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 What does it mean to raise US interest rates? Comprehensive reading of the decision of the world eagerly awaited

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PostSubject: What does it mean to raise US interest rates? Comprehensive reading of the decision of the world eagerly awaited   Tue Dec 13, 2016 2:15 pm

What does it mean to raise US interest rates? Comprehensive reading of the decision of the world eagerly awaited

Dollar exchange rate now at its highest level in a decade

Twilight News

Twilight News / waiting for the world, not only Americans, the Fed's decision (the central bank) US interest rate at the last monthly meeting in 2016 to him, where he is widely expected to raise interest rates for the first time since, for the second time in more than a decade.

The Reserve rate hike in December 2015 a quarter of a percentage point for the first time in 10 years, to reach between a quarter and half a percentage point, after having been a long time between zero and a quarter percentage points.

The direct impact of the interest rate is the cost of borrowing money from the Federal Reserve, which was before the global financial crisis in 2008 is limited to US banks, but it has expanded to include "exchange of criticism," with the major central banks in Europe and elsewhere.

But the biggest impact of raising the interest rate will be on the US dollar exchange rate, which is witnessing a rise in the last two years, affecting the whole world, not only on the banking and financial sector, but also on the cost of living for ordinary people in most countries of the world price.

The impact of the dollar

And up the dollar exchange rate now to its highest level in a decade, and more than 40 percent to its lowest level in 2011.

An increase in US interest rates, at least a quarter percentage points, to push the dollar exchange rate to increase again, and if we take into account the expected economic policy of US President-elect Donald Trump, the dollar will continue to rise in 2017.

Although the strength of the dollar means increased cost of US debt to the world, the flexibility of the US economy and convinced investors in various parts of the earth as a healthy and strong economy it does not hurt that much for Americans to borrow and borrowing market.

But the rest of the world are affected, World Religion, estimated at more than $ 250 trillion, mostly in dollars, and there are 39 percent of global debt, the debt in dollars.

Add to that, that there are many countries follow the footsteps of the Fed's interest is done if filed, especially countries that peg their currencies to the dollar.

The "dollar zone" around 60 percent of the world's population and contribute about 60 percent of global GDP.

Producing countries that peg their currencies to the US dollar completely around a third of global economic output, and most commodity prices in the world are denominated in dollars, and dollar transactions constitute 85 percent of the foreign currency exchanges in the world.

Perhaps the credit market is, the bond market (especially dollar-denominated ones), the most vulnerable of the compressor to be affected by the high dollar exchange rate, there are a lot of countries, especially the emerging economies, borrowed debts of US dollar strongly suffer from the cost of repayment of those debts, and their benefits.

It is more nations emerging economies, which have already begun to suffer the burden of debt as a result of higher US dollar exchange rate of Brazil and Turkey, and there are other countries are already suffering as a result of the high dollar exchange rate, such as Venezuela, Egypt, South Africa, Indonesia, Nigeria and Chile.

China's problem

China remains the countries most affected by the rising dollar exchange rate, when the Federal Reserve to raise interest rates in December, the volume of capital that came from China in the first quarter of 2016 up to 123 billion dollars.

The falling exchange rate of the Chinese currency (the yuan) over a year and a half last year, China's reserves declined by 25 percent since 2014 and is now in the range of $ 3.1 trillion.

And not only the disruption of the balance of trade affected by China as a result of currency differences, but the most important and the most dangerous is the opposite direction to the movement of capital.

That is also the problem of emerging and least developed economies that need to flow of capital investments which do not bear an escape toward the American economy, particularly the prospects for interest rates on the dollar to raise more than now after the election of Trump as president.

The dollar and commodities

Al-Qaeda remains in the market that if the dollar rose dropped the price of gold and other minerals and dollar-denominated commodities, particularly oil.

Although the producers recently agreed to adjust the production keeps the price now is in the range 50 to $ 55 a barrel, the continued rise in the dollar exchange rate may be a pressure on the price of oil workers to return to below fifty dollars a barrel.

While producers have suffered for certain goods having to lower their prices as a result of the high value of the dollar, consumers in the rest of the world with the high cost of retail sales.

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PostSubject: Re: What does it mean to raise US interest rates? Comprehensive reading of the decision of the world eagerly awaited   Wed Dec 14, 2016 12:30 am

The rising value of the USD relative to other currencies is a mixed blessing for us. On one hand it means lower prices for imports, on the other hand, it also makes it hard to export our products, widening the trade deficit. However for most countries, there is no silver lining, their reserves dwindle as their own buying power lessens, also since most international loans are denominated in USD, the cost of servicing those loans will go up.

For us the impact of increasing interests rates will be minimal, unless possibly you are overly leveraged or have a balloon mortgage. Lending rates will likely go up fractionally, as will returns on more conservative investments like bonds, CDs, and fixed annuities. Stocks may go down fractionally as those conservative vehicles become more attractive. I'm no expert, but I suspect that we will continue to see the dollar rise and the money supply tightens.

For other nations, not so much, many nations and international businesses have been dependent on cheap money coming from the US, and that cost is going to go up. The biggest risk is (I think) that the world economy will lose significant ground, even tank. That could drag the US down with it. In fact, as near as I can determine that was the biggest reason the Fed decided to delay any interest increases last year. Well no one can say we don't live in interesting times....

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