Economist defends Singapore bubble claims

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Singapore, Merlion (symbol of Republic) at dusk.

The Forbes columnist who claimed that the Singaporean economy is at risk of an Icelandic-style economic crash has rebuffed the Monetary Authority of Singapore's denial that the economy is in a bubble.

Economist and Forbes columnist Jesse Colombo's initial argument, published on Monday, claimed that the Singapore economy faces a ballooning credit bubble - in its property and finance sectors and other parts of the economy - fueled by ultra-low interest rates. Much like Iceland, he argued, Singapore is being falsely perceived as a safe-haven economy that will eventually crash.

( Read More: Is Singapore set for an Icelandic-style crash?)

The bubble claims sparked a swift response from the MAS, Singapore's de factor central bank, on Tuesday, which strongly denied any signs of a bubble, arguing that the government's property cooling measures have worked to dampen sky-high property prices and reiterating the strength of the government's finances and a solid banking sector.

But it seems the debate is far from over, as Forbes published Colombo's response on Friday.

'There must be an unwritten rule in the shadowy world of central banking that demands that dangerous, society-threatening economic bubbles must be denied and covered up at all costs,' said Colombo.

( Read More: Data sets in motion a strong year for Singapore)

In their statement, the MAS said: 'serious observers and investors are not in doubt about the country's financial health.'

In his defense, Colombo pointed to Federal Reserve Chairman Ben Bernanke and other high-profile economists who failed to preempt the economic collapse seen in the U.S., Ireland, Iceland and other hard-hit countries during the mid-2000s.

'The bottom line is that Singapore authorities' bubble denials do not help the country's citizens any more than Ben Bernanke's 2005 bubble denial helped Americans,' he said.

( Read More: Singapore home sales collapse as cooling measures bite)

He also rebuked the MAS's claim that government cooling measures introduced in recent years have effectively cooled the property market. Instead, Colombo said these measures have only been successful in slowing the rate of the bubble's inflation and had not addressed the primary cause of the overly-inflated prices - abnormally low interest rates.

The MAS went on to argue in their statement that household balance sheets were strong, challenging Colombo's claim that household debt to gross domestic product ratios were dangerously high. But Colombo countered the point by arguing that balance sheets are typically strong in low interest rate environments, and said the time to worry will be when interest rates start to rise and asset prices fall.