Economic growth and asset prices

Some economies were able to achieve rapid growth over an extended period. During the initial years, they adopted economic policies that proved to be attractive for inward foreign investments. This created jobs and lead to a productive economy.

The next stage of the economic development was funded by the rapid rise in property prices. As these assets appreciated in value, the owners felt that they had become wealthy. The governments were also able to use the appreciated values of their assets to take more borrowings to fund national development and other spending. Some of these spendings become wasteful and were not economical justifiable.

After a few decades of inflated asset values, these economies will have to face their reality. Asset bubbles allow more debts and borrowings and do not really create productive wealth. There has to be a payback time.

We have seen the bursting of the asset bubbles in Japan in the 1990s and the continuing pain for two decades. We are now seeing this situation in the USA and Europe. Singapore is also funded on this type of asset bubbles. The high property prices have to be paid through many years of future hard work.

It is sad that in an asset bubble, the earlier owners (including foreign funds) creamed off the big profits and leave the burden of higher asset prices to be paid for by future generations.

Tan Kin Lian