Looming Crash of USD

#1
Hi all

Of late, i have been seeing a lot of press space given to the impending crash of the USD vis-a-vis all global currencies. Any time-scale of when is it likely to happen, if at all it happens(Doubtful because USA seems to be capable of sweeping EVERYTHING under the carpet :tomato:) ? What are the implications of the same for India apart from the fact that value of exports taking a mighty hit.

Also i read somewhere that the recent run-up of gold is linked to the various central governments across the globe purchasing gold thereby reducing their holding of USD. Is it the sign of things to come??

Please share your views.
 

Alchemist

Administrator
Staff member
#2
I don't think there is going to be any sudden crash of USD against other major currencies.

The problems of USD are not unique.

All major economies are facing the same problems that US is facing...UK, EU, Japan, Russia are all having similar problems.

Even India has a huge budget deficit, trade deficit and government debt.

China is the only major economy which doesn't have any kind of deficit.

However, China's economy has a strong correlation with economies of the west.

If US will have to print large amounts of money, so will other countries.

Not only the USD, most other currencies will lost value in such a scenario.

When currencies lose value, inflation creeps in.

That's why I have been bullish of gold for some time now.

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In the long-term, I expect USD to lose value against the INR as the Indian economy is expected to perform much better than the US economy in next 1-2 decades.
 
#3
That's why I have been bullish of gold for some time now.

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In the long-term, I expect USD to lose value against the INR as the Indian economy is expected to perform much better than the US economy in next 1-2 decades.
Thanks a bunch as usual, Alchemist!!!

That thread which you have referred gave me a lot of insight. I haven't been active in the forum for a long time. Seems like i have missed a lot :hmmmm2:.
 

Alchemist

Administrator
Staff member
#4
As bearish as one can get on the USD:

Q: Where does this lead the dollar on which you have been ultra bearish for the last many months?

A: The dollar, the terminal value of the dollar is precisely zero, the printing cost of bank note that is the intrinsic value of the dollar. But it will not move there right away. since the formation of the federal reserve, in 1913, the price of gold has gone up from USD 25/oz to over US 1400/oz, In other words the value of a dollar bill has gone down by 97% in gold terms and it took more than a 100 years. Now the next time the value of the dollar declines by 97% won’t take a 100 years I think it will happen in 10-15 years.
Source: Marc Faber wary about QE2; sees commodity, metal bubble.

Obviously, he is exaggerating it, but I too think that the dollar has a lot of downside.

As dollar continues to decline, at some point of time, US goods and services will become attractive and exports will increase.

The USD will stabilize when US becomes an attractive place to manufacture goods and provide services.
 
#5
So do you think this is a good time to convert some dollars that one may have and instead invest the resultant rupees in the Indian markets?
 

Alchemist

Administrator
Staff member
#6
So do you think this is a good time to convert some dollars that one may have and instead invest the resultant rupees in the Indian markets?
As far as dollar is concerned, I am a long-term bear.

However, Indian stocks are more expensive than US stocks and so I am not sure if it would be a good idea to sell dollars to purchase Indian stocks at these levels.

Also, India has a current account deficit and so appreciation of INR against USD won't be as much as appreciation of gold against the USD.

Right now, many major economies are looking for ways to weaken their currencies and thus boost their exports.

If the world engages in a currency depreciation war in future, gold may outperform every other asset. :D.
 
#7
Which Indian Companies would benefit from a falling dollar? It would be helpful to have a couple in the portfolio as a hedge.

A falling dollar = rising rising commodity prices. So would Reliance benefit from rising crude prices? (I read somewhere that their gross refining margins are proportional to crude prices).
 
#8
Which Indian Companies would benefit from a falling dollar? It would be helpful to have a couple in the portfolio as a hedge.

A falling dollar = rising rising commodity prices. So would Reliance benefit from rising crude prices? (I read somewhere that their gross refining margins are proportional to crude prices).
Not clear - why would a falling dollar increase commodity prices?
 

Alchemist

Administrator
Staff member
#9
Not clear - why would a falling dollar increase commodity prices?
Two reasons.

1. When US dollar falls, money moves from US assets to other assets.

Big investors treat commodities like assets.

They buy commodities in futures etc to make a trading gains and not for actually use.

2. In case of commodities like crude oil, many sellers have pegged their currencies to USD.

e.g. Currencies of many countries in the Middle East Asia are pegged to the USD. If the value of USD falls, these currencies fall too. Producers raise prices to compensate for this fall.
 
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