Thursday, December 18, 2008

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Impact of US Dollar Crash on Property Market

Extracted from the Singapore Property Forum :

ann wrote:
Certainly, indiscriminate printing of US$ will lead to devaluation of the US$. Thus far, Asians have picked up the slack, but recent comments from China and Singapore seem to indicate Asia's patience is wearing thin....

PM Lee:

imbalances which had built up over the past five to seven years between the United States, which has run up huge budget deficits, and Asia, with burgeoning surpluses.

'We can't go back to where we were before, which is, Asians lend money to Americans... Americans borrow money to spend,' said Mr Lee. 'So how do we get savings and consumption back in balance?'

With the American consumer cutting back, someone else - whether the Chinese or the Indians - has to pick up the slack. The whole world would need to adjust to the new situation forced upon it by the crisis, he said.

The China Daily

BEIJING - CHINA warned on Wednesday it would not keep lending money to the US economy indefinitely, even as new data showed it had consolidated its position as the top buyer of American government bonds.
'China's increased purchase of US Treasury securities should not be interpreted as an endorsement of the assumption that the US can borrow its way out of the current financial crisis,' the China Daily said in an editorial.

The warning from the state-run newspaper, an English-language daily that mainly addresses a foreign audience, came after the US Treasury Department reported a steep increase in Chinese holding of US Treasury bonds.

The China Daily said that, given the global economic crisis, the consequences would be serious if China and other nations stopped channelling money into the US economy.

'Interest rates in the US would rise to undermine that government's efforts to bailout distressed financial institutions and companies,' it said.

Anonymous wrote:
Much as China, and perhaps, Singapore, are getting impatient and possibly, fed-up with being at the mercy's of the US economy, their economies are so entrenched that to stop lending to US is easier say than done. The middle class populations in India and China are still too small to pick up the slack. The way I see it, it'll take another decade at least to balance the savings and consumptions imbalances in the current global economy.

Guest wrote:
Money needs to be constantly circulated as efficiently as possible to maintain economic productivity. Right now, too much money is idle in banks and reserves, and not being put to productive use.

As Americans spend less, China knows already that it needs to start spending more to hasten economic recovery, else if this trend continues, it will lead to ever slowing growth and eventually social instability as more people go out of work and can't afford basic necessities.

The US can only do so much as reduce their interest rates to near-zero so it needs China to do it's part as well as all the economies are interconnected. I expect in the next one year we will start seeing increased spending from the Asian powers, better flow of liquidity and recovery in the health of the global economy.

So what does this mean for Singapore property 2009? Prices will probably remain above 2006 levels, but not as exuberant as 2007. A good time to upgrade or purchase for own-stay, especially if there are urgent sales from owners of multiple properties (and there are plenty of such these days). I see a great future for Singapore as a global city for the wealthy, but private property is still too expensive an investment option for most people, and unlikely to be able to "flip" for quick profits.
Contine with: Impact of US Dollar Crash on Property Price

May also want to read:
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