How will a default by the US affect Singapore?

I read an article in the newspapers today and it confirmed my fears that Singapore could once again suffer a severe downturn if the US government does not raise its debt ceiling come 2 August. Many would have to face extreme hardship once more.

Salient points in the article:

1. US banks account for some 15% of domestic lending in Singapore.

2. If US defaults, US banks will withdraw their funds from Singapore.

'Should the US default and a credit crunch happen, it would make the fall of Lehman look like a picnic,' Robert Prior-Wandesforde, Credit Suisse.

I remember what happened when Lehman Brothers collapsed. The stock markets went into tailspins. All the buyers disappeared. Real estate was similarly affected as prices of condominiums here in Singapore declined some 30% in some cases.

I remember at the time, Soleil at Sinaran was newly launched and many buyers actually forfeited their 5% deposits and did not exercise their options to purchase. It was that bad.

My Geology professor once said to us that economists have made a mess of the world and it would be impossible for me to comprehend the mess totally. Thus, it would suffice for me to know what actions to take to position myself for whatever eventuality.

If the debt ceiling should be raised, the party will continue. Inflation could get worse and the stock market could see a new high. What to do? Stay invested.

If the debt ceiling fails to be raised, the party will end. Credit will become hard to come by or at least be more expensive. This affects costs in all its forms and will affect all businesses and individuals. What to do? Divest.

We should take a position that will allow us to benefit if either scenario should come to pass. How do we do this? The simplicity of my answer might just disarm you: be 50% invested.

Good luck.

Read article in The Straits Times here.

Debt ceiling gridlock: Who will get paid?