The falling US Dollar....

[Peter Madden]

What's up with that?

In Sep03 we could buy .90 euro with $1 and now its only 0.75

You guys think it'll sink further?

[Axel Janssen]

Some basic microenomic effects.
Its good for exporters and to those who are competing with importers from euro-zone:
Example:
A peanut butter exporter gets 1 Euro for a jar of peanunt butter from french importer. In 2003 he could change that into 1.11 Dollar.
Now he can change that Euro into 1,33$. He makes higher profit.
The exporter also could offer the peanut butter for a lower price gaining market share from competiting products like marmelade or Nutella.
Following a similar logic an american wine producer competiting with imports from France is better off. The competitor receives less Euro for his sales. He might have to demand a higher Dollar price for his offer to remain profitable the business.
An american consumer who likes french wine is worse off, because he possibly has to pay more Dollars for the extra bit of frenchness of his beloved beverage, if french exporter has to demand more Dollar to receive equal amount of Euro.
A empreneur who uses european imports for his products is worse off. An american quality pizza producer who only uses french cheese possibly has to pay more Dollar for the cheese.
Stability of prices: Higher Dollar prices of imported goods and getting higher Dollar prices for the own exports excerts inflationary pressure.
Investors: European investors in American stocks are worse off. Though the dollar value of the stock might rise, its Euro value might be lower at the same time. A stock bought for 1$ in 2003 which has now a value of 1.10$ has a lower Euro value (0.9 Euro: 0.825 Euro) than back in 2003.
[ May 01, 2005: Message edited by: Axel Janssen ]

[peter wooster]

The really odd thing is that America allows China to peg the Yuan to the dollar. This way Chinese imports remain cheap in America. It convinces me that China is now an American colony, although neither will admit it.

[Jason Menard]

Originally posted by Peter Madden:
What's up with that?

In Sep03 we could buy .90 euro with $1 and now its only 0.75

You guys think it'll sink further?

Wouldn't that actually mean that either the dollar is rising or the Euro is falling?

[Jason Menard]

Originally posted by peter wooster:
The really odd thing is that America allows China to peg the Yuan to the dollar.

Allows?
[ May 02, 2005: Message edited by: Jason Menard ]

[Axel Janssen]

Originally posted by Jason Menard:


Wouldn't that actually mean that either the dollar is rising or the Euro is falling?

no.
2003: 1$ for 0.90 Euro
now: 1$ for 0.75 Euro

Might be clearer from a different perspective:
2003: 1.11 $ for 1 Euro (1/0.9 * 1)
now: 1.33$ for 1 Euro (1/0.75 * 1)

If a dutchman changes his euros in dollars he receives more now than back in 2003. As he receives more Dollars for the same amount of Euros, Dollar is cheaper now for him. The relative price of Dollar against Euro has fallen.
Relative prices might be confusing at first look, but they are a math really simple.

Relative value of currencies is just 1 indicator in economic analysis. In this case, it clearly does not reflect the relative economic growth of Euro-zone and the United States in comparision. Finance markets do have a strong influence on relative prices of currencies. For example central banks have switched some of their foreign currency reserves from Dollar to Euro.
The very strong stream of asian investment in assets of the US-economy might be a bit weaker now than it was in 2003.
Its a bit strange to say that "China is US colony". As chinese and asians in general are holding more and more financial assets of the US-economy. The fact that the inhabitants of a "colony" do have a growing share of ownership in assets of the "colonizing country" does clearly not fit in a concept of "colony".
Economic analysis and bold political statements like "China is an US colony" does not fit very well. Lets keep them apart.

Axel
[ May 01, 2005: Message edited by: Axel Janssen ]

[Frank Silbermann]

I suspect that Chinese imports is driving the devaluation of the dollar. Since their currency is pegged to the dollar, the devaluation will continue until the exchange rates become so ridiculous that the Chinese currency has no choice but to become unpegged. In the long term, you simply cannot have one country trading with another with comparable kinds of labor costing ten times as much in one country as in the other.

Originally posted by Axel Janssen:
Its a bit strange to say that "China is US colony". As chinese and asians in general are holding more and more financial assets of the US-economy. The fact that the inhabitants of a "colony" do have a growing share of ownership in assets of the "colonizing country" does clearly not fit in a concept of "colony".
Economic analysis and bold political statements like "China is an US colony" does not fit very well. Lets keep them apart.

Yeah, these kinds of statements get thrown around all too loosely. It's sort of like XXX saying that YYY is like a Nazi because he's a tiny bit more conservative. It is right and proper that the opinions of people who use this kind of rhetoric are ignored.

[Jason Menard]

Originally posted by Axel Janssen:
no.
2003: 1$ for 0.90 Euro
now: 1$ for 0.75 Euro

I see. I misunderstood the original post. The rate is still better now than when I was in England in the late 80's - early 90's, at least as far as the USD-GBP conversion rate. We naturally didn't have "Euros" then.

[Pat Davis]

some thoughts:

1) why usa has so many import from china? choice of capitalism. to make any product, you need investment. where do you want to invest? sounds like 'where do you buy home'

2) cost of labor is only part of it. there are many country having even lower labor cost. even in china, foreign invest tend to be in highest living cost coastal area

3) why yuan peged at 8.28 to dollar? if it was 18.28, dont you think it is more benefit to them?

[Axel Janssen]

Originally posted by Pat Davis:
some thoughts:

3) why yuan peged at 8.28 to dollar? if it was 18.28, dont you think it is more benefit to them?

