Strong dollar here to stay for some time

DESPITE being challenged economically by rising stars like China and Russia, the US is expected to maintain its world leadership with its dollar going strong at least in the foreseeable future, experts said.

That said, they added that the present US behavior or role, equal to the “world police,” is expected to continue in the years to come to maintain what the US normally called “world peace” through its superior “firing power.”

World political analysts like one writing in his Facebook page named Pokpluek Thorarat said the US, with its superior armed forces, has been acting like the world police forcing others to do what the US thinks is right but if the US and its allies did the same thing, it’s okay, it’s for the benefit of the world.  Just like North Korea or Iran having a nuclear arsenal, that’s not okay.

Another example is the recent fine of $1 billion imposed against ZTE, the Chinese telecommunications giant, following an investigation showing that ZTE had violated US sanctions by selling telecom technology to Iran and North Korea.

He said that’s a double standard compared to what the US has done against Russia. The White House months ago announced President Trump’s decision to prolong sanctions against Russia over the situation in Ukraine for one more year.

Despite such sanction, the US Congress had later passed a budget that included a provision allowing the country to continue buying the Russian RD-180 rocket engines in favor of its domestically produced next-generation rocket propulsion systems.

Some analysts predicted that with China and Russia teaming up to break away from the petro dollar, reaching that goal it is not easy as most of the world trade and investment is still done by using the US dollar.

And why is that happening?  It is because of the US’s clever quantitative easing policy enabling the Federal Reserve to create huge amount of the US dollars which eventually spread worldwide especially into the emerging markets including Thailand.

To carry out QE the Federal Reserve just printed out the money to buy assets like government bonds enabling banks to make more loans.

That raises stock prices and lowers interest rates, which in turn boosts investment. Several rounds of QE in America have increased the size of the Fed’s balance sheet—the value of the assets it holds—by as much as US$3,200,000 million from less than $1 trillion in 2007 to more than $4 trillion now.

Studies showed that only 20% of the printed money, or around US$640,000 million, has been spent to improve the real sector economy from what it suffered during the Hamburger Crisis.  So it did not raise economic activity much since the flood of cash has encouraged Wall Street to channel most of that money into emerging economies, buying risks assets in their stock markets.

During the past five years, the QE money has pushed the asset prices, including stock price, in the emerging markets up to almost bubble level, enabling Wall Street to make huge profit from selling such assets at the moment.

He said many are now worrying that as the US is tapering QE, many emerging markets would suffer because of the outflow causing the interest rates to soar while the stock markets wobble.

The situation is not good in many emerging markets at the moment with stock markets dropping by as much as 30% since the beginning of this year.  Thailand’s stock market also faced the same situation with over 180,000 million baht of stocks being sold by foreign investors causing the stock index to fall by almost 10% since the beginning of this year.

One analyst pointed out that the QE tapering could cause economic crisis in the emerging countries.

“In this region, Indonesia has to increase their policy rates several times so as to prevent sudden outflow of money while their stock market dropped heavily since the beginning of this year.”

What would happen from the QE tapering is that if any emerging countries suffer economic crisis again, they would face the same situation Thailand faced during the Tom Yum Kung crisis, which is totally different from the methodology used to handle the Hamburger crisis.

“When the US had a crisis, they can just print out the money to help suffering firms and financial institutions but if other countries like Thailand suffer a crisis, they have to borrow from IMF and those from Wall Street would come in and buy Thai assets at cheap price.”

“So with such role of the IMF, the US will continue to control the world money game and the US dollar will continue to dominate the world market,” said the source.


Top: United States motto “In  God We Trust” on a coin with the little flower being called Scarlet Pimpernel. Photo: John Flannery (CC-BY-2.0)

By Kowit Sanandang