Ironic to hear about the worsening global financial crisis triggered by the US dollar from The Nation, Bangkok's business daily.
We're trying to obtain a copy of this "authoritative report" which Thailand's Largest Business Daily reference. Odd they never mention the title or author.
The irony of hearing about the dollar crisis from the home of the Thai baht, the currency that brought low the careers of many a trader including Victor Niederhoffer, is just too ironic. And now is it the dollar's turn? And will the poor unsuspecting US public finally hear about the source of their pricing problems from Thailand? No word in the US media. Its a mystery.
"Oh how are the mighty fallen..." 2 Samuel 1:27
"One night in Bangkok makes a hard man humble
Not much between despair and ecstasy
One night in Bangkok and the tough guys tumble
Can't be too careful with your company
I can feel the devil walking next to me."
FINANCIAL TURMOILBreakdown of dollar system ' gathers pace'
Full-blown US balance of payments crisis also looms
April 18, 2008
The Nation - Thailand's Business Daily
The US is experiencing a breakdown of the dollar system that is similar to the 1971 breakdown of the Bretton Woods system of international monetary management, says an authoritative US financial report.
"The breakdown of the US-dollar system has gone from slow to moderate in pace, and there is a significant risk of an acceleration in the coming months," said the report which was released earlier this month.
With extreme provisions of liquidity [by the Fed] investors are now extremely bearish for the dollar, which still has ample room to fall further.
"While the global nature of financial markets means that financial problems are affecting every major developed economy, the US consumer is at the centre of this current crisis," it said.
"The change from having extremely easy access to credit to almost none has been most extreme in the US. All the entities that rely on the US consumer, from smaller US businesses to US commercial real estate to municipalities, are under significant strain. In aggregate, the amount of US-dollar-denominated debt that is trading at historically high spreads is huge, and it is likely that the Fed (and the US government) will have a lot more heavy lifting to do to keep the financial system and the economy from a severe contraction.
"The implications for the balance of payments are very negative as well, and the US is at the edge of a full-blown balance-of-payments crisis."
Despite the magnitude of the financial crisis, the US faces the daunting prospect of attracting foreign capital with its economy contracting.
Last year, foreign and sovereign funds were quick to snap up distressed US assets at bargain value, but they may have moved in too quickly."Ultimately, the US balance-of-payments situation means that either a combination of a deep contraction in US consumption and a much larger decline in the dollar will occur or American households will keep going deeper into debt. But American households can't keep going into debt, because they can't handle the debts they [already] have, and lenders don't want to continue to aggressively lend to them," the report said.
It concluded that either an intolerable economic contraction or a deep decline in the dollar would have to occur and speculated that the economic contraction could be 6-8 per cent. The dollar's decline would have to be mostly against the currencies of emerging markets.
The report said the gap in incomes between workers in the US (and other mature industrialised countries) and those in emerging countries, now about 15 to 1, would have to narrow.
The nominal value of the dollar has declined about 27 per cent since 2002, and those who save their money in dollars have lost their savings.
"It is not hard to question the US dollar as a [means of storing] wealth when you have lost 25 per cent or more of that wealth in as little as six years," it said.
An implication of the US dollar breakdown is that there are opportunities in emerging market currencies. Thailand and other emerging-market countries have been maintaining relatively weak currencies in order to boost export competitiveness. But the US conditions are forcing these countries to readjust their currencies toward the upside.
As for the baht, the Bank of Thailand has been intervening in the foreign-exchange market to keep the nominal effective exchange rate (NEER) of the currency stable. The NEER is calculated from a trade-weighted exchange rate between the baht and 25 major currencies, mainly those of Thailand's export markets and its export competitors.
Supavud Saicheua of Phatra Securities wrote in a report last Friday that Thailand's NEER was relatively stable.
"The baht is nominally 21 per cent weaker today than it was prior to the economic crisis in 1997. "However, the real effective exchange rate (REER) is drifting upwards and now only 13 per cent below the precrisis level (the REER is the same as the NEER, except it incorporates inflation differences between Thailand and the other 25 trading partners)," he wrote."In short, the REER suggests the Thai economy has been inflating at a faster rate than these countries over the past several years," Supavud added.
US Dollar Crisis Gather's Pace