Back to the Future

by Jayant Pai | jayant@ppfas.com

“Nothing is permanent in life”. This adage was reinforced when I  read an article by Ruchir Sharma (of Morgan Stanley) just now, prognosticating the rise of the US Dollar (USD) over the next decade. Apparently the past decade’s fall in the USD’s value was due to the tepid stockmarket in the USA and a correction of the strength experienced by the USD in the nineties. The strong currency led to yawning current account deficits (As a percentage of GDP) and consequently falling competitiveness as exports were priced out in many industries.

The turn of the century also coincided with the rise of the large emerging markets as US consumer imports from China and other countries ballooned on the back of a strong currency and it became economical for exporters of capital to invest in the emerging markets. This led to linear extrapolations in 2009-10 predicting the permanent rise of emerging markets and the permanent demise of the USD. Continue reading