The Thai economy is strong, one of the stronger performers in a strong region. The US dollar, because of crazy economic policies, is declining. Consequently, American expats that rely on income from social security, pensions, rental income from US properties or any other US income or assets is taking it on the chin again.
Americans are not alone. Brits had some big drops last year in their currency in relation to the Thai Baht, and those on a Euro basis are also feeling a pinch.
Every time there is a weakening of the dollar, we (expats living in Thailand) pay for it with an immediate higher price for local goods. Americans living in America also will be getting some grief from the weaker currency, but it is not so obvious on a daily basis as expats see it. What can be done? It’s a gamble to switch currencies to one represented by a more stable government than what is currently ruling America. Change the US government? Well, we keep trying to get the bureaucrats and elected/purchased politicians to do the right thing back in the USA, but have only had mediocre success. If I could, I would require all US politicians to read my blog daily, but I think that is not going to happen. Second best idea would be just to have them simply wake up.
Just last week, the dollar fell 2 to 3 percent in relation to the Baht. “In the first half of last year, investors might have been uncertain after Thailand’s flood problems but started gaining confidence in the latter half, helping the baht – with less appreciation than its regional peers. This year, the improved economic figures show the country’s strength, and that could have resulted in the baht’s appreciation,” BOT (Bank of Thailand) Governor Prasarn Trairatvorakul said.
From the beginning of last year to date, the US dollar has depreciated about 5-6 per cent against the Thai Baht, while South Korea’s won strengthened 9 per cent against the dollar, BOT Governor Prasarn continued. The Philippine peso appreciated 7 per cent against the falling dollar, while the Singapore dollar and Malaysian ringgit appreciated 5-6 per cent in relation to the US dollar.
Meanwhile, it appears that Americans are oblivious or simply don’t care about the weakening of their currency worldwide. Little media coverage within the US is bringing this matter to the public’s attention, and there are no mass protests, and no massive public concerns are being shown. The government is touting a housing recovery, which many savvy economists are saying is simply not happening (see Zero Hedge, 01/25/13 “The ‘Undisputed Housing Recovery’ is unmissable on this new home sales chart”). The US federal government seems to be saying that the depression is over and everything is cool, so it’s OK to raise taxes a bit and offer more free money to bankers (QE III), but non-governmental economists like Peter Schiff and Marc Faber are predicting a major currency crises with the US dollar. These two economists correctly predicted most of the recent past problems, including the housing bubble burst (more correctly it should be called the mortgage bubble), the internet bubble, upticks and downticks in the market, and movements in gold and silver.
In Thailand, there is concern that the increased value of the Thai Baht could affect exports as the major market areas (primarily the US) will now find Thai products more expensive. Of course, the yin with that yang is that American goods will be less expensive in Thailand. “Currently, the prime minister is considering relief measures for the affected groups [in Thailand]. The impacts are different for them. One idea all agreed with is that those [Thais} who invest abroad [outside of Thailand] will benefit, especially those who have to purchase capital products or machines from abroad,” Prasarn said.
Despite the appreciation of the Baht (and depreciation of the US dollar), Songtum Pinto, the BOT (Bank of Thailand) Director for Monetary Policy estimated that exports for Thailand will increase by 9% during 2013.
In this first month of the new year, Thailand has lowered the income tax rate for most categories (and increased none), while the US is punishing their citizens with a massive income tax increase, leading up to many new federal government seizures of income through the Medical Industry Control program (“Obamacare”) that is nearing full operation.
Meanwhile the US has the private bank, The Federal Reserve, print up more money (diluting it) and adding to the federal government debt (every new dollar printed creates a new dollar of debt for the US taxpayer).
Here’s the reaction of a local American expat living in Thailand:
It’s quite simple. The US is handling its debt problems by inflating it’s money supply. They call it “quantitative easing.” Now that’s a nice term and it might even work, but simply put, it is a deliberate and managed inflating of the money supply. The Thai baht on the other hand is healthy and inflation is controlled. Since the exchange rate is based on the relative values of currencies, when one is inflated and another stays steady, you are going to see the kind of change in exchange you are seeing vis a vis the dollar and baht.
I am an American. I finally qualify for the Social Security retirement supplement I have paid for all my life. What the US government is doing with its managed inflation scheme is stealing a portion of it’s citizen’s wealth. Government managed inflation is nothing but a hidden wealth tax. To those Social Security recipients living in the US, the tax is not so apparent, though the benefit has lost purchasing power at a greater rate than the cost of living increases. But when you live overseas and convert the benefit to a stable currency like the baht, the theft (or tax) becomes painfully apparent.
