Originally Posted by SiaoTarPorNot surprising that the US$ is weakening.Huge US trade and current account deficit of around US$60-70 billion per month = $700-800 billion per year means that US requires capital inflows of that amount just to keep the US$ stable.And this deficit has been running at this rate for quite a number of years already.Usually capital inflows take the form of foreign investments and also significantly US treasury bills/bonds investments by sovereign entities (usually foreign central banks who have no choise but to keep buying US$ and selling their own currency to keep their own currency exchange rate against US$ stable).If capital inflows are at a rate less than what is necessary to buy up the US$ being sold by foreigners who get US$ through exporting their goods and services to the US, then the US$ will start to weaken.When the US economy is expected to slow down, capital inflows will slow down as foreign direct investments but any interest rate cut to boost the US economy will reduce the attractiveness of the US$ as an interest earning currency. So US$ will get into trouble when US economy is expected to slow down.The recent US interest rate cut indicates that the US is going to inflate their way out of the trillion US$ debt owed to foreigners and the implication is worldwide inflation. ...... in gold, commodities, silver, metals, agricultural products, properties, stocks and shares etc.Through easy montary and foreign exchange rate policy, the central banks worldwide have been viturally injecting (i.e. printing) trillions of $$$ in the world banking system for quite a long time already. When a central bank buys US$ 1 billion and sell its own currency (e.g. S$1.50 billion), it's effectively supporting the US$ and injecting money (e.g. S$1.50 billion) into its own country's banking system. If the central bank do not sterlise the S$1.5 billion through some market operation, the S$1.5 billion will balloon up within the domestic economy through the multiplier effect, keeping the local interests too low (i.e. negative real interest rates). Meanwhile, the central banks use the US$ they have bought to buy into US Treasury bills and bonds.If you hold cash earning low interest rates or US bonds, you're going to be screwed. This is why the stock market has been going higher and higher worldwide for the past 18 months.To protect your wealth, you need to hold some form of assets instead of cash.During such asset inflationary times, cash is trash which is being created in trillions easily out of thin air by easy monetary and FX polices around the world.I really pity those ignorant man-in-the-street who erroneously think keeping cash is the safest thing to do. Cash is just a piece of printed paper and virtual numbers in the bank account and can be easily created out of thin air. In contrast, assets (gold, properties etc.) are real and not created out of thin air.
Quote:Originally Posted by SiaoTarPorNo. When the US$ drops, all goods and services sold worldwide and priced in US$ will rise in price.You do not get definitely "cheaper" products by simply depreciating a currency.Look at the price of gold, oil and commodities. They have all risen in other currencies terms.Crude Oil was US$35-$40 about 4-5 years ago and is now over US$80 a barrel. If the US$ falls some more and the world economy do no go into any recession, we will see US$100 a barrel but S$ is not expected to appreciate as much against US$. So we will see more expensive products soon instead.In fact, while S$ have been appreciating against the US$, it has fallen quite sharply against the other main currencies Euro, British Pound, Australian $, NZ$. May be about 5 years ago, 1 Euro = S$1.65 but is now over S$2.10. A$ was about S$0.95-$1 and is now over S$1.30. NZ$ was about S$0.90 and is now over S$1.10. British Pound was S$2.80 but is now over S$3.To add :This is even not counting the much higher interest rates than S$ interest rates these foreign currencies have been paying. For e.g. while S$ interests rates have been 2-3% p.a., the A$ have been 4-6% p.a. for the past 5 years.If we take 2.5% p.a. for 5 years, S$1 would have grown to S$1 x (1.025)^5 = S$1.13 now.For the same period, if S$1 was exchanged into A$1.... 5 years ago, it would have grown to A$1 x (1.05)^5 = A$1.276Exchange rate to day is A$1 = 1.32So A$1.276 = 1.276 x 1.32 = S$1.685So if you had put your S$1 into A$ instead 5 years ago, it would have grown to S$1.685 today instead of S$1.13 kept in S$ earning local interests.Value of A$ in S$ terms : (note : Today A$1 is already 1.32+ but graph not shown yet as the 5-year chart is updated probably monthly).
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Topic: Singapore Dollar - how is it fairing? (Read 13321 times)
