We might not bother to think much about money matters and exchange rates, but that is a topic that economists and bankers talk about a lot and engage in actions that affect all of us. Add politicians and their hare-brained ideas, well, one's life can be upended easily when we realize one fine day that the money we earn or have might not be of much value.
While neither an economist nor a banker, and one without any political aspirations whatsoever, I have been convinced about one thing forever: Never bet against the US and the US dollar.
The other side of this conclusion, a corollary of sorts, is that as long as people want to immigrate to the US, and as long as the US dollar appeals to the rest of the world, then most of the rest of the world will be terribly messed up if the dollar gains strength and gains it rapidly.
With that lengthy preface, let me spin for you my version of the story about the old country.
The USSR came and went. The Sun briefly rose in Japan, and then sank really fast. China is only a powder-keg away from the Communist party exploding and, in any case, the country is far from ready to deal with the demographic implosion.
The US wins one of two ways: either it genuinely gets creative and forges ahead, or it simply waits for others to fall and then be the last one standing.
The old country?
In this post a decade ago, I noted the Indian rupee's slide against the dollar--it had slipped to a psychologically upsetting 55 rupees to the dollar. I wrote then: Indians better start getting used to the fifties. In fact, buying a dollar for 55 rupees might even sound like a good deal because chances are high that it could get worse.
My conviction was not based on sophisticated econometric modeling or whatever mumbo jumbo that bankers use. Instead, it was from an understanding of how India's government, like Argentina's, never wasted an opportunity to do the worst thing at the wrong time. The US is a contrast--it does the right thing but only after exhausting all the other options!
I was, therefore, confident that 55 rupees to a dollar was merely a milestone along the highway to further depreciation.
A mere year after that, 55 sounded like a great deal when the exchange rate plunged--it took more than 65 rupees to buy a dollar! In my rejoinder to comments at that blog-post, I added: I don't know how any thinking person is able to continue on with daily life fully aware of the missed opportunities and the sorry depths of irresponsibility against so much potential ...
To people thinking that a change in government might do the trick, I warned that throwing the bums out will mean new bums will get in!
A year after the 65 rupees to a dollar exchange rate, Indians voted in a new government, and reelected that party after five years. The new government has been far more interested in creating exciting visuals and persecuting the religious minorities than strengthening the economic fundamentals. Making a spectacle of meditating in a cave is just that--a spectacle that is well-suited for this age of social media, but one that does nothing for the man and woman on the streets of India.
It does not surprise me one bit that the rupee has been tending towards newer and newer lows. Now, an Indian will need 80 rupees to buy a dollar.
May I remind you that a decade ago I said that 55 would be a good deal if Indians can find it!
Now, I do not follow the exchange rate stories because I have gazillions to invest. Far from that. If only I had been interested in making money! I follow these news reports because ultimately it will be the poor and the lower-middle class that will suffer as a result of the government's misplaced priorities. A weaker rupee drives up the cost of imports, which will eventually make everything costlier. The rich and the upper middle class might have to make a few adjustments, sure, but otherwise their lives will be unchanged.
it is always one heck of a horse race between India and Argentina doing the worst possible things at the worst possible moments. Let us see if Argentina can match India's moves, or raise the stakes!
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