Bottom Line: Thailand is becoming a richer country and the United States is getting poorer.
Please remember that a dollar that loses “value” against other currencies helps almost all Americans except those few who travel or live abroad and depend on dollars sent to them from the “mother country.”
A lower-cost dollar means we can pay off foreign debts more easily; attracts investments and tourists *to* the U.S., and means our industry is more competitive even as imports become less attractive.
For many years China and some other countries — some say Thailand is one of them — have kept their currencies artificially low against the dollar in order to build their export-based economies.
Maybe it’s time we Americans turned that around. We should also levy stiff import duties on all imported goods and services. Do that, and in another 10 years, we’ll have a healthy economy and full employment, with decent medical care for all.
I know a lot of people want to see the U.S. and its present administration fail, but things are looking pretty good around here no matter what the doom and gloom crowd says.
Always good to get the opposite point of view.
Actually the USD has strengthened significantly over the past 18 months, measured against a weighted basket of America’s major trading partners. You’re looking only at Thailand (for obvious reasons), which is a tiny part of that trade, and the USD/THB rate moves for a lot of country specific reasons.
That’s not to say the U.S. hasn’t been intentionally weakening its currency since the Plaza Accord in 1985: China isn’t the only country that tries to protect its economic interests, and America has never hesitated to throw its economic weight around. In the longer run I fully expect “us” to attempt to screw our creditors and reduce the enormous debts we’ve accumulated by spending and living far beyond our means for 30 years by devaluing the currency much further.
In the last month, and projected for ’13 the dollar has become WEAKER against the Euro (despite them being in terrible shape), British Pound (also not in good condition), Swiss Franc (by a very large amount), Canadian dollar, Australian dollar, Mexican peso, every country in Southeast Asia except Myanmar (not just Thailand — for most other SE Asian countries it is more than Thailand), India, China, South Korea and most of the world. The dollar is STRONGER to the Japanese Yen. Over the last year, the dollar did gain value compared to the South African rand, the Indian Rupee (although that has shifted recently) and held steady with the Euro. That does NOT show the USD has strengthened in the last 18 months. (Please show me how your statement could be correct). http://www.forecast-chart.com/us-dollar-strength-nl.html And what kind of policy is it that screws our creditors and lowers the value of the dollar for it’s citizens? You say the US is living beyond it’s means, and this is a way out. But would it not be better to simply quit spending so much, starting wars, giving away billions to banks, etc. etc. in order to lower the US debt? That would show the world the US was serious about solving the debt problem and make for a stronger currency, or at least one not declining in value to most currencies. Plus, it is the right thing to do. The US should not be screwing anybody. The US should strive towards a solid currency for the benefit of Americans — anything different is a hidden “tax” on American citizens.
I was going by this index, a 7-8% increase over the past 18 months (one month is too short a period to mean much):
http://quotes.ino.com/chart/index.html?s=nybot_dx&t=&a=&w=&v=dmax
Some major banks and independent analysts are predicting a strong year for the dollar in 2013 as well, but of course predicting short-medium term currency moves is educated guessing.
I agree with you completely on what the “right” thing is to do, I just don’t see the U.S. doing it, based on past behavior. Americans usually to do what is best and easiest for themselves, and rationalize it, sadly. You can see that in the way China is blamed for its problems. I was in the Asia-China manufacturing business for 30 years and never once sought a customer, all impetus for the shifting of production from the U.S. to Asia came from American corporations. Asian factories then built what they needed to supply that demand.
OK, you were looking at the wrong chart at that site. You need to click at the top of the page on the US Dollar and you will get the chart for the performance of the dollar, which is a steady downward move since the beginning of August of last year. The link for the dollar performance chart is http://quotes.ino.com/charting/index.html?s=NYBOT_DX&t=&a=&w=&v=d12 This will get you the US $ index, which goes for a max period of one year back. The link you gave me was for all markets, including stock exchanges in the US, which are up right now. Maybe some banks are predicting a strong year coming up for the dollar (but I have not heard that and would never trust anything coming out of the banks anyway), but I hear no economists saying that. If you listen to Peter Schiff or Marc Faber and others like them, the dollar is on the verge of total collapse. I believe the general direction of the US federal government with Keynesian economics (the insane belief that the economy can be stimulated by government spending) and the resulting enormous federal government debt is what is driving the dollar down (see The Madness of Keynesian Economics at American Thinker), along with a monetary system of the US controlled by a private bank, the Federal Reserve, which works for the benefit of their ownership (which are member banks). I am a supporter of the Mises Institute (Austrian School) of economics with the concept of operating in free markets (their blog is at http://bastiat.mises.org/), but the current politicians running the US do not follow this model.
