OT: Falling Dollar, dooms day theory about a big recession

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techy2468

Registered Users (C)
i have been reading about theories about a big recession which may hit usa.....but since i dont have much clue about economy.....i am unable to fathom it...

UN or other can you please discuss how falling dollar value, growing trade deficit/imbalance, weakening housing and auto market, slowing economy etc ...
may bring bad times over here...

looks like this blog author does not like usa:
http://www.dailyreckoning.com.au/american-debt/2006/11/27/
 
Oil prices are falling too. In winter when people start using more fuel to heat up their homes & cars, there may be a spike in oil prices.At this time the dollar might get a bit stronger. I plan to get rid of my dollar reserves :)
 
Always moving??

Techy2468,
Just like immigration, you can argue for or against it. Bottom line is if you are qualified enough and rich enough, you can choose to live where and as u want.
In case u are too invested here and getting nervous, try and take on as much as u can handle mentally and money wise....
Peace!



techy2468 said:
i have been reading about theories about a big recession which may hit usa.....but since i dont have much clue about economy.....i am unable to fathom it...

UN or other can you please discuss how falling dollar value, growing trade deficit/imbalance, weakening housing and auto market, slowing economy etc ...
may bring bad times over here...

looks like this blog author does not like usa:
http://www.dailyreckoning.com.au/american-debt/2006/11/27/
Click to expand...
 
i am waiting for some analysis......i hope UN will shed some light..

i am just being curious...as of now...i am well balanced between Rs/gold/dollar....
 
Binge drinking

The US is currently behaving like a NFL winning quarterback who is imbibing alcohol and having a jolly good time! China is the barman, happy to let the whiskey flow to this cash splashing celebrity. Everyone realises this will lead to a mother of a hangover, but when and at what dose noone knows (afterall this is still a big fella quarterback we are talking about and he can tolerate quite a bit of the happy drink). We can take this analogy further by saying that other jealous players from the losing team (Iran,Korea,Venezuela and ???Russia are planning to pick a fight with this drunk fella, but worry that this is still the winning quarterback and just might kick their ass even drunk!)
The currency and commodity markets are sizing up all these developments and struggling to decide between everything. Any of these players can make the first move. The quarterback could call it a night. The barman could stop dispensing the booze and anyone else could start a barfight. Right now the status quo suits everyone, lets see where the tipping point is, the markets merely size up the probabilities and set prices.

I suspect things will all deflate slowly. The US will eventually suffer its hangover of economic slowdown, higher interest rates, lower dollar, higher unemployment but this will be spread out over time. Geopolitical risks are the unpredictable.

All the above said, I am sticking with the US as it still has a lot going for it. Hugely developed institutions, the richest market(despite the dollars fall companies will have a hard time raising prices here and the inflationary effect will be blunted), very good natural resources, large quantities of arable and livable land, the strongest military and the advantage of the dominant language, currency and culture of our times. They also have the largest quantities of capital in the world as well as still the most competitive capital markets in the world. In addition to the above, I for one cannot think of another place with the natural beauty, and variety of this country.
All the above said it would be foolish not to keep perhaps about 20% of your assets in emerging growth markets and another 10% or so in commodities like Gold.
 
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couldn't agree more alterego2. It's in the rest of the world's (especially China's)best interest that the US economy stay afloat :D
 
alterego2....i agree with u.....as you said even china is having a tough time balancing things.....since they have yuan pegged against dollar......things still remain cheap.....i have a feeling that even Rs. is also pegged against dollar.....since i have not seen too much appreciation of Rs againt dollar in last 4-5 years...

i am sure there are other currencies which move with the dollar.......that means as of now only euro/GBP and yen are making a difference in the dollar value......and of course these people are comparing with gold prices...

hence if china/india will let go their forex of dollars....dollar will go down further....that means their export earnings will be much less......and if they appreciate their currency their export industry will die....

so i am assuming india/china are going to back the dollar for a long time...

and if i am not wrong......oil is still traded in dollar..........but i am unable to understand about its significance?? :confused:
 
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Not to mention the human potential

Smart people like you dream and aspire to come to this country. It is this human potential that gets tapped in this country.

There is Democracy, freedom which is not available in other countries, all races are tolerated.

The cream of all nations would like to live in such surroundings.
 
A key indicator for recession is the Un-employment rate.
The un-employment rate is keep falling recently and I am highly doubted there will be a "BIG" recession as you suggested. ;)
 
techy2468 said:
alterego2....i agree with u.....as you said even china is having a tough time balancing things.....since they have yuan pegged against dollar......things still remain cheap.....i have a feeling that even Rs. is also pegged against dollar.....since i have not seen too much appreciation of Rs againt dollar in last 4-5 years...

i am sure there are other currencies which move with the dollar.......that means as of now only euro/GBP and yen are making a difference in the dollar value......and of course these people are comparing with gold prices...

hence if china/india will let go their forex of dollars....dollar will go down further....that means their export earnings will be much less......and if they appreciate their currency their export industry will die....

so i am assuming india/china are going to back the dollar for a long time...

and if i am not wrong......oil is still traded in dollar..........but i am unable to understand about its significance?? :confused:
Click to expand...

As long as the 600 Billion budget (deficit) for war spending, you will not see the dollar goes up anywhere soon.
 
i think we may be able to analyze if we identify all the variables......which play a role in this economic model....

let me start

1. Interest Rate in USA.....if this is increased US dollar will hold up.....but it will further weaken housing and automobile....and it will hurt consumers since they are neck deep in debt....and they need debt to buy stuff...

2. OIL trade currency........as of now....except for IRAN & Venezuala....USA has a good control over oil production.....that means USD will remain as the currency for oil trade.....that means every country in the world needing to buy oil...will have to have FOREX reserve in USD to buy Oil....

