Falling dollar

Here's something a lot of Indians working in the US track very very closely: The exchange rate.

We should be proud of the fact that the Indian economy is doing so well.

I heard an interesting piece on CNBC the other day with respect to currencies and the recent sub-prime loan problem that has taken over the US economy.

First, what exactly is the problem?

The US Dollar, being robust as it was, attracted a lot of foreign investors in the past. These investors dumped money into the US and facilitated the huge growth and economy that the US boasts. A lot of investments were made towards the lending industry here. Probably the largest investment went into the housing loan industry. There were more people to give out loans that people who wanted loans. So, invariably, people with bad credit history got loans approved that they would not have in the normal circumstances.
All was hunky-dory until the US economy started slowing down due to a lot of other factors (China and India included)
Suddenly people in the lower income strata did not have the kind of money left to pay off their loans. This resulted in a lot of foreclosures and a lot of people lost their houses. But, now there was no one to buy these houses (again because of the slow economy), so the prices of these houses came crashing down.
For example, a house that was sold at $500,000, 7-8 years back was now valued at $300,000. Because of this the loan companies started incurring a loss resulting in the foreign investors, who back these loan companies, incurring a loss.

The bleak future:
The financial analyst on CNBC said that the future was very very bleak for the US Dollar. He seemed to think that as the foreign investors start looking at other markets to invest in, the value of the dollar will plummet to an extent that it will no longer be the de-facto standard against which other currencies are measured. He also said that he was advising his clients against investing in the US and getting rid of their dollar cash reserves !!

If what he says is true, I'm sure it won't be long before we see the graph above dipping into the 30s.

Start sending your dollars home !!