Joined: Jan 03, 2005 Posts: 133 Location: South Carolina
Posted: Wed Jun 01, 2005 7:15 pm Post subject: Could the Euro dropping be bad for America?
I have this Gut feeling as the Euro begins to dip, were going to see more "diversification" coming out of the Asian Central Banks. This would be a perfect time for such a move to occur. Anyone here with Experience in Currency trading see this as well.
This would be a good time for anyone to buy euros (including Asian central banks), the overwhelming bearish sentiment probably marks a bottom. _________________ "The world is changed... I feel it in the water... I feel it in the earth... I smell it in the air... Much that once was, is lost..." - Galadriel
I don't know much about currency trading, but I have read that the falling €uro is good for European exporters. If it will be bad for the US, I don't know.
But over the past years, Europe has had to be competititve with a strong €uro, and now that it falls, it should give a boost to European exports.
Some in Europe have been welcoming the rejection of the Constitution purely because it takes the pressure off the €uro.
Joined: Sep 29, 2004 Posts: 2330 Location: Pennsylvania, USA
Posted: Thu Jun 02, 2005 8:03 am Post subject:
It could potentially be bad. The problem right now is one of discontent in many EU countries. The EU is becoming the scapegoat for lagging economies and is seen to weaken labor unions, lush social programs, etc. I predicted this a long time ago. Europe should have gone with a NAFTA style treaty which deals only with trade issues. Instead, they went much further, with a common currency and far reaching rules.
Outside of Europe, the USA is telling Asia to quit being so productive. Around the world, we could be seeing the beginnings of a trade war with protectionist measures being suggested in every country including the USA.
One positive outcome of such a trade war - less hydrocarbon consumption do to less economic activity.
Europe should have gone with a NAFTA style treaty which deals only with trade issues. Instead, they went much further, with a common currency and far reaching rules.
I 100% agree.
I have no idea why they rushed to form a common currency. The EU members are so different in terms of economic stability, wages and government styles a more prudent approach would have been some form of free trade agreement first.
The recent EU expansions add more uncertainty as they add more economically unstable nations (ie. Turkey).
I've invested about a grand in the Euro. I expect it to rise in a slow and steady manner again and hope to make %50 profit. Pennies, for sure, but it'll pay for my ticket to Czech this fall.
Joined: Apr 04, 2005 Posts: 472 Location: Seattle, WA
Posted: Fri Jun 03, 2005 10:36 am Post subject:
One thing you guys may not be considering:
Since both the Netherlands and France have rejected the EU constitution, it makes it far less likely that the Euro will become the new reserve currency.
Despite the Euro's fall, this is good news for the American dollar because it allows the American gov't to continue its borrow and spend ways without impunity since there isn't any other reserve currency available.
I have no idea why they rushed to form a common currency. The EU members are so different in terms of economic stability, wages and government styles a more prudent approach would have been some form of free trade agreement first.
That's how the Eurozone started. In 1951 the european coal and steel treaty was founded. In 1992 this cooperation was extended and that's when the decision was made to form a common currency. So you can hardly say they rushed it.
Quote:
The Conferences of the Representatives of the Governments of the Member States convened in Rome on 15 December 1990 to adopt by common accord the amendments to be made to the Treaty establishing the European Economic Community with a view to the achievement of political union and with a view to the final stages of economic and monetary union, and those convened in Brussels on 3 February 1992 with a view to amending the Treaties establishing respectively the European Coal and Steel Community and the European Atomic Energy Community as a result of the amendments envisaged for the Treaty establishing the European Economic Community have adopted the following texts:
Quote:
Despite the Euro's fall, this is good news for the American dollar because it allows the American gov't to continue its borrow and spend ways without impunity since there isn't any other reserve currency available.
On the other hand it will depress US exports. Moreover even the US government needs to borrow its money from someone. With a stronger dollar the US government will find it harder to raise sufficient capital.
America is bad for America. None of this speculation about a crash in the US dollar would be taking place if America's business was conducted rationally.
Always be wary of making statements like 'a weak euro is good for Europe'. Currency movements are a double-edged sword, they affect trade and affect wealth. If your currency appreciates, it means that foreign products are cheaper, which is the equivalent of a pay raise for everybody. If the currency depreciates, it's equivalent to a pay cut for everybody. On the other hand if your currency appreciates, your profit margins on exports become smaller and your economy shrinks. Currency movement in either direction can put you in trouble, therefore the ideal currency situation is no movement.
The appreciation of the Euro caused by the flood of US dollars and other currencies tied to it has put enormous deflationist pressure on the Eurozone. This is why the most advanced (and by definition, most expensive) euro economies have been suffering from slow nominal growth. Their labor and capital costs just aren't competitive at such high prices. However their wealth has increased significantly due to Euro appreciation, for those people who still have jobs anyway. This adds up to the deflationist pressure from less advanced (low-cost) Eurozone economies like Spain, Ireland and Poland who have seen rapid economic growth as investment from French and German firms pours in because of the zero currency-convertibility risk made possible by the currency union. The kind of growth seen in these countries would not be possible if there hadn't been monetary union, but in time their markets will saturate and investment will flow back to France and Germany.
I find it ludicrous that people are speculating on Germany leaving the Euro, since it was their request that the central bank be strong and never bend to political pressure to inflate the money supply. That tradition goes back to the old Deutschmark and the catastrophe of the Weimar hyperinflation.
In conclusion, my take on the future outlook of the Euro is: very good.
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