http://www.economist.com/news/finance-and-economics/21674775-currency-pegs-are-still-fashion-some-are-creaking-pegs-under-pressure
Plunging commodity and natural resource prices are affecting currencies across the world. Many currencies are falling with oil prices. The Russian roubel, for example, is down 45% along with the Brazilian real which is down 40% (one of the most developed South American economies on the continent).
With that said, the US dollar has grown stronger to foreign currencies during this time which is odd because oil is mostly traded using the American dollar (and oil prices are declining). Some economists argue, according to the Economist, that the reason for this dollar strength is due to higher demand due to less exports coming out of America. This could cause a sharp decline in the future because if speculators can spot the problem, they could attack the dollar directly, lowing its value and affecting businesses who borrowed the dollar for their business,
To adjust for currency decline, countries like Saudi Arabia have made reserves capable of paying for up to 48 months of imports. Other countries are burning through their reserves and turning surpluses into deficits.
Do you think the US should plan for a currency decline if oil prices continue to fall or do you think that the US is in good shape when compared to the world economy and does not need to plan for a speculator attack?
4 comments:
I think the US economy should always plan for the worse case scenario. However, the Russian economy hasn't been doing well for years and that hasn't affected the US. The US should always be prepared in case of an economic issue, but this one may not seem as threatening as past ones.
I think that the U.S economy should in fact prepare for a downturn in the economy. Over the past consecutive quarters, the U.S. economy has been in an era of expansion and soon, the economy will take a downturn just due to the nature of the business cycle.
That being said, I think that the impact of oil prices on the U.S. economy will be the factor that causes the downturn in the U.S. economy. With the world being so economically tied to one another, even if the U.S. is not feeling the hurt the other countries are currently feeling, soon we will. Even with a strong U.S. dollar currently, soon spectators will lose interest in U.S. products and the demand will be driven down in turn, causing a weakening of the U.S. dollar due to the lack of demand.
So yes, I do feel that the U.S. should be prepared for a speculator attack in the coming quarters solely because of the fact that we are truly a global economy today and if one country is hurting, soon all the others will too.
I think the US should always have a backup plan in any scenario of the economy. It has been shown time and time again from our nation as well as others just how fragile the market can be. As technology advances and the global market continues to expand, no one country is completely self reliant on itself. Because of this it puts a large risk factor into the economies of every developed country. Due to this as Kaley stated when one country is struggling we all feel that struggle as well, but in different ways. Eventually, the struggle will come into the US economy as well, the question however is when and how much time do we have. In this case the US should start to formulate a plan now, so that when this struggle does finally hit us we are ready for it and can soften the blow.
I agree the US should always have a backup plan. With that said, since oil is falling and is traded in the US currency, I am worried that a continued fall in oil price will have a direct affect on the US economy because less dollars are being traded for more oil.
I also agree with Kaley that an attack by speculators is eminent. I predict they will recognize the fact that the dollar is weakening due to lowering oil prices and trade large amounts of American dollars for another currency, weakening the dollar further causing another recession putting the US on par with the rest of the world.
Do you think this prediction is accurate?
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