A Falling Dollar (Not Budget Deficit Funded Lifestyles) is What The Country Needs

Recently, the CEO of CitiBank, Vikram Pandit, told his employees that the American consumer is no longer bankable and that he will steer CitiBank toward greener pastures elsewhere in the world. In a competitive world, there are two things clearly happening – the emergence of China as a competing economic power and the non-bankability of the US consumer. Guess what the McKinseys of the consulting world are whispering into CEOs’ ears: Go Global – sell more in other countries than in the US. Now, to do this, we need to have an economic environment where our export prices are competitive. This is why, in my opinion, there will be tremendous pressure to devalue the dollar. When CEOs sneeze, the US catches cold. A devalued dollar accounts for competitive exports from the US. We all know that China is keeping its currency at an artificially devalued rate to keep its exports competitive. Further, the purchasing power in emerging markets is rising exponentially, meaning there are large middle class markets with reasonable disposable income to purchase American markets. The American middle class will have to effectively compete with this emerging global market for credit and access to goods. Demographics is NOT in America’s favor. For instance, 65% of India’s population is under 35 years old, implying it is such a young nation. Meanwhile, the US is an aging nation with an aging workforce, trying to bridge the expected social security gap.

Large US budget deficits also contribute to the falling dollar, making exports even more attractive. US companies have already started to gear their product lines toward export growth and the US export-import bank (US EXIM Bank) has been more aggressive in informing exporters about their financing programs. What does this mean for the average Joe or Jane in the US? The average Joe or Jane in the US is not going to see his or her income rise as is being taken for granted. As middle classes of other countries continue to grow, goods will chase them and talent will relocate. When I visited the west coast, several venture capitalists mentioned that learning mandarin has moved from being optional to mandatory – clearly meaning that fund flows are getting scarcer in the United States and is coming more and more from elsewhere. This was abundantly clear when several large US banks had to seek private capital from cash-rich entities in the Gulf States and China. Even Hollywood is beginning to rope in billionaires from India to finance its movies.