I believe we are looking at the same chart, just talking about different periods of time. You are looking at six months, I am talking about 18 months, during which time the dollar index has increased from 74 to close to 80 (if you click max that chart goes back to Oct-2010). This is called selection or observation bias, seeing what we both want to see!
Anyway we are on the same page as to the long term direction of the dollar, I’m just saying that you can’t draw such broad conclusions from short-term increases in the value of a few Asian currencies, they move due to trade and investment flows.
I’ve been a Faber subscriber for 15 years but am not yet sure what his outlook on the dollar is for 2013, unfortunately he didn’t participate in the Barron’s Roundtable.
Yes, he’s long predicted dollar decline in the long run but he’s also said repeatedly that for now it’s often the best of a bad bunch. And he’s anticipating a 20% drop in U.S. equity markets, in which case I would imagine the dollar would soar, as it has during previous such periods, as money flows back into cash. And I know Zulauf foresees eventual EUR/USD parity and 200 yen to the dollar, which is hardly dollar bearish (a major correction in the AUD also looks likely). Agree the big bank forecasts are fairly useless, but neither do I put much store in perennial doom-and-gloom showmen like Kaiser and Celente (and maybe Schiff).
I guess what I’m saying is that short, medium and long term currency trends are very different things, and that using long term outlooks to make short-medium investment decisions can lose a lot of money.
OK, guess we are looking in the same places but seeing a different story. I see the dollar chart for the period of the last year with a giant drop beginning about 6 months ago. I hear Marc Faber predicting strongly that the dollar will collapse in ’13 (many videos). Faber has correctly predicted many of the past economic events and I am sure you are like most (including me) that wished we followed his advise a bit more in the past. I see major changes with the dollar everywhere in the world, and I am pessimistic about this new year. I am hearing so many other economists that have the same story.
You are see the same thing but think it is just a short term thing, and you are optimistic about the dollar, and as you indicated the US is going do just fine screwing their creditors with a weaker dollar. Apparently, the effect on Americans (both in America and expats) is not important.
We see things through different color glasses, and I guess we will have to leave it at that.
Really? Sending US business overseas was only an american idea? Suggest you read Who Stole the American Dream by Hedrick Smith. You just might get a somewhat different perspective of the overall problem of trade, taxes, and how the US does business with the rest of the world.
I have watched several lectures by Smith about his book. His whole point is that America’s problems came from within, not without. Specifically from its corporations, which from the ’70s abandoned the traditional American notion of “stakeholder capitalism”, the idea that corporations have responsibilities to their workers and society as a whole, not just shareholders. That change to an “only profit matters” business ethos is what drove the efforts of American management to find or create cheaper manufacturing sources in Asia, U.S. workers be damned. I witnessed that thinking firsthand for 30 years.
From 41:00:
http://jessescrossroadscafe.blogspot.hk/2012/12/hedrick-smith-who-stole-american-dream.html
Greg,
What will you and other expats do if the dollar continues its fall? I am interested as an American that plans on retiring to Thailand soon. I have lately figured the baht at 30 to the dollar, but if this keeps up might have to lower that figure. Do you think that the Thai exporters will have any influence on stabilizing the baht to around a 30 to 1 figure?
Louis
The dollar is already below the 30 to 1 ratio now — when I first started staying in Thailand it was 40 to 1. It is my opinion that the dollar will continue to decline and may go down to 20 or so, but I am unable to say for sure. I listen to others and it is a big range of how bad the dollar will perform. Some say it will totally collapse, others say there is light at the end of this temporary tunnel. For me, the answer is working to have income within Thailand and not depend on the dollar so much. I am not at a good level with that yet, but have some small businesses with potential to be good producers. If I were younger, I could do better.
There is pressure from Thai exporters and bankers to push the Baht down, but the really good economy around here keeps attracting investments from all over. Everyone here sees it, with Chinese and Singaporeans and Japanese and everybody else that has money building and buying things all around Thailand. With Myanmar opening up, people see the region on an upward growth pattern. There is full employment in Thailand and all the economic indicators are positive. That makes for a strong baht, especially since the alternatives are falling down so low. You have to figure out what is the best alternative for you, and for most, staying in the US is not a good choice. Best of luck in your planning; I truly understand your frustration.
Several years ago, I remember reading articles about the plight of American expatriates in Europe who were facing challenging times because of the weakening dollar. The greenback gained ground after that. Who is to say that the dollar’s performance vis-à-vis the baht is not just another part of that cycle as opposed to something long term?
People have been writing obituaries about the US economy for a long time now. Who is to say who is right? Predicting economic trends is a tricky business.
Well said, and I hope you are right.