All Topics / Overseas Deals / Au $ – 1.07 – predictions

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  • Profile photo of Alistair PerryAlistair Perry
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    There seems relatively little chance of the US$ improving much against the A$ while the US is printing money to fund debt. This is a recipe for inflation, the only reason it hasn't happened already is because the money being printed is not going into circulation, it is being hoarded. At some stage all this cash will come come into circulation and there will be massive inflation and potentially a currency crisis in the US. If you are leveraging into that market then your potential exchange rate losses will be offset by rising asset prices, in fact if you lock in at low rates now you may do very well in terms of capital growth but i would be very wary of making an investment over there as a play on a relaltive drop in the value of the A$, even if it happens in the short term i doubt there will be a long term swing back to anywhere near where it has been in the past. 

    Profile photo of kong71286kong71286
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    Agree with Perry there

    The AUS$ is not increasing in value or purchasing power, but relative to the US$ appears to be strengthening due to the US$ weakening

    I believe the concept many need to grasp is that all fiat currencies are designed to lose purchasing power over time, but the rate at which these currencies depreciate will vary

    Profile photo of FreckleFreckle
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    APerry wrote:
    There seems relatively little chance of the US$ improving much against the A$ while the US is printing money to fund debt. This is a recipe for inflation, the only reason it hasn't happened already is because the money being printed is not going into circulation, it is being hoarded. At some stage all this cash will come come into circulation and there will be massive inflation and potentially a currency crisis in the US. If you are leveraging into that market then your potential exchange rate losses will be offset by rising asset prices, in fact if you lock in at low rates now you may do very well in terms of capital growth but i would be very wary of making an investment over there as a play on a relaltive drop in the value of the A$, even if it happens in the short term i doubt there will be a long term swing back to anywhere near where it has been in the past. 

    Much of what you have written is either misleading or simply inaccurate. 

    "potential exchange rate losses will be offset by rising asset prices"

    It mystifies me as to how you can come to this conclusion.

    "money being printed is not going into circulation, it is being hoarded. At some stage all this cash will come come into circulation and there will be massive inflation"

    A poor description of what's actually occurring and it's implications.

    Profile photo of FreckleFreckle
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    kong71286 wrote:

    I believe the concept many need to grasp is that all fiat currencies are designed to lose purchasing power over time,

    No they're not. Quite the contrary.

    Profile photo of Alistair PerryAlistair Perry
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    Freckle wrote:
    APerry wrote:
    There seems relatively little chance of the US$ improving much against the A$ while the US is printing money to fund debt. This is a recipe for inflation, the only reason it hasn't happened already is because the money being printed is not going into circulation, it is being hoarded. At some stage all this cash will come come into circulation and there will be massive inflation and potentially a currency crisis in the US. If you are leveraging into that market then your potential exchange rate losses will be offset by rising asset prices, in fact if you lock in at low rates now you may do very well in terms of capital growth but i would be very wary of making an investment over there as a play on a relaltive drop in the value of the A$, even if it happens in the short term i doubt there will be a long term swing back to anywhere near where it has been in the past. 

    Much of what you have written is either misleading or simply inaccurate. 

    "potential exchange rate losses will be offset by rising asset prices"

    It mystifies me as to how you can come to this conclusion.

    "money being printed is not going into circulation, it is being hoarded. At some stage all this cash will come come into circulation and there will be massive inflation"

    A poor description of what's actually occurring and it's implications.

    Pretty simple Freckle. If you are leveraged into the market the risk on that investment, in terms of exchange rate , is restricted to only a the capital portion of the investment. As the loan amount is fixed any asset appreciation is upside and an adverse exchange rate swing will only reduce the potential upside. This offsets some of the exchange rate risk on the capital portion of the investment. Whether real estate prices will rise or not is another argument. 

    If you can better describe what is happening in the US with regard to QE and its potential implications in 2 lines, please do.

    Profile photo of FreckleFreckle
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    APerry wrote:

    Whether real estate prices will rise or not is another argument.

