Yes Ramsey, I think that is what will happen.
Clearly the Korean, Indonesian, Malaysian and Thai currencies are all headed lower partly as a result.
The open question is whether or not China devalues the Remimbi. Given the size of China's foreign reserves, and even more importantly, the lack of free trading of the currency (which I read all the time but don't fully understand), its gonna be pretty much up to China.
I'm not at all sure which way they'll go. I suspect they won't devalue this year at any rate, but am not sure.
Anyway, the most interesting thing is what's next for the U.S.
The trade deficit will hit by far all time highs on an absolute basis, and begin to approach previous highs on a relative to GDP basis. That will tend to cause the currency rise against Asian currencies to slow and then reverse. Meanwhile, reported profits of U.S. multinationals, will show even greater hits than expected, due to both the slow down in exports in unit terms, and also due to currency translations. This effect will be most surprising in the large medium tech multinationals such as 3M.
This alone will not cause more than the sort of correction we're in now to worsen a bit.
In the past a declining dollar has tended to cause an uptick in inflation. Perhaps that will happen here, if the economy is not sufficiently slowed by the profits slow down. Not really sure what happens subsequently if I'm right to here. Need to read some more.
Any thoughts?
Doug |
