Tan Kin Lian's Blog: Suggestion to stimulate the Singapore economy

Friday, February 06, 2009

Suggestion to stimulate the Singapore economy - Money multiplier

Dear Mr Tan,
I wish to submit the following suggestion to stimulate the Singapore economy

1) First, the government to issue cash voucher with mutiple nomination of $100 with expiry of 1 year. This voucher would be sent out to all Singaporean.

2) With this voucher, the catch is that it must be spend with any SG establishment with minimum purchase of $150 in a single receipt.

3) So, it would have the immediate desired money mutiplier effect for demand within the expiry.

4) SG establishment receiving these $100 voucher through customer payment can be creative by paying part of their employee pay package with these $100 voucher based on $80 employee wage (opt in basis by individual employee depending on their need for these voucher). This would be implied improvement of the firm cashflow as the more voucher which the firm collects mean his sales turnover has improved. And, by paying voucher to employee at employee option, it free up some cash particularly the profit make when the voucher has to be spend with additional $50 cash.

5) The next catch is that this $100 voucher has a depreciating effect that by end of the expiry date, the remaining value which could be converted to cash through SG bank is $80. The reasoning for this approach is to further stimulate those SG industries particularly those with high profit margin such as retail store, high end products and capacity measured establishments such as Concert, Cinema and exhibition space which having 20% discount (based on proceed of $80) would not be an issue rather than the actual sales volume.

6)Inevitably, I believe that with these $100 voucher, demand and supply would create a secondary trading market for this voucher during the expiry date which would further spur up comsumption and believe the government through their various agencies could also snap up these vouchers to stimulate further.

Simpl

13 comments:

Anonymous said...: To the relevant authorities,

If this is not a brilliant idea, I don't know what else is. Please, would someone kindly act on it fast to save all the suffering citizens. Thank you and God bless.

A Concerned Citizen; February 06, 2009 4:39 AM
Anonymous said...: I prefer a "keep it simple" method. I cannot understand it. Can simplify your explanation? Thanks.; February 06, 2009 5:58 AM
Anonymous said...: This is similar to the idea of increase supply of money which theoretically leads to increase in consumption. The voucher idea is innovative because it has an expiry date and so the money has to be spent within a period of time.

Unfortunately I don't think it will work just as many of the Job Credit Scheme etc are not likely going to be of much help. In Singapore, our economy main contributor of GDP is not consumption. Remember, GDP = C + I + G + X - M.; February 06, 2009 8:14 AM
ym said...: i am speechless... i dont want to be rude but this by far is one of the stupidiest idea i have ever heard..

btw, zimbabwe's currency also has an expiry date, see the similarities?!?..

just some basic laws about the economy...
- printing money out of thin air will not help the economy recover, it is merely just couterfeiting (monetary economist calls this inflation)..

- counterfeiting, exchanging something for nothing, only destroys real wealth..

- theory of spend yourself out of recession is simply wrong and illogical

are you a banker Simpl?.. only bankers think wealth can be created from nothing...; February 06, 2009 9:17 AM
Anonymous said...: i also think that this is a stupid idea. not innovative at all.; February 06, 2009 11:22 AM
Anonymous said...: I think it's YM's understanding of economics which is somewhat lacking, even though I too dount the efficacy of Simpl's plan for the reason cited by an earlier annonymous commenter: consumption does not actually make much difference to Singapore's GDP.

