1. US CRISIS AND THE DOLLAR PRESENTED BY AKHIL CHAWLA AMAN ANAND DIPANNITA SEN DIPIKA TOSHINWAL MEGHA JAGGI

2. OUTLINE US CRISIS- REASONS. CURRENCY – US DOLLAR AND THE EURO. STEPS TAKEN BY THE CENTRAL BANK. MULTILATERALISM AND SUGGESTIONS GLOBAL IMBALANCES AND COCLUSIONS.

3. HOW IT ALL HAPPENED?? Printing of money for deficit financing Home Loans Mortgage backed securities Credit Default Swaps Collateral Market Obligation Collateralized Debt Obligation

5. TO RECAP, BY THE BEGINNING OF 2007: Home prices were at unprecedented levels. Home owners had more leverage than ever before. Mortgage quality had declined substantially. Asset-backed securitizations had spread well beyond the GSES. This sets the stage for the crisis.

6. US DOLLAR AND THE EURO

7. Crisis has broken the close correlation between differences in expected interest rates and the euro-dollar exchange rate. Sharp increase in risk aversion.

9. Exchange Rate Risk

13. CENTRAL BANKS-RUNNING THE SHOW

14. ENDLESS SUPPLY OF MONEY End of the Bretton wood system in 1971 New paper standard TARP agreement Creating assets out of thin air

15. PRINTING CURRENCY A GLOBAL TREND

16. MISTAKES MADE BY FED lowered the interest rates to 1% in 2001 to soak the liquidity of the world after the dotcom bubble. The second is they tighten the rates too timidly in 2004 to 2006 first mistake again as they have lowered the fed funds rate again to 1% to get a solution for present day financial panic

17. DEBT TO GDP RATIO

18. OTHER FACTORS Rise in savings of emerging economies

19. BANK FOR INTERNATIONAL SETTLEMENTS Outstanding global contracts at the end of 07 $600 trillion Approximately 11 times the global GDP in 2005 it was merely 2.5 times Credit DEFALUT swaps alone had reached to 60 trillion dollars in a span of 12-15 years

21. SUGGESTIONS

22. MULTILATERALISM: The world needs coordinated policy that reaches beyond the financial system alone. The Fed, the ECB and Bank of England are flooding financial markets with the liquidity, lending heavy sums against all sorts of securities. Unfortunately, the central bankers alone can’t sort out this mess with the injections of liquidity.

23. QUANTITATIVE EASING: Lowering long and short term interest rates. Buying private asset. Fiscal authorities can run a deficit of any size they wish and then finance it by issuing short-term paper that the central bank would have to buy. Once inflation returns, the central bank will need to sell assets into the market, to mop up the excess money it has created in fighting deflation.

24. Restructure and Shrink the banking system. Governments must continue to facilitate the enormous task of sustaining credit flows and restructuring debt. The full force of fiscal policy needs to be deployed to contain the depth of the recession and credit losses and the impact on jobs and incomes.

25. GLOBAL IMBALANCES AND CONCLUSION

27. Temporary solution -government will replace private sectors as borrowers

28. Permanent solution- global economy will have to rebalance

29. If the surplus countries don’t expand the domestic consumption, the world economy may even break down.

30. Big Surplus countries are - China, Germany and Japan

32. CONCLUSION : WHAT LIES AHEAD $8 trillion sufficient for debt contraction ? Solvency crisis not liquidity Rare crisis is the evident mispricing of convertible bonds The wide spreads prevailing at present between Treasury’s and corporate claims. No investment asset is considered as “Safe”- Government securities have become “toxic” like mortgages and corporate bonds

33. SOMETHING TO THINK ABOUT??? The entire world today has a surplus of $350 billion how is it possible?