US Dollar and Current Banking System

A1SS 2011-13

BYAMRUTH (2-4)RAVINDAR(5-7)

SUBHANK(7

PRESENTED TOPROF .SUNANDAMACRO ECONOMICS

US Economy Fundamentals

• In the Thomson Reuters/University of Michigan Surveys of Consumers, the median reading on expected inflation over the next 5 to 10 years was 2.9 %.

• The Fed in September embarked on a program to sell $400 billion in short-term Treasuries and invest the money in longer-dated bonds, an effort to keep long-term rates down.

• Fed projects GDP growth at 2.7%-2.9% for the next QE 1,2012

GDP Growth Rates for 2011

Banking Sector

• Banks are also continuing to step up their capitalisation levels.

• Total Tier 1 capital for the Top 1000 rose 10.5%, to $5433bn, comfortably outpacing the growth in assets.

• The trend towards higher capital-to-assets ratios worldwide continues unabated.

Banking Sector

• The US in particular has enjoyed a much-improved performance, with Citigroup, Bank of New York Mellon, State Street, GMAC, Keycorp and Huntington Bancshares – all among the top 25 largest losses last year – this year recording substantial profits.

• Outside the US, other banks that jumped from biggest losers to big profits include UBS, Russia’s VTB, Dutch bank ING and two of Germany’s largest banks-Deutsche Bank (Frankfurt a.M., 1.5 billion)

Commerzbank* (Frankfurt a.M., 844 million).

Euro Zone

• For 2011, the team of forecasters for The Economist is projecting 1.3% growth for the Eurozone (the 16 out of 27 EU countries that use the euro currency).

• But it's not that simple:

• You must also factor in the reality that the Eurozone's annual population growth is only 0.1%, versus 1.0% in the United States.

• Once you do that the growth rates are almost identical - 1.2% in the Eurozone versus 1.3% in the United States.

Growth Engines

• Last but not least, there is Germany. The Economist panel is projecting growth of only 2%. But that's almost certainly another example of Anglo-American economists underestimating Germany's real potential. Its growth rate in 2010 is actually expected to be 3.3%.

Germany now has a substantial labor skill advantage over its neighbors in the euro community, and is growing relatively rapidly, as the costs of absorbing the former East Germany fade into the past.

Growth Engines

• As was the case back in the 1980s, Germany is one of the world's great growth economies, with a structural trade surplus due to the efficiency and quality of its manufacturing.

• The euro, holding down Germany's exchange rate through the inefficiencies of its European neighbors, only accentuates this trend and increases Germany's growth potential.

As an investor, your portfolio needs exposure to Europe; it's a huge part of the world economy, and growth and profitability in the better parts of Europe are highly satisfactory.

US Dollar

• Inverse relation with commodities like gold and even equities.

• EUR/USD has broken the crucial 1.3000 mark due to Greece`s default risk.

• USD/INR has depreciated 20% due to India`s rising fiscal deficit of 3,07,009 crores and rising import bill $358 bn .

• We`re seeing signs of capitulation in the dollar index which is at 70.(all time low).It is due to excessive dollar printing.

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