Risen Against Gravity


I've moved my blog and portfolio to http://fusedthought.com/en/blog. However, this site will still be kept as an archive...

Individual entires can still be accessed using their trackback links.

Saturday, September 01, 2007

Economical Savings?

Is this recent economic boom really for everyone? As it goes on amid claims from various sectors that everyone is benefiting, it really doesn't seem to be the case at the ground level.

Investments soaring, property prices rising to all time high, this wonderful figures are only for a wonderful front to a worrying backdrop. When these prices are split up into various components, we will then realize that its really not a normal curve. Rather, its leaning towards one side. In property market, that curve falls towards the high end markets like the districts 9, 10 and 11.

With majority of homeowners here being HDB home owners, the property boom here is hardly affecting them. The nature of HDB flats is that they are a linked closely towards a government linked board. Thus, prices are relatively stable in accordance to the aim of the board and the governments in making prices affordable for the masses. Thus, those that are really benefiting from here are the ones already rich and thus have property in these areas or condominium owners who are gong en bloc. However, the en bloc heat is forecast to cool down due to recent ruling.

While we aren't hit that hard by the effects of the sub-prime mortgage problem in the United States, we have problems of our own. With the rising inflation rate and low interest rates for savings, the economy is look set to have a widening wage gap. It is really creating a climate where it doesn't pay for Singaporeans to save.

Interests earned in the savings accounts held in banks will soon be outstripped by the climbing CPI (Consumer Price Index), a statistical estimate of the level of prices of goods and services bought for consumption purposes by households. Thus, in real terms, the value of our money in these savings will drop. In effect, this gives rise to a situation of negative real interest rates.

According to a newspaper article, negative real interest rates favors borrowers and with projection of at least one to two years of negative real interest rates, the risk of fueling asset inflation is very high. With such disproportional rates, people would be expected to want to invest in the property market where returns are deemed to be higher, this driving up the property market and thus inflation of assets.

There is hope however that if many choose to invest, then there is a chance for interest rates to go up. However, with the vast amount of cash in the banking system, which is causing an oversupply even though demand of borrowing is going up, deposit rates are set to remain low for some time.

It is thus timely for us to take a hike and think about whether we should park our savings elsewhere. With these savings paying close to nothing, its not a very bad thing to consider investing in other financial instruments which will maintain our purchasing power in this "pricer" world.

However, with such a decision, the question of whether we dare do so is quite pertinent.. This question is especially "real" for lower/middle income families and the so-called sandwich class of the society, where the money available in their bank accounts are their lifeline to the future. Risk is not a very viable option.

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