When banks cut and raise interest rates (though not in Singapore's case since we use exchange rates), there is an immediate impact on money supply and creation, which either increases or lowers the amount of money in circulation. So central banks actually do print/ destroy money all the time. So while YM can certainly disagree with the proposal to raise money supply in these times, it's not clear that YM understands the money tranmission mechnism, nor does he have any alternative solution (explicit or implicit) to offer in his diatribe either, other than boldly declaring that it is "not logical" to spend your way out of recession.; February 06, 2009 11:34 AM
Concerned said...: As expected the cries from many quarters for the reduction in the GST is ignored by the FM. From his reasoning, it goes against the proverbial logic of two heads is better than one. In this case, it is 1 head is better than 10 heads, as he argued against the reduction of GST. What FM does not understand and felt is that since the increase in the GST from 5% to 7% (a 2% increase), the prices of of many goods (particularly in hawker centres) increase by 8% to 20%, as the 2% has a multiplier effect in the sales chain when the goods passed from one seller to the next.
That is the reason why people prefer the reduction in the GST than further GST credits, hoping that GST reduction will be lead to a reduction in the prices before the GST increase. FM is a busy man and is renumerated in S$ millions, so he does not felt the price increase personally does not mean that there is no price increase and also no pain for the man in the street.; February 06, 2009 12:14 PM
ym said...: anon @ 1134am
firstly, central banks only has power to create the money-base... the inverted money supply that sits on top of the money-base comes from the fractional reserve lending of commercial banks..

it's the printing of "unbacked" money which ultimately destroyed the economy...

the solution as i have mentioned many times in this blog is to remove fractional-reserve lending, abolish the central banks (ie stop them from manipulating int-rates and forex-rates)...

also, the economy needs to SAVE, not spend.. the paradox of thrift as preached by experts is simply wrong, a HUGE misunderstanding of how the economy really works...

interested readers should study the following article and mises.org (austrian school of economics)
http://mises.org/story/1826; February 06, 2009 1:51 PM
Anonymous said...: I am Simpl. Tks all for the comments. To answer YM, I am not a banker n is a non-graduate.

After the budget and in my opinion, we are only having many of MPs and fellow citizens lamenting whether it is good or bad policies with many just rubbing salts and circling around the problem we are facing today, with too little suggestions coming up with their alternative plans. Policy maker surrounded by these pple just end up non-constructive with limited solutions. In the end, most energy spent is to justify their action made.

I wrote knowingly well enough that it would never catch the eye of the policy maker. But who know, with a lot more active ideas coming up from those intelligent pple out there like you, there may be a little chance that we could stop our economic pain earlier when it is enacted. So, pls do come up with more ideas, interesting or stupid is in the eyes of the beholder but more importantly, Singapore belongs to all of us.

To also answer anonoymous. Yes, GDP=C+I+G+E-M. Yet, Export would gone for a long while which we cant blame the govt as China with much lower cost are sharing same fate. Investment would also be down much due to reduced Consumption which again we cant blame govt as enterprises has to make business sense in Investment decision unless they are sure of expected increased consumption. Govt spending does not have as much multipler effect as compared to consumption and it may not be as broad base as well. So, you would need much increased consumption with govt spending to bring up Investment to offset for the Export.

Yes, my suggestion constitute inflation. But all economy only trive when price is up in a gradual manner and it is exactly inflation that we need now. Remember, pple consume when they expect price to increase futher and would stop consume when they expect price to fall.; February 06, 2009 2:07 PM
Anonymous said...: Mr Tan, you should get together with NMP Siew Kum Hong.

I believe you, Mr Siew and Mr Stever Chia can do wonders as a political party targeted at the white-collar workers.; February 06, 2009 3:18 PM
Anonymous said...: Seriously, how many SG establishments will want to accept such vouchers?

Secondly, as with the Singtel shares, how long a time limit will tbe SG banks be willing to extend their services to convert such unused vouchers into cash?

A lot of people went through a lot trouble with the Singtel shares already and I don't think they will support such an idea. I certainly would not.; February 06, 2009 4:39 PM
Anonymous said...: Money supply is likely contracting as banks' desired reserved ratio have increased due to their lack of desire to lend money. Thus "printing" some money via vouchers wouldn't cause much harm as it is not likely enough to increase money supply.

YM's understanding of economics is really lacking. Don't think he knows what he is talking about.; February 06, 2009 10:39 PM
[cz] said...: hmm.. wont such voucher incur additionally non monetary cost?

like sorting out the vouchers and whats not.

in addition, sg multiplier is pretty low due to cpf. so i doubt that spending money to get out of a bad economy is useful.; February 07, 2009 11:42 AM