THE GLOBAL ECONOMIC FORCES: WHAT INVESTORS MUST KNOW? Part 1: Singapore And The Global Economy
Singapore is a small, but very prosperous, citystate conducting business within a global economy over which it has no control.
To invest wisely, it is not enough to know what is happening locally, Singaporeans must have a firm understanding of the forces driving global economic developments.
Because it will be those forces that ultimately determine the direction of the Singapore stock market, the Singapore property market, the value of the Singapore dollar and trade volumes.
While the global economy is far too complex for anyone to fully understand, it is possible to grasp the most important aspects of it at any one time.
The global economy is in crisis because so much credit has been created around the world that it cannot all be repaid. The modern financial system is highly leveraged and poorly regulated.
Therefore, a relatively small amount of credit defaults could cause a systemic collapse that would destroy most of the world’s savings. That very nearly happened in 2008.
To picture this situation more clearly, we can picture the global economy like a giant rubber raft – but one that has been inflated with credit instead of air.
Floating on top of the raft are all the asset classes (stocks, bonds, commodities and real estate) and the world’s population of seven billion people. Unfortunately, the raft has become fundamentally defective
The income of the seven billion people is insufficient to service the interest on all of the debt that has been created and keep the raft afloat.
Another problem is the credit that is continually being destroyed by defaults causes holes in the raft. And that’s where we are now – on a sinking raft. Continuation on Part 2
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