A US dollar run scenario

Just a curious question...say next Monday you wake up to news that the US dollar loses 15% depreciation overnight and causes massive worldwide panic, whats the impact does that have for the Australia dollar?

Can someone highlight the ramification to our AUS dollar and the effect on the property market?
 
Daniel G,

I'm not sure what that would do to the Australian $ or property prices. It would affect Chinese exports of products to US which would fall as they become comparatively more expensive than before. This would affect production in China and hence commodity prices and volume of imports by China from Australia would fall.

In the long run it could be beneficial to the US as their exports become more competitive and imports fall.

Not good in short term for Australian GDP so in this sense AUD might fall as its perceived to be a currency tied to commodity prices (falling against trade weighted index though maybe not against $US).

Property prices would also probably fall a bit.

Good for gold price and most likely the share price of gold mining companies.
 
a very hypothetical which I cant see happing in a 24 hr window

The larger USD investors in bonds et etc etc wont sit on the sidelines and not dive in to provide support to the currency.

tarolf
 
Hi Daniel, I don't know what made you think of this question, but it is a very very unlikely scenario. Maybe if California fell in the ocean or NYC was nuked...

Why unlikely? because the USD is still considered the safest currency in the world, despite all the trouble with their economy and banks.

Further, when you say lose 15% value, what is that in relation to? the AUD, EUR, YEN, gold bullion?

Go back and have a look at the USD over the last 10 years and correlate its performance with gold and other currencies. Hang on....have a look at this (5 years)

When global panic broke out with GFC, many expected the USD to fall. In fact, it increased in value, and the AUD fell as big money foresaw global growth threatened, and deserted commodity currencies and equity markets en masse. Gold and the USD were the safe havens.

From memory, the September 2001 attack saw the AUD drop sharply against the USD.

There's greater risks to worry about than a significant fall in the USD...... i.e. Spanish debt default, fall in the AUD, Icelandic volcanoes, Japanese earthquakes. :eek:
 
Ok, say the US reaches its debt ceiling, that is, it cant borrow so it can no longer service its debts or costs of services, forcing the US into a depression (literally). Wouldn't that destroy the US dollar as it literally has to either default or mass printing?
 
Daniel,
I think you need to stop reading Doom and Gloom websites/newsletters and think more positively. It seems that most of the threads you start are based on the view that "the sky is falling" or "what happens if/ when the the sky falls".
Disasters come and go, and economic cycles come and go. There are always surprises and we can never anticipate everything that will happen.
But you have to set a strategy that you think will work, and stick to it. If your strategy is to sit under a rock and worry about when the sky will fall in, I guess it may reasonable..... but in the meantime, the world is still turning, properties are still being bought and sold, wealth is being made, people are getting married, having babies etc....... the world won't stop because of a financial disaster.
But if you are so anxious about it, then you'll miss many opportunities, not just for building wealth, but for living life. Try to see the positives that are happening in the world, not just the negatives.
cheers
Pen
 
Daniel,
I think you need to stop reading Doom and Gloom websites/newsletters and think more positively. It seems that most of the threads you start are based on the view that "the sky is falling" or "what happens if/ when the the sky falls".
Disasters come and go, and economic cycles come and go. There are always surprises and we can never anticipate everything that will happen.
But you have to set a strategy that you think will work, and stick to it. If your strategy is to sit under a rock and worry about when the sky will fall in, I guess it may reasonable..... but in the meantime, the world is still turning, properties are still being bought and sold, wealth is being made, people are getting married, having babies etc....... the world won't stop because of a financial disaster.
But if you are so anxious about it, then you'll miss many opportunities, not just for building wealth, but for living life. Try to see the positives that are happening in the world, not just the negatives.
cheers
Pen

Well yes you are right but you have to admit the world is in financial turmoil. What is wrong with arming yourself with knowledge to try and hedge yourself against certain outcomes?
 