    So your original statement should have read;

    "potential exchange rate losses will only be offset if asset values rise"

    Quote:
    If you can better describe what is happening in the US with regard to QE and its potential implications in 2 lines, please do.

    There's no limit to posts sizes as far as I know. Is that simply an excuse for a poor description of events. 

    Perry you're in finance. I would expect a higher level of understanding and a better ability to express yourself in understandable terms for the lay person.

    "US is printing money to fund debt. This is a recipe for inflation"

    No it's not. Japan has used easing policy for decades and still has inflation below 1%. Inflation is more complicated than just printing money.

    "the only reason it hasn't happened already is because the money being printed is not going into circulation,"

    I don't know where you get this from. There's billions going into the system weekly through a variety of entry points.

    "At some stage all this cash will come come into circulation and there will be massive inflation and potentially a currency crisis in the US."

    QE/money printing is a symptom of a failing system not the cause of it. It usually signals the final stage if left unchecked. Massive inflation if it turns into hyperinflation (usually defined as inflation above 50%/pa) is a signal there is no longer any confidence in the monetary system or the controlling authority.

    Much of this so called printed money (it's actually not printed simply created by computers on balance sheets all over) is in the form of securities, bonds and shares. There isn't going to be a torrent of money entering the system to cause widespread inflation. If (when) things snap securities, bonds and shares are likely to plunge in value expunging much of the wealth created by QE. Increased inflation is likely to occur because of shortages and currency devaluation raising import prices not more printing.

    If the powers that be can't contain the next collapse then you're looking at widespread systemic failure and a liquidity crises which can then lead to a hyperinflationary event (loss of confidence in the system by key sectors and players) and currency collapse.

    The idea that somehow huge amounts of cash which don't exist will suddenly find their way into the money supply and cause massive inflation is a stretch to say the least.

    Profile photo of Alistair PerryAlistair Perry
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    Freckle wrote:
    APerry wrote:

    Whether real estate prices will rise or not is another argument.

    So your original statement should have read;

    "potential exchange rate losses will only be offset if asset values rise"

    Quote:
    If you can better describe what is happening in the US with regard to QE and its potential implications in 2 lines, please do.

    There's no limit to posts sizes as far as I know. Is that simply an excuse for a poor description of events. 

    Perry you're in finance. I would expect a higher level of understanding and a better ability to express yourself in understandable terms for the lay person.

    "US is printing money to fund debt. This is a recipe for inflation"

    No it's not. Japan has used easing policy for decades and still has inflation below 1%. Inflation is more complicated than just printing money.

    "the only reason it hasn't happened already is because the money being printed is not going into circulation,"

    I don't know where you get this from. There's billions going into the system weekly through a variety of entry points.

    "At some stage all this cash will come come into circulation and there will be massive inflation and potentially a currency crisis in the US."

    QE/money printing is a symptom of a failing system not the cause of it. It usually signals the final stage if left unchecked. Massive inflation if it turns into hyperinflation (usually defined as inflation above 50%/pa) is a signal there is no longer any confidence in the monetary system or the controlling authority.

    Much of this so called printed money (it's actually not printed simply created by computers on balance sheets all over) is in the form of securities, bonds and shares. There isn't going to be a torrent of money entering the system to cause widespread inflation. If (when) things snap securities, bonds and shares are likely to plunge in value expunging much of the wealth created by QE. Increased inflation is likely to occur because of shortages and currency devaluation raising import prices not more printing.

    If the powers that be can't contain the next collapse then you're looking at widespread systemic failure and a liquidity crises which can then lead to a hyperinflationary event (loss of confidence in the system by key sectors and players) and currency collapse.

    The idea that somehow huge amounts of cash which don't exist will suddenly find their way into the money supply and cause massive inflation is a stretch to say the least.

    Yes Freckle, the losses would only be offset by a rise in asset prices. I think US property prices will rise although it's not a market I chose to play in and have no level of certainty as to what will happen over there.

    You are correct in that there is no limit to post size, but i don't intend now or ever on writing an economics thesis. While my description of what is happening is simplistic it is also a pretty accurate picture of what is happening in the US. I also suspect my comments are pretty simple for a lay person to understand, that's the whole point of keeping it brief, apart from the fact that I'm not going to spend hours on a keyboard to write a post on an internet forum.

