If the $ crashes in value, what will the other....

[Mega]

CB do?

Race each other to debase their currences?
Mega

[Tet]

Re: If the $ crashes in value, what will the other....

CB do?

Race each other to debase their currences?
Mega

You'll witness the fastest race to zero interest rates you've ever seen. Hold on a second, France is on the other line and they want to lend me a ton of cash, as much as I can carry.

[Spartacus]

Re: If the $ crashes in value, what will the other....

giving you the Canadian perspective, there was great fear of job losses in manufacturing when the Canadian dollar rose against the $US recently

But since these job losses have not materialized in any big way (not yet at any rate) the fear of a rising dollar seems to be gone.

The actual exchange rate does get reported at every newscast but it just seems to be another number, not like a couple of years ago when commentators were wringing their hands about the rise.

Today I don't hear much call in our financial media for any action regarding the dollar, demanding up or down manipulation.

CB do?

Race each other to debase their currences?
Mega

[c1ue]

Re: If the $ crashes in value, what will the other....

Any responses will depend on the country and the circumstances.

If the dollar collapse causes financial entity instability in other currency zones, then all the CBs will work together to try and avoid the worst of the calamity. The latest credit infusions are an example.

If the collapse does not threaten this instability - not that I'm sure how this can happen - it will vary by zone:

1) EU - if they didn't care about the euro going from 0.84 to 1.38, I'm not so sure 1.80 is that much different.

2) Japan - as I've stated many times, Japan is linked with the US with ties beyond just mercantilism. The yen will follow the dollar down unless Japan finds a new sponsor against China, and there simply is not anyone. Russia won't work due to historical reasons plus Sakhalin.

3) China - will try to keep the yuan/dollar rate of change more even, but ultimately would just shrug and sell elsewhere. As I have noted before also, market building is proceeding apace in Eastern Europe, Brazil, and a number of other areas. This won't replace the US, but could possibly ameliorate the reduction in US consumption

4) Russia - won't care either way. Cheap grain is good, though.

5) India - will get slammed. Heavily dependent on trade with US which cannot be replaced elsewhere. Where else in the world would English speaking call centers, IT, and engineering be big on - especially if the relative cost is high?

6) Brazil - no effect either way. Brazil is about as far removed from the US economy as is possible.

7) Other emerging economies - in general if they are labor dependent, they will be slammed. Commodity based - will be fine.

[Rajiv]

Re: If the $ crashes in value, what will the other....

5) India - will get slammed. Heavily dependent on trade with US which cannot be replaced elsewhere. Where else in the world would English speaking call centers, IT, and engineering be big on - especially if the relative cost is high?

I don't know if this is quite right. If I look at the Reserve Bank of India's Bulletin on Foriegn Trade

I see India's exports to OECD countries stands at $42.236B of which the US accounted for $15.486B

Exports to Eastern Europe including Russia $1.990B

Exports to OPEC $16.932B

Exports to the Developing World accounted for $39.993B

I predict that as the $ collapses, the trade from the other regions will pick up the slack.

On the Import side,

OECD $48.59B
North AM $9.53B
OPEC $46.42B (This was a huge jump from Earlier years ~ a 5X increase)
Eastern Eur $3.78B
Developing World $48.8B

Thus much depends for India on how it adjusts to high oil prices -- This is the reason for the US-India collaboration on nuclear energy! And if the US $ drops against the Rupee, this may in fact be good for India.

[c1ue]

Re: If the $ crashes in value, what will the other....

Raja,

I'm not certain that the money brought in by the outsourcing services companies counts as an export.

Also the many branches of foreign companies in India also don't count.

My point is that India makes most its money from knowledge working, not physical commodities or labor for manufacturing.

What do you think will happen to Wipro, Infosys, TI-India, GE Capital-India, Dell-India, etc should the dollar collapse?

Already wages in India are no longer 10x lower than the US, rather they are 5x. Throw in a 2x dollar devaluation and the easy money is no longer so easy.

There is some possibility of other regions picking up some slack for this services business, but any company that wanted to do so is already doing it. Many European countries also militate against this type of job loss.

In any case, just my opinion.

[Rajiv]

Re: If the $ crashes in value, what will the other....

Yes you are right to some extent. The IT exports do not seem to have been included in the figures I cited earlier. Here are the figures from India's Foreign Trade produced by Export-Import Bank Of India

2006 IT Exports $23.4B out of Production of $36B ($12.6B was domestic)
US accounted for $15.9B

[c1ue]

Re: If the $ crashes in value, what will the other....

Rajiv,

It might be interesting to understand the total extent of offshoring income India receives - IT is only one and possibly not even the largest.

If India receives $70B or even $50B of offshoring income or more from the US, you can see how a dollar devaluation could potentially be disastrous.

