in Y2010 or the Year of the Tiger. As we all know, riding the Tiger is never an easy task.

In a following series of articles, I will delve into the details of the Obama's game plan and his team of economic architects and at the same time, other major countries' economic policies and its effects on the different sectors of economy as well as the effects on the currencies, stock, commodities and bonds markets. US has be printing lots of money and dropping tons of cash onto Wall Street, like the helicopter unloading water to douse out the raging economic fire. This policy is showing its first ugly sign, the most dramatic weakening of USD; a 15% record weakening against the EUR (and also against other currencies) in just over a week recently.