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8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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G20 & The U.S. Dollar Policy
Dian L. Chu
Economic Forecasts & Opinions
Nov. 14, 2010
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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Highlights
2
Events Leading to G20 – Dagong, Greenspan & Geithner
G20 – A Colossal Waste of Time
Post G20 - Trade War & China Yuan Policy
Bigger Problems at Home
The U.S. Dollar Policy & Investing Strategy
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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China’s Dagong Downgrades The U.S.
3
Nov. 9 - China’s Dagong Credit Rating Agency reduced U.S.credit rating to A+, from AA, with Negative Outlook
Citing a “deteriorating intent” and ability to repay debt
obligations after QE2
Downgrade could be reflecting Beijing’s concern Dagong’s Debt Progression Chart
With QE2, the U.S. has progressed into Stage 3 - Monetary Crisis
. Overall
Crisis Monetary
Crisis
Economic
CrisisDebt
Crisis(U.S. )
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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Greenspan & Geithner Spar OverDollar
Nov. 10 - “America is also pursuing a policy of currency
weakening.” ~ Alan Greenspan, Financial Times
Nov. 11 - “We [the U.S.] will never seek to weaken our currency
as a tool to gain competitive advantage or to grow the economy.” ~
Timothy Geithner, CNBC
4
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Highlights
5
Events Leading to G20 – Dagong, Greenspan & Geithner
G20 – A Colossal Waste of Time
Post G20 - Trade War & China Yuan Policy
Bigger Problems at Home
The U.S. Dollar Policy & Investing Strategy
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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The Great American Expectation Of G20
China to be condemned by the world for “CurrencyManipulation”
6
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G19 – Are You $600-Billion Serious?!
7
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G19 – Look Who’s Devalue To Prosperity?
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G19 – More Hot Money Thanks To QE2
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G19 – We Need Quantitative Tightening !
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G20 on Currency & Protectionism
“Countries commit to moving toward moremarket-determined exchange rate system… andrefraining from competitive devaluation of currencies.”
“Countries will resist protectionism in all itsforms" and will "roll back” any new protectionistmeasures.”
(Translation - Protectionism and “Currency Weakening” is ok.)
11
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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G20 On Trade Imbalances
“The G20 will develop "indicative guidelines“..” to help identifylarge trade imbalances…"
(Translation –There will be a “new index”, but trade imbalances are
ok.)
12
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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G20 on Capital Control
“Advanced economies…will be vigilant against excessvolatility and disorderly movements in exchange rates.
These actions will help mitigate the risk of excessive
volatility in capital flows facing some emerging
countries.“ (Translation - Emerging markets can protect themselves
from "hot money" by imposing capital flow controls, true
to the free market form.)
13
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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Highlights
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Events Leading to G20 – Dagong, Greenspan & Geithner
G20 – A Colossal Waste of Time
Post G20 - Trade War & China Yuan Policy
Bigger Problems at Home The U.S. Dollar Policy & Investing Strategy
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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Trade War & China Yuan Policy G20 outcome reflects a diminished leadership role of the U.S.
Yuan-Dollar peg will likely continue, but with a weak dollar, Beijing will have
room to guide Yuan higher
China will likely implement more monetary tightening with growth the top
priority
Trade War? The U.S. should not engage, as there are a lot bigger problems athome
15
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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Highlights
16
Events Leading to G20 – Dagong, Greenspan & Geithner
G20 – A Colossal Waste of Time
Post G20 - Trade War & China Yuan Policy
Bigger Problems at Home The U.S. Dollar Policy & Investing Strategy
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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#1 - Spending & Debt
U.S. Gov. Debt to GDP Ratio
Ranks #3 Among G20,
Trailing Italy & Japan
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8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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#2 - Structural Unemployment
Labor Force Skill Mismatch and Transition
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8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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#3 - Rebuilding Wealth & The Middle Class
The inflation-adjusted incomeof the median household fell
4.8% between 2000 and 2009.
80% of population with only 7%
of financial wealth
Poverty rose to 14.3% in
2008—the highest since 1994,
with 43.6 million Americans
living below the official poverty
threshold
1 in 8 Americans is on Food
Stamps
19
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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#4 – Credit Not Reaching Private Sectors
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Fed’s trillions from QE1 & QE2, and the perpetual nearzero interest rate is intended for banks to increase
lending and loosen credit conditions
However, lending to the private sector still falling off a
cliff
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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FACT - Banks DO NOT Make Money FromLending to Private Sectors
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Banks realize lending to private sectors is not as profitable asplaying equity and commodity markets
Fed’s the “Sugar Daddy” of banks with unlimited free money
Easy money also increases risk appetite
Liquidity trapped in the banking system creating potential asset
bubbles
Banks are also hoarding cash preparing for more write-offs
from Foreclosure-gate, and Commercial Real Estate, etc.
Conclusion - It’s Good To Be A Banker Post-crisis in
America!
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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Highlights
22
Events Prior to G20 – Dagong & Greenspan v. Geithner
G20 – A Colossal Waste of Time
Post G20 - Trade War & China Yuan Policy
Bigger Problems at Home The U.S. Dollar Policy & Investing Strategy
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Profiling the U.S. Dollar Policy A classic “closet case” of Weak Dollar
Misplaced concern of a Japanese StyleDeflation
Whereas low headline inflation is due tothe liquidity trapped within the bankingsystem, without the usual circulation
In total denial and refuse to deal with themounting debt and deficit
Believing a Weak Dollar would bringexport & GDP growth, thus creating jobs,etc.
Devalue currency is the easy way out Talk of “Strong Dollar” to prevent a run on
the dollar – the trick is to weaken, but notcrash
23
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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Consequence of a Dollar Devaluation
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Markets likely to remain pessimistic on the dollar But dollar could strengthen, amid the even bigger European debt
crisis affecting the euro, and austerity measures curbing growth
Expect Inflation to rise, and higher inflation expectation would push
up the U.S. bond yield
Export may get a moderate boost; however, jobs are unlikely to
return to the U.S. since companies would just move operations from
China to e.g., Vietnam, where wages are still low
That could change if there’s a massive (50%+) dollar devaluation
drastically reducing the real domestic wage levels
Such scenario would, of course, reduce the national debt
However, it would also suggest a forever lost middle class and
national wealth. And we see that “progress” unraveling in Iceland!
8/8/2019 G20 & The U.S. Dollar Policy - A Presentation
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Investing Strategy
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Wealth Preservation – Stay away from the dollar, and theU.S. Bond
Hard assets, emerging market equities, bonds andcommodity-based currencies
Commodities, e.g., through mutual funds and ETFs, moredetail here
Real Estate – some remain distressed in the U.S.
U.S. commodity and resource producers and high techsector should benefit from a weak dollar. Many remain
global market leaders Gold – But expect high volatility, so invest on pullbacks
(watch out for silver, which tends to have 2x gold’svolatility)
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Thank You
Dian L. Chu
Economic Forecasts & Opinions
Nov. 14, 2010