[Rajiv]

Re: If the $ crashes in value, what will the other....

A quick search is not revealing those figures. What is missing is forex inflows from offshore investments sorted by nation. I am sure that will have an impact as well. For India, the monkey wrench in the works is cost of energy, in particular oil to meet the needs for its domestic economy. Which is why the need for upgrading its Nuclear energy infrastructure.

[rj1]

Re: If the $ crashes in value, what will the other....

6) Brazil - no effect either way. Brazil is about as far removed from the US economy as is possible.

Expand please.

[c1ue]

Re: If the $ crashes in value, what will the other....

Rj1,

While something like 1/4 of Brazil's trade is to the US, the actual breakdown is:

1) agriculture: 10% (2003) to 7.8% (2005)
2) wood: 9%
3) metals: 8% (2003) to 14% (2005)
4) misc. commodities: 10%
5) transportation equipment: 17% (2003) to 13.5% (2005) of which 60% is aircraft
6) industrial machinery: 10%
7) electrical machinery: 8% (2003) to 6% (2005)

I would argue that all of the commodity based trade could find a home elsewhere given growing demand in China, etc.

Transportation equipment will be fairly stable as what Brazil exports is largely niche owners (i.e. Embraer)

Brazil already doesn't compete well in the low labor arena, nor are they particularly close enough to see significant transportation cost advantages vs. China/Vietnam/etc.

Brazil also doesn't export oil to the US, thus would not be directly affected by a US economic slump hence energy consumption slump.

[lobodelmar]

Re: If the $ crashes in value, what will the other....

Rj1,

Brazil also doesn't export oil to the US, thus would not be directly affected by a US economic slump hence energy consumption slump.

Not exactly true. Oil is a commodity on the world market, and as such prices are impacted by world economic indicators, regardless of a country's customers. If there is a real recession and reduction in production worldwide it will affect everyone. Conversely, if there is more competition for this resource, US demand would impact Brazil as well.

I am not sure about the comments in this thread re: other countries picking up the "slack." The US economy in a recession would have pretty strong ramifications everywhere, impacting Eastern Europe, India, China, the middle east...the slowdown in demand would affect every market. When I read comments like those, I imagine someone just waiting for US consumers to stop buying cheap crap from China so that they could have their dream come true and finally get their hands on some cheap crap themselves. But if their Call Center lays off people because Gateway isn't selling laptops or Americans stopped buying Xboxes, will the family in Hyderabad buy more housewares? If the German auto manufacturer can't sell cars becuase their US sales have dropped, will they need the Romanian parts supplier at full employment?

[c1ue]

Re: If the $ crashes in value, what will the other....

SeaWolf,

A reasonable view.

My view is that:

1) Even if the US reduces oil consumption and oil prices drop, it is not clear that the rest of the world will not continue their increase in oil consumption.

From: http://www.projectcensored.org/newsf...sch_report.pdf The 1973 oil shock saw the US reduce consumption by 13% from 35 quad to 30 quad in 1983. 1 quad approx. 0.5 million barrels/day.

It is therefore reasonable to assume that the US consumption of oil will not be reduced more than 13% in a similar time scale unless we really do have Great Depression II.

However, both China's and India's oil consumption have doubled or more since 1992 (India 1992-2002) (China 1995-2005). Present consumption levels are about 6.534M bpd and 2.45M bpd respectively, with US oil consumption in 2004 at 20M bpd.

http://www.2point6billion.com/2007/0...ce-comparator/

This means that the magnitude of any drop will probably not be as large as in the past as the rest of the world is what has been driving up demand for oil recently.

In a similar vein, Asia oil consumption is around 15M bpd in 2004, but projected to hit 30M bpd in 2030. For comparison North America is around 27M bpd going to 33M bpd for the same time frames.

http://www.eia.doe.gov/oiaf/ieo/oil.html

Certainly I don't see $20/barrel for many many years.

Previously and elsewhere in iTulip there are many graphs showng the differences in oil price changes in $ vs. Euro.

Either way, since the rest of the world taxes oil derived products so heavily, the impact of oil price changes is greatly reduced. US has gone from sub $1.5 to $3, Europe was $4 and now $6 (but euro adjusted delta is only 15%).

2) 'Slack' is dependent on the specific economic area. If we are talking large flat panel TVs, organic produce, Gucci, Tonka toy trucks, etc then a US slump has major impact. However, for daily consumables I suspect the impact is much less than you would think.

Given that other countries are growing - if for no other reason than they have a low economic base and rapidly increasing population, then food, shelter, tractors, etc are still needed.

Certainly the US is a major consumer of the basic commodities as well as the higher end ones, but the basic commodity demand is much harder to reduce.

Your examples are all of the higher end commodities - my point was that Brazil is mostly involved in the lower end and thus should see less impact.