Global economic forces have an impact on how well Singaporeans can live and eat.

Kopitiam uncles will be affected by rising coffee/beer prices and labour costs. But oftentimes, many of these developments involve big technical terms and concepts that kopitiam uncles will be unable to grasp.

This article attempts to demystify some of the terms and concepts involving MAS' recent financial stability review. Hopefully more people will be interested in global economic forces which affects all our livelihoods.

Disclaimer: Many concepts and terms explained here are over-simplified to give readers a rough idea of what has been happening to the global economy in recent times. If you want an in-depth understanding on this issue, a more authoritative source would definitely be the library or business journals or financial newspapers. Unless you're a kopitiam uncle and the kopitiam is the place you'd rather be.

1. Kopitiam uncle: "So cheem, what is Monetary Policy?"

It is when the monetary authority of a country (for e.g. MAS in Singapore) regulates the interest rates within a country by controlling how much money circulates in the country. The more money circulating, the lower interest rates are.

2. Kopitiam uncle: "Government got so generous meh? Why would a monetary authority circulate more money?"

Typically, when more money is floating around, there is more opportunity for unemployment to fall. If the Government here decides to pump in more money to build more infrastructure, that would mean more jobs created for the construction industry and later the service industry to run the infrastructure - i.e. more money, more employment.

3. Kopitiam uncle: "What is happening with the monetary policy in the United States now?"

The United States' monetary authority, the Federal Reserve, has been pumping in money into the US economy by buying up mortgage-backed securities and bonds since 2008 - i.e. the Federal Reserve has been pumping in money into the US since 2008. As of now, it is pumping in USD$85 billion every month. This process is called Quantitative Easing (QE).

4. Kopitiam uncle: "Siao eh, why is the United States printing so much money?"

Aside from ensuring more money in the economy, which will create more jobs for Americans post-2007/2008 Global Financial Crisis, QE ensures that interest rates remain low which will make it easier for Americans to buy houses and service their mortgages.

5. Kopitiam uncle asks: Ok, they can buy houses lah. Good for them. But what has it got to do with Singapore?

Interest rates in Singapore has been affected by the effects of US' QE. A quick check from this MAS interest rate index shows that interest rates, especially housing loan interests hit a 10-year low in 2012.

This means that many people, in recent years, are enjoying low interest rates on their mortgage payments.

Another unintended effect of the QE was that the money was flowing out of the US into investing in other economies, including Singapore, China and India.

The danger comes when the US decides that it is done with QE.

6. Kopitiam uncle asks: Why leh? What will happen if US stops or tapers/normalises QE?

In short, interest rates will start to go up. And that will most likely cause mortgage interest to increase too. If the many property buyers in Singapore were banking on the fact that interests remain low to keep their mortgage payments affordable, they will be in for a rough ride. There is a real chance some homeowners may have to default on their property loans, especially when they have bought multiple properties due to cheap loans, or if their debt-to-income ratio is extremely high.

Banks here do not lend out money only to locals. The money is also lent overseas. Today, loans to China and India, for example, make up 9.2% and 4.2% of total loans made by local banking groups.

Additionally, local and overseas businesses, like in China and India, may have been relying on cheap bank loans. They may also face sudden increases in repayments. Businesses may also be relying on the investment money flowing in from the US to stay afloat. There is the real possibility that some businesses may go bust because of the double whammy of increasing repayment amounts and the stoppage of investments. This of course, causes a loss in jobs for people. People who may be Singaporeans or the kopitiam uncles.

7. Kopitiam uncle asks: Wah like that very jialat! Will we uplorry (colloquial slang for die) if the US really stops QE? 

This question cannot really be answered. MAS has been putting measures in place to ensure the effects of such an event will not go unmitigated. However, MAS has no control on how people may react to the stoppage of QE. Maybe some billionaires may go bonkers and start giving out free money, or maybe the US will decide to flood the market with gold instead of money. The future cannot be predicted but MAS would be trying to manage certain outcomes to ensure the survival of Singapore, I hope.

Top photo from here. 

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