Citigroup Bailout Will Lower Dollar’s Value
How will the US pay for these bailouts? They will issue T-bills. This has the same effect as printing of money. It creates additional credit and credit expands the number of dollars out there by a factor of about 10. When you deposit cash, it allows banks to about ten dollars to every dollar you deposit. That is if the banks will loan it. Right now, they will not do it so the lender of last resort is the government and the government is going to loan and loan big.
The 20 billion package to bailout Citigroup caused Treasury Note to open lower this morning (morning in the states). Stocks markets are moving up ward as of the time I write this but the day is still short.
This will have a downward pressure on the value of the dollar. As expats, we may feel the impact twice. Once when they issue the debt and then again when they raise our taxes to pay it off. The method in which taxes are raised means everything though and there are other ways to raise government revenues. The best way is growth in the economy. Right now, there is negative growth in the US economy. Like it or not, these kinds of actions are needed.
Citibank is also a world wide country and is associated with the USA. Citibank is not expected to reduce jobs in Asia. Asia is its growth area at this time so they need that growth to help improve the status of of the bank over all so laying people off in Asia is not in its best interest. It would be nice to see a stronger presence from Citibank in the Philippines. If it is here, I’ve not seen it but it may be operating with other banks in the back ground. I have not looked for it but heard commentary on CNN tonight saying that people living overs seas generally use Citibank. That may be more common in Europe and perhaps China.
This does not mean the dollar will immediately nose dive, it is just one of the factors that guide the value of money. The Treasury Department has indicated there will likely be similar bailouts. I’m not an expert, so I can’t tell you which way the dollar and peso will head. I think there are indications of slowing of the increase in the value of the dollar toward the peso. I just hope it will not start new downward fall of the dollar.
Inflation has been falling in the Philippines, this should increase the value of the peso. It will take some time before we know if there is a new trend in the value of the dollar toward the peso.
It may be a volatile and interesting period for the American expat living in the Philippines.
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