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This is bad news for Goans who have substantial exposure to the USD. Various
business news outlets have been warning about the impending collapse of the US
dollar. Here's my summary of what is being reported in biznews in plain English.
The US dollar has been maintaining a delicate balancing game. It is sitting on
a three legged chair that could loose any one of its legs at any moment,
sending it crashing down.
The three legs are listed below ....
The Chinese Leg:
----------------
The US economy has been running massive deficits - meaning, they are spending
more than they are collecting in taxes. The shortfall, is of course made up
with borrowed funds and a substantial amount of that borrowed money, is coming
from foreigners. For example, China is sitting with $1.3 trillion of American
debt.
If the Chinese decide to liquidate their holdings (they have been threatening
to do so), it would cripple the already beleaguered dollar and send the yields
on US treasury bonds through the roof. In the meantime, the 10 year bonds are
tightly coupled to the long term US mortgage rates. Any Chinese action to take
their money home, would mean the mortgage rates in the US would fly - this in
turn, would send the already fragile housing market to its knees. As mortgage
rates go up, the purchasing power of potential home buyers go down, which in
turn puts downward pressure on home prices. This portion of the cycle has
already begun and folks who used their houses as ATM's are already in a deep
hole.
The Japanese Leg:
-----------------
There's something called the "Carry Trade" in Wall Street parlance, where
investors borrow from sources such as Japan (because of low interest rates
there) and invest it in another place such as the US, where the interest rates
are higher - the difference, is the profit for the investor. Billions are
borrowed in yen and invested in the US stock markets. If the yields in the US
dollar denominated assets continue to fall (couple of days ago, the US Federal
Reserve announced a 50 basis point cut which are expected to affect short term
consumer rates), then these investors will dump their holdings in USD and take
their money back to Japan (or elsewhere), thereby putting more downward
pressure on the dollar.
Americans love to drive their fat ass cars. While it's still cheaper to buy
gasoline in the US than many other parts of the world, a $100 a barrel for
crude oil would certainly trickle down to take a huge bite out of the
consumer's wallet. It's already hitting consumers who are on a tight budget and
oil isn't about to come down in price. I think a barrel oil at a 100 dollar
mark is not too way out of line with what is about to come. This brings us to
the Arabian leg.
Arabian Leg:
------------
Rich Arab nations have been pegging their currencies to the US dollar for a
long time. Well, this has been slowly changing, with Kuwait de-coupling their
currency from the dollar peg just a few months ago. Now, Saudi Arabia, with its
Riyal pegged to the USD, is refusing to lower their interest rates to fall in
line with the recent 50 basis point cut in the US. Why? Because they are having
higher inflationary pressures in their own country. This is not a good sign for
the dollar, as many believe, the Saudis are most likely planning a breakaway
from the dollar peg. Many of these gulf countries are having inflationary
pressures of their own and it is expected that eventually, many of them may
dump the dollar, thereby creating yet more downward pressure on the US dollar.
At this rate, I wouldn't be surprised if the Indian rupee hits 35 to one USD
within the next 18 to 24 months.
Jim F.
New York.
-------------- Original message ----------------------
> Jim Fernandes <[EMAIL PROTECTED]> wrote:
> > Is it true?
> >
> > I think so.
>
>
> Jim F.
From: Mervyn Lobo <[EMAIL PROTECTED]>
> I don't think the US dollar is in trouble. It is in
> deep trouble. Ever since the current administrations
> stoped reporting how much money it prints everyday,
> the US dollar has been in a free fall.
>
> Three years ago ....
> ...
> ...
>
> Middle East residents had better be paying special
> attention now. Some Middle Eastern countries have
> already announced that they are de-linking their
> currency from the US dollar.
>
