Tuesday, 20 October 2009

More on the dying dollar

John Mangun
Outside the Box
Business Mirror

If there was a deadly disease outbreak someplace in the world, you would want to be informed. If a major natural disaster hit 10,000 miles away, you would still want to know about it. If a breakthrough scientific discovery were announced, you would expect the local media to tell you about it.

You may be getting bored with this column continuing to talk about the breakdown of the dollar, but if you are not aware of what is happening, you are going to be submerged by a financial flood that is going to make Ondoy seem like a summer shower.

In yesterday’s newspapers the Bangko Sentral ng Pilipinas (BSP) reported that so-called “hot money” net inflow to the Philippines was $47 million in September, reversing the $443 million in net outflows recorded in the same month last year. That is a $500-million reversal of fortune.

While the local “experts” are worried about the recent storms hampering the economy and the President is asking for damages from the other nations because of the myth of global warming, money around the world is scrambling for a safe haven from the dollar.

Also in yesterday’s newspapers was a ridiculous comment. From the Philippine Star: “The Bangko Sentral ng Pilipinas has vowed to contain excessive volatilities in the foreign- exchange market in order to ‘smoothen’ the movement of the peso against the dollar. BSP Governor Amando M. Tetangco Jr. said it is necessary to contain such volatilities to help business and consumers plan more effectively.”

To the BSP: If you really want businesses and consumers to plan more effectively, tell the truth that you know: The dollar is headed to historic low levels and there is nothing that you can do about it.

While the BSP has stated publicly that it is concerned about the financial affairs of our export sector with a falling dollar, there is nothing that can or should be done about the appreciation of the peso.

Trying to do anything in the face of incredible downward pressure on the dollar is both useless and dangerous.

Over this last weekend, another bullet was fired into the body of the dying dollar, unreported here in the Philippines, of course. In effect, the countries of South America have created their own currency similar to the euro. At the Bolivia Summit, leaders agreed to create a regional currency, the sucre. The exchange rate and trading of the sucre will begin in 2010. South America will no longer rely on the dollar for their inter-nation settlement of trade. Bye-bye, US dollar.

Last week Russia and China agreed to billions of dollars worth of economic contracts to be settled in either China’s yuan or the Russian ruble. Bye-bye, US dollar.

The Canadian dollar is nearly at par with the US dollar, which will make it more attractive for US companies doing business with Canada to accept payment in Canadian dollars for goods and services, not with the US dollar. Even Americans are going to be using non-dollar currencies.

Every one of these events are of crucial, even earth-shaking, importance, and they are not being reported here in the Philippines probably due to a continuing colonial mentality in the financial community.

It is unfortunate that Southeast Asian countries through Asean have their collective heads stuck in the sand, or someplace else, about this dollar-depreciation tsunami. This is perhaps the result of none of the Asean members having anything in common with each other except geography. No common language, no common religion, no common heritage unlike Europe and South America. Asean, and maybe the Philippines also, needs leadership that is more comfortable on the streets of Kuala Lumpur, Manila and Bangkok than New York, Rome and London.

The fact that significant amounts of foreign-investment funds are moving into the Philippines is a clear indication that this money expects the peso to appreciate as the dollar falls. All the talk about the supposed potential of poor economic fundamentals does not outweigh the reality of a dying dollar. A dying dollar by definition, along with the proof of history, demands that the peso strengthen. For the BSP to give any indication that this is not going to happen does a disservice to the nation.

The dollar is going to fall like a rock. The peso is going to appreciate beyond the expectations of the “experts” and you must be prepared.

The export sector is going to be hurt, no doubt about that. What the government should be doing is to prepare this sector to move markets from the US to other countries, and it should be done now. While all the newspapers care to talk about is the electronics market, electronics are only a portion, and not the most profitable portion of our export industry. Relying on America for our future export business is the same as betting on a horse with a broken leg; you can’t win.

The Philippines, like every other country, also relies on imports. Here, the public and private sector should be looking for markets to buy our necessary goods that will allow us to take advantage of a stronger peso. China may not be the answer.

The root problem may be that the Philippines has lived so long in the shadow of the US and the US dollar that we are unable to think of life without a financial Uncle Sam. That job in the US or a retirement condo in San Francisco has become part of the national mindset. But that worldview is no longer valid.

The dollar is dead. Long live the peso. Now the question is, are we going to adapt, and how can we advantageously adapt to a new ‘King Currency”?

PSE stock-market information and technical-analysis tools were provided by CitisecOnline.com Inc. E-mail comments to mangun@email.com.

1 comment:

  1. Bravo!

    I tryed explaining that, to my asawa re:the dying dollar.But she will not listen to me, all of her co-workers are blind? saying the dollar will not collapse.
    We don't have much money so instead of savings, I'm buying silver bullion every chance i get.
    So that we can build our retirement house in the RP.
    Since the US will decline (standard of living) and the RP will have a much better standard of living once the dollar dies.
    Looks like i'm going to retire much earlyer than planned.