3. China:
3a. FOREX reserve of China....(current buying power)
3b. China's currency Yuan pegged to USD (competitive ness of exports)
3c. china dependency on exports to usa.(future earning)

4. US being destination for investment.......i think this is the weakest point right now....since the world is losing faith in USD....since with falling usd....they are losing buying power...

5. US economy....consumers spending ( i just read that they spent a lot this thanksgiving sale..)......and they will continue spending it seems....since the job market is great....and wages are rising...

i know i am missing a lot....and i may be off target a lot.....where is UN??
 
techy2468 said:
i think this is the weakest point right now....since the world is losing faith in USD....since with falling usd....they are losing buying power...
Click to expand...

Just because the USD falls, doesn't automatically makes the world lose faith in the US as an investment destination. Foreign investment returns are a combination of both the raw local currency return, plus the return (+/-) on the currency. If the USD is falling but the returns to be made in the US are still greater than those in other nations, investment will continue.
 
US has had bad times before, and it will bounce back. Asia had the financial crisis in the 90's that destroyed the economies of several countries and made everybody miserable. Most of them bounced back, and are doing better than they previously were.

The reason for the fall in dollar can be partly speculative. Keep in mind in the late 90's, early 2000, the dollar was considered quite expensive vs. other currencies. So investors move their money to other currencies to try and tap profits. When most of those investors start to feel that the Euro or Yen is too expensive, trust me, they will come back to the dollar. The psychological effect to laymen like you and me is of course for us to say "oh dear, the economy is going down".
 
A year ago, it used to be by favorite topic to read, research and discuss with fellow professionals. There're plenty of arguments to support both economic doom and continued prosperity.

The Bad

Some fact are stunning: In 1980, US used to be the world biggest creditor. Now it's world's biggest debtor. The non-stop orgy of borrow-and-spend has been on for almost three decades. There's no way it can go on forever.

The last time I checked (year or so ago), US owned $50B to Saudi Arab, $200B to China and $700B to Japan. It's argued that it's in their interest for these countries to continue investing in US and keep its economy afloat by continued landing. That is indeed correct, as of NOW. what happens if these countries find a few years down the road that China and India are better customers than US?

Borrowing isn't necessarily bad if it's put to productive uses. However, borrowing for a war (not arguing other aspects) is bad. Borrowing to buy cheap plastic things at Walmart is bad... you get the picture.

In a nutshell, twin deficits (fiscal and import) put a huge strain on the economy... sooner or later, it'll be time to pay.

I could argue many scenarios for pessimistic future but I'll stop at one and look at the other side.

The Good

On the flip side, US still has the worlds best financial system, infrastructure and judicial system (a must for businesses to prosper). It's -without any doubt- is the best place in the world to do business.

It's still is an amazingly dynamic economy. Most of the new inventions come from US. RoW is yet to produce a Google, Yahoo, MS or Cisco.

Even if China makes most of the Nike shoes, it doesn't get paid a lot for it. For $80 spent on your Nike, China gets only $4-6. Rest goes to retailer, celebrity endorsers in US itself.

US's lead in technology is not guaranteed. The next decade could belong to Robotics with Japan in lead (just to point out a scenario).

So what's there in store in future?

Recession is possible but if that happens, US is well capable of bouncing back in due time (5-7 years in the worst case scenario). Very likely, in coming decade, US economy will settle down to a slow growth rate like Europe's economy.

It's equally possible that new innovations in biotech, nanotech and IT will continue to drive economy forward.

So what to do?

A well diversified investment portfolio is a must. Large Cap, Medium Cap, International funds and of course, real estate.

Note that economy power has been constantly moving from employees to corporations. It used to be possible 20 years ago to make a good middle-class living by tightening nut-and-bolts in a Ford factory. Not anymore. Now, you have to be at least an engineer etc. In another 20 years, engineers (and other professionals at that level) will not be making a comfortable middle class salary. People will need to be higher up in the food-chain to live middle-class!!

Your better bet is to own shares in corporations than working for them.

In another 10-20 years, it'll be a must to earn from investments portfolio to make a good living. So, save save save and invest invest invest. And don't forget to diversify well to withstand down-trend in any one sector.
 
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gravitation said:
It's argued that it's in their interest for these countries to continue investing in US and keep its economy afloat by continued landing. That is indeed correct, as of NOW. what happens if these countries find a few years down the road that China and India are better customers than US?
Click to expand...

The problem that some nations (especially China) face with huge foreign currency reserves is that any loss of value in the US dollar would lead to massive capital losses for their central banks. While I'm not suggesting that it will force them to prop up the US$ indefinitely, it's certain a problem that they face.

A well diversified investment portfolio is a must. Large Cap, Medium Cap, International funds and of course, real estate.
Click to expand...

This cannot be stressed enough. Diversify, diversify, diversify!

Note that economy power has been constantly moving from employees to corporations. It used to be possible 20 years ago to make a good middle-class living by tightening nut-and-bolts in a Ford factory. Not anymore. Now, you have to be at least an engineer etc. In another 20 years, engineers (and other professionals at that level) will not be making a comfortable middle class salary. People will need to be higher up in the food-chain to live middle-class!!
Click to expand...

I would disagree that the pendulum is shifting between people and corporations. What I believe is happenning is that technology is allowing people to leverage their innate abilities (and superiority relative to others) to become much more productive, and compensation reflects that. If you work on an assembly line, you are limited as to how much better you can be. When you are involved in creative knowledge work, you can make far more because you can provide much more value.

I think any job where you do the same thing and assume that you 'deserve' a higher salary will lead you to the result you fear. I would point out as well that when it comes to creature comforts and standard of living, the average middle-class American has far more than the rich did in the 1950s.
 
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