    If you want to have a debate then the rest of your post past this point is far more productive than having pot shots at me. I'm more than happy to back myself against you in a debate on this topic.  

    The money being printed is certainly not going into is not going into circulation it is in the form of Gov debt and is being paid into the financial systems in the US and overseas and held on the balance sheets of central and private banks.

    QE is not an effect, it is also not the initial cause. The initial cause is the US living beyond it means and QE is a way of putting off judgment day so to speak. While there is demand for US Gov debt they can keep printing without any great pain, but they can't keep doing this forever and they have made no moves to indicate that they are going to do anything about getting their economy in order. They will eventually either default on their debt directly by not paying or they will default by proxy by inflating it away.

    Much of this so called printed money (it's actually not printed simply created by computers on balance sheets all over) is in the form of securities, bonds and shares. There isn't going to be a torrent of money entering the system to cause widespread inflation. If (when) things snap securities, bonds and shares are likely to plunge in value expunging much of the wealth created by QE.

    The US Gov creates money by selling IOU's to the Federal Reserve as bonds and receives money in return, which it spends, the Fed can either keep these or on sell them. You are correct that a lot of the QE is this money being used to buy various securities (ie its not going into general circulation as I stated), but you are forgetting that there is another side to the ledger, the bond holders. These bonds have to be redeemed at some stage by real money and if the Fed can't on sell the bonds then they have no real value and their price will plunge making the money paid to redeem the bonds worth less and so the currency generally worth less. 

    Increased inflation is likely to occur because of shortages and currency devaluation raising import prices not more printing

    Inflation is the devaluation of the currency, and a devalued currency is what makes imports more expensive.

    Profile photo of jbelmorejbelmore
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    The RBA has an inflation target of 2-3 % not zero. Enough said.

    Profile photo of FreckleFreckle
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    jbelmore wrote:
    The RBA has an inflation target of 2-3 % not zero. Enough said.

    You might have to elaborate JB. On some things I'm as dumb as a chook and reading between the lines was never my forte. 

    Profile photo of FreckleFreckle
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    APerry wrote:

    The US Gov creates money by selling IOU's to the Federal Reserve as bonds and receives money in return, which it spends, the Fed can either keep these or on sell them.

    I pretty much agree with everything you've said although the above sentence is a bit fury.

    Treasury flogs bills, bonds and notes to just about anyone who'll buy them. The Fed intercedes to manipulate price or in a worse case scenario becomes the buyer of last resort. Fed monetisis that debt (gives money to treasury to pay for government services) and holds the bonds on it's balance sheet.

    Quote:
    You are correct that a lot of the QE is this money being used to buy various securities (ie its not going into general circulation as I stated), but you are forgetting that there is another side to the ledger, the bond holders. These bonds have to be redeemed at some stage by real money and if the Fed can't on sell the bonds then they have no real value and their price will plunge making the money paid to redeem the bonds worth less and so the currency generally worth less. 

    That's not quite true. The Fed has been expanding its balance sheet exponentially since the GFC. It bought bucket loads of MBS and other toxic debt from TBTF institutions in an attempt to provide liquidity and bolster balance sheets. Today it buys $85B/mth of these things in an attempt to kick start the building and housing industries. It buys something like 70% of of all T bills, bonds and notes. Treasury simply issue new and bigger bonds to roll over maturing ones (to fund govt deficits).

    Fed balance sheet issues are or will be almost impossible to resolve if not already. Any attempt to sell this stuff would crush the US economy (via rising interest rates).

    What's also interesting is their $9T or so in secret off-balance-sheet transactions that no one wants to talk about. 

    Profile photo of pratypraty
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    Australian Dollar is trading at a very good rate. Its been high since a year now. And i think this is a very good opportunity for overseas investors to look into investing in Australia, for higher returns. 

    Profile photo of Rosa TongRosa Tong
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    some people are predicting that in 5 years 1AUD = 2US….not me, but heck i then wonder at the Pound comparison

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