Ok, say the US reaches its debt ceiling, that is, it cant borrow so it can no longer service its debts or costs of services, forcing the US into a depression (literally). Wouldn't that destroy the US dollar as it literally has to either default or mass printing?

In this situation the US print enough cash to cause inflation and reduce the value of their currency. All this does is hurt people who hold their debt. Answer is don't hold US currency.

US consumer purchasing power falls. US exports rise. US bond holders get burnt. However this is very unlikely since the inflation hawks in the US are more powerful than the deficit hawks.

There is no debt ceiling. The US 10 year bonds pay below 4% interest. Assuming 2-3% inflation that means the real return is only 1-2%. The US can print its own currency and have the Fed buy its own debt (this happens all the time).
 
There's greater risks to worry about than a significant fall in the USD...... i.e. Spanish debt default, fall in the AUD, Icelandic volcanoes, Japanese earthquakes.

Yeah, bugger the US. The following will really rattle you, Daniel. Somehow I've got on the mailing list for the citizen's Electoral Council of Australia -www.cecaust.com.au . They send out shrill emails every week or so. This is a chunk of the latest one. Basically, in a couple of weeks time we'll all be stuffed.



Citizens Electoral Council leader Craig Isherwood today accused the Reserve Bank of trying to cover up the seriousness of the financial crisis facing Australia, and declared that Australia is well and truly in the fall-out zone of the global debt time bomb which is sitting in Europe, ticking down to a late June/early July explosion.
The CEC National Secretary detailed the state of play in the financial crisis hitting Europe:
• On 1st July, European banks have to repay the 442 billion euros they borrowed from the European Central Bank’s (ECB) exceptional financing facility, opened up for them one year ago. European Banks have been putting money aside to pay back what they borrowed, but nowhere near enough. Spanish banks such as Sabadell and Banesto have only 35 per cent of what’s required, and Germany’s Commerzbank only 32 per cent. According to Morgan Stanley, European banks have found 250 billion thus far, and still need another 150.
• The mechanics of the euro system are grinding to a halt. The sovereign debt crisis is pushing liquidity to places considered “safe”. Every night, banks of the eurozone deposit ever more funds at the ECB, even though the yield they get is only a miniscule 0.25 per cent, because they do not trust the solvency of any of the other private banks enough to lend to them. On Monday morning, 384 billion euros were on deposit at the ECB—an astonishing figure, since this was only a few billion euros per day before the 2008 financial crisis. The current volume is even far higher than the volume deposited the week after the Lehman default. At the same time, interbank lending is frozen. Saving banks are refusing to lend to commercial banks. Since May, writes Le Figaro, lending from European banks has simply stopped.
• Spain, the epicenter of the crisis, has a combined public and private debt of 1.5 trillion euros, 600 billion of which is due this year. The European Union, International Monetary Fund, and U.S. Treasury are frantically working to patch together the biggest bailout in history—US$300 billion—by today’s (18th June) EU summit in Brussels. They hope to avoid Spain having to tap into the US$1.1 trillion rescue fund set up by the EU following the Greek crisis last month; if Spain does, it is widely seen as the end of the euro system. One finance expert quoted in the 16th June London Telegraph said, “My view is that it would be suicidal for Madrid to use the rescue fund. The moment they pick up the phone and start talking about this, it is the end of any remaining hope for the single currency.”
Responding to the RBA’s claim on Tuesday that Australia’s banks will survive the rapidly-escalating eurozone crisis just as they survived the 2008 crisis triggered by the Lehman Brothers’ collapse, Mr Isherwood said, “That’s rubbish! If Rudd didn’t go guarantor for the banks when they begged him to in 2008, they all would have collapsed, and that’s the same scenario the banks face today.
“Remember, Australia has over $1.2 trillion in foreign debt, two-thirds of which is owed by our banks. Like in 2008, the collapse in interbank lending threatens to cut our banks off from the short-term funds they need to roll over their debts. At a certain point federal guarantees won’t be enough to stop their collapse, but will only succeed in bankrupting the government.”
 
