The Dollar Decline and The New Challenge - American Inflation

Recently NY Times has picked up two pressing stories a) Inflation and b) Dollar Decline.

On face of it, these are 2 different subjects facing the country but my assessment is that it has same cause and effect. America and American life Style – cherished by all, draws the strength on 3 core factors i.e. Consumption ; Production and Trading (Import-Exports). I call it CPT Index.

There is no country in the world which has as high CPT Index as America. The Fed and The American government enjoyed relative success for last 60 yrs without hitch because they managed Inflation well. Business houses like Wall Mart / Dollar store etc did a great job in terms of negotiating very hard with Chinese Vendors and importing every thing –cup to dress to IPod from China at perhaps 1/10 price vis-à-vis an American Produced Market Price (APMP).
So far, it was a great Run for American Economy in last 15 years, when American mass production (low end manufacturing) moved to Chine for price arbitrage. So, what is wrong now? Nothing but a genuine fear in the mind of American lawmakers that how to manage China's over USD 1.4 Trillion Trade Deficit.


A quick solution for all problems is to let the Dollar decline and let American Exports (high end manufacturing) take the front stage once again. This is what is happening. Of Course, some proud Americans are feeling bad about the currency decline (though it is market driven, but I think it is managed now by Fed), but for Capital Economy of America, business and survival comes first, so few egos could take a back seat now.


But now I see a complex situation arising and I am sure, it will give a wake-up alarm for all the Top Economists of America. Though, the dollar has declined and Exports are growing, but the villain of all “Inflation” is rising beyond a manageable level, which could topple the Republican Government. To manage this quickly, Fed will stop Rate Cuts further, which means, Sub-Prime-Mess going out of control in 2008.


Here is the MKJ Predication for 2008. Dollar will continue to slide vis-à-vis Euro / Dollar and Indian Rupees, till Chinese continue to hold the currency in firm hand to boost their Exports further. Stock market will go down but surprisingly would remain steady and Inflation will hover around disturbing 5%. Americans will eventually learn to accept a week dollar and a new world order. Yes, if they get of Iraq asap, they can manage their economy better and life will be back to normal. The question is, will they?


Cheers !!!
Manish K. Jaiswal

CEO - Bonsai International Group

manish@bonsaiinternational.com



http://www.insurancemall.in/

http://www.newsandreviews.in/

http://www.newsandreviews.in/