GuruSpeak | Catching them young and watching them grow is how Sheetal Malpani invests Maharashtra’s legalising leasing of agricultural land a milestone in agricultural reformĭigital Data Protection Bill: Too little, too opaque and too late Green capex plans of Power Grid, NTPC look too ambitious What’s driving M&M’s move to buy a stake in RBL Bank Monsoon Watch 2023 | Is a Rabi-season output risk brewing? Thermax: Growth in earnings well priced in the stock Sun Pharma: Steady growth, but higher valuation Weekly Tactical Pick: Krsnaa Diagnostics – A play on underpenetrated healthcare infrastructureĬoncord Biotech IPO: A differentiated API portfolio to play the China+1 opportunityĪirtel Q1 FY24: The growth ringtone is buzzing louderĭabur India: Growth, margin recovery broad based Investing insights from our research team Until then, the rest of us will suffer the symptoms. But it is perhaps the only way to make America own her problems. The move away from the dollar is a long-drawn process rife with political motivations and economic traps. This only strengthens the case for US market valuations. The dollar’s hegemony continues and the recent signs of resilience of the US economy are good news for it. The link that transmits the troubles of Washington onto others is the dollar. Ace investor Mark Mobius said in this interview with us that the rating downgrade is a good opportunity for investors to diversify their holdings away from the dollar. The two decades that followed saw the share go up only marginally to 24 percent. Foreign investors held 11 percent of US debt in 1972 which doubled to 22 percent by 2002. The US could build up its debt as foreign investors including central banks across the world loaded up on US treasuries. The other luxury of foreign buyers is also less dependable now. That luxury is now gone with inflation around 3 percent for which the Fed had to hike its rates by an unprecedented 5 percentage points. That gave policymakers enough ammunition to crank up the printer whenever necessary. In the past decades, US inflation has been conspicuously absent or hardly ever more than the 2 percent target. Basic economics shows that money printing leads to inflation. The US Federal Reserve cannot print money without consequences. There is a distinct difference this time. That brings us to what the markets are getting wrong this time. The general view is that this movie has played out before and we know how it ends. Markets believe this would continue and that explains the S&P 500’s rather lukewarm response to the rating downgrade. What made the US different is that it can print dollars anytime to get out of a tight spot, and a big chunk of its debt is funded by foreign investors. The upshot is that the US has continued its fiscal profligacy with impunity.Īny other country, especially a developing one, indulging in such an adventure would have paid a hefty price and history shows many examples of the same. As Ananya Roy points out in her column for us here, S&P’s rating cut came in 2011 and the reasons were eerily similar. In fact, the reservations on rating are even more serious, given that this is not the first time the US has been downgraded. Our Chart of the Day details the instances of ceiling hike (78 times since 1917) and the fact that US accounts for nearly 10 percent of global debt.įitch’s worries are not unfounded despite the umbrage that the questioning of US’s creditworthiness has evoked. Fitch has pointed out the weakening governance enumerated by the innumerable occasions of debt ceiling hikes and the simultaneous increase of the sovereign debt pile to the mountain of $31 trillion today. Global rating agency Fitch’s downgrade of US sovereign rating is logical in the face of the government’s borrowing binge. The latest downgrade in its sovereign rating is no exception. An American consumer needs to continue consumption for Asian factories to keep chugging.Įvery time America has winced, the world has felt the pain. A US recession hurts emerging market economies more through a slowdown in exports. A US financial meltdown spread fast to the rest of the world in 2008 and affected every country. US President Richard Nixon’s treasury secretary John Connally’s iconic statement in 1971, “the dollar is our currency, but your problem” can be stretched to other metrics of the country. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days.
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