Just a curious question...say next Monday you wake up to news that the US dollar loses 15% depreciation overnight and causes massive worldwide panic, whats the impact does that have for the Australia dollar?
Can someone highlight the ramification to our AUS dollar and the effect on the property market?
DanielG, the US does have a debt problem, Sprott covered the situation very matter of factly in their September 2009 report title “Safe Harbor No More”:
So how will this US debt crisis ultimately resolve itself? Let’s consider the options. It would appear from our analysis that the spending ‘promises’ are the crux of the problem now facing the US Government. If there isn’t enough new capital in the current environment to fund new Treasury bill issues, then there certainly isn’t enough capital to pay for the US’s unfunded future obligations. The choices, therefore, are bleak:
1. Default on Medicare promises. (Unlikely given the current debate in Washington to
expand medical coverage.)
2. Default on Social Security promises. (Unlikely given the increasing average age of the
voting public.)
3. Put forward a credible plan to balance the budget. (Unlikely given the most recent budget projections.)
4. Default on outstanding debt. (Unthinkable)

None of these options are feasible for the US Government. So they realistically only have one option left – to print their way out of their debt crisis.
http://www.sprott.com/Docs/MarketsataGlance/09_09_MAAG.pdf

My opinion is they could also replace the USD with a new currency that is valued higher and repay their obligations in the new currency; however I guess you could consider this falling under the banner of defaulting.

If there was an incident where global confidence in the dollar disappeared I’m not sure that there would be a large effect on the AUD or our property. I mean if USD fell heavily against other currencies it seems likely our rate against any other than the USD would remain relatively stable. Perhaps even strengthen if investors decided Australia’s economic outlook compared to other nations was superior.

Ok, say the US reaches its debt ceiling, that is, it cant borrow so it can no longer service its debts or costs of services, forcing the US into a depression (literally). Wouldn't that destroy the US dollar as it literally has to either default or mass printing?

As long as the world continues to lend them money they will be able to service their debt. It is clear that other large global forces are looking at alternatives to the USD with their recent expansion into other currencies and hard assets like Gold. See recent movements by BRIC nations into Gold and Russia’s recent announcement that they are adding AUD and CAD to their reserves.

One can only guess what happens when the world stops buying US treasuries (e.g. loaning them $). My guess is we will see a system change (perhaps Bretton Woods 3?) before that would be allowed to happen unexpectedly.

There is certainly no definite answer to your questions DanielG, but one must prepare for the uncertain times ahead, it would be foolish not to.

There is no debt ceiling.
There is a debt ceiling; they just increase it every time they get close to going over it :)
 
I don't even know who the Citizens Electoral Council of Australia is. And I don't know how I get sent their stuff. Some of it is right out there. I always picture a clever but slightly nutty bloke in a suburban loungeroom hunched over his computer bashing stuff out. They would have meetings and someone would bring scones along. I suspect they would have outings where they heckle politicians doing smal local meetings.
I'm going to email him if the world doesn't fall apart by the end of July and ask him what happened.
 
So the consensus here is that we are pretty much insulated from such a scenario?
Well I wouldn't say we are insulated from any global scenarios as we rely heavily on foreign credit.

The cecaust article that depreciator posted, while quite dramatic in it's description of our scenario does provide factual figures. If foreign lenders stopped rolling over our debt we would be stuffed.

As I said in my last post I think it would be wise to prepare for the uncertain situation that lies ahead. I think having no Gold or another hard asset that can be easily traded/exchanged would simply be foolish, much better to be over prepared than under prepared.

caseforaction.png
 
i'd tell ya what is going on but you'll have to line my pockets , does this sound familar from the place and many people here ..

good to see some get it .. sheeesh i been offering our advice out of interesting debate and hopefully to wake a few up .
if you read all my post carefully and correlate the data with the times you might learn something .... i dont post it all in one thread .. if i did you might be paying to watch .. just like paying for real data on houses ..

i would be curious to know what percentage draw a wage from the property market and how many just invested in it ??
 
Top