They'ld receive more dollar for their products, but it'ld made them more expensive, so they were going to loose market share.
They produce with chinese costs paid in Yuan.
They sell for Dollar.
With undervalued currency they can change the Dollars they receive in quite big amount of Yuan. Result: They can offer for low Dollar prices to remain profitable in Yuan.
The overvaluated Dollar of the 50ties/60ties helped the Europeans to gain market share in the US (and become more competitive on their home markets).
Over/undervaluated currencies have their respective advantages and disadvantages in different areas of the countrys economies. Depends on the circumstances. One can not say that the one is generally good and the other generally bad.
[ May 02, 2005: Message edited by: Axel Janssen ]

[Warren Dew]

Frank Silbermann:

I suspect that Chinese imports is driving the devaluation of the dollar. Since their currency is pegged to the dollar, the devaluation will continue until the exchange rates become so ridiculous that the Chinese currency has no choice but to become unpegged.

Do you think the Chinese Yuan is overvalued or undervalued at the peg?

Most people think it is undervalued, encouraging export of Chinese goods to the U.S. - that is, that 1 Yuan is "really" worth more than 1/8 of a dollar. If that's the case, 8 Yuan are actually worth more than a dollar, and the fact that you can get them for a dollar should be pushing the value of the dollar up, not down. By this theory, the dollar would fall even further if the Yuan were unpegged.

The only way the Yuan can be dragging the dollar down is if 8 Yuan are actually worth less than a dollar. If this is the case, unpegging would cause the dollar to become worth more than 8 Yuan, encouraging the U.S. to buy even more Chinese goods and services instead of spending domestically.

[Warren Dew]

Peter Madden:

You guys think it'll sink further?

I don't think it will go much further. Economic countercurrents are already setting in; for example, Boeing has beaten out Airbus for a number of contracts in the last few weeks, undoubtedly in part because Boeing's aircraft just became significantly cheaper.

[Axel Janssen]

a rising Euro won't happen, because the economy of the biggest countries in the middle is simply to weak. A french guy from OECD expressed himself that way. I've read in chilean news. Our own news are currently too frustrating to watch.

[Jeroen Wenting]

The high Euro is a main cause for the faltering Euro economies...

Our exports are too expensive, imports are too cheap for homegrown products to compete anymore.
Only minor advantage is that a rising Euro against the dollar somewhat cushions the rising oil prices (at least when calculated in Euros) but the oil companies instead compensate for that and increase their profits.

[Axel Janssen]

in that big country to your east Jeroen, high euro is clearly not the biggest problem, but apear to lie deeper down in the stack.
Only favourable macroeconomic figure is trade balance even with overvalued euro.
[ May 03, 2005: Message edited by: Axel Janssen ]

[Ashok Mash]

Originally posted by Axel Janssen:
..apear to lie deeper down in the stack...
[ May 03, 2005: Message edited by: Axel Janssen ]

How is the market sentiments and outlook in Germany, Axel? It seems there is some pressure on ECB to reduce interest rates from the all-time low 2%? End of last year analysts where busy predicting what would be the effects of this definite increase in ECB rate, and how everyone is predicting bigger bubbles and bursts for certain parts of Europe!

Do you think the German and Italian economies are bad enough to persuade ECB to further cut interest rate further? What is really causing the economic downturn in Germany?

Thanks!

[Frank Silbermann]

Originally posted by Warren Dew:
me: I suspect that Chinese imports is driving the devaluation of the dollar. Since their currency is pegged to the dollar, the devaluation will continue until the exchange rates become so ridiculous that the Chinese currency has no choice but to become unpegged.

Do you think the Chinese Yuan is overvalued or undervalued at the peg?

Most people think it is undervalued, encouraging export of Chinese goods to the U.S. - that is, that 1 Yuan is "really" worth more than 1/8 of a dollar. If that's the case, 8 Yuan are actually worth more than a dollar, and the fact that you can get them for a dollar should be pushing the value of the dollar up, not down. By this theory, the dollar would fall even further if the Yuan were unpegged.

The Yuan is undervalued, as is the Rupee. If they floated, the dollar would fall in value relative to the Yuan and Rupee. Because the dollar is overvalued relative to those currencies, Europeans are selling dollars to buy Yuan and Rupee, thereby causing the dollar to sink relative to the Euro.

[Warren Dew]

Frank Silbermann:

The Yuan is undervalued, as is the Rupee. If they floated, the dollar would fall in value relative to the Yuan and Rupee. Because the dollar is overvalued relative to those currencies, Europeans are selling dollars to buy Yuan and Rupee, thereby causing the dollar to sink relative to the Euro.

If true, these Europeans must not be too smart, then, since the Yuan sinks against the Euro with the dollar. They would have been better off buying Euros.

[Axel Janssen]

Originally posted by Ashok Mash:

End of last year analysts where busy predicting what would be the effects of this definite increase in ECB rate, and how everyone is predicting bigger bubbles and bursts for certain parts of Europe!

There are quite different economies in the Euro zone and in some there might be danger of bubble when lowering interest rate (Spain, Ireland, maybe Denmark).

Originally posted by Ashok Mash:

Do you think the German and Italian economies are bad enough to persuade ECB to further cut interest rate further?

Don't know. Bubble could also happen in countries with growing export to central europe (Eastern Europe)

Originally posted by Ashok Mash:

What is really causing the economic downturn in Germany?

I am not going to write a book. And if I were writing a book it would be full of my personal preconceptions, errors and mistakes.
A point might be that in this country they are constantly discussing to find the magic formula to make everybody happy. If a country has constantly the lower growth rate than its neighbours, which do not perform very well themselves, decided action has to be taken. Those action might make some people unhappy and there might be protests. We have some reform, but to little, I think.
We might have concentrated to long time to create something like a personal-risk-free society. Of course this does not apply to anybody, but the agregated germans in comparision to other countries, I think. With the downturn there will be more risks anyway.
My biggest problem are those permanent discussions and lack of decided action in on direction or another.
For example burocracy and lots of forms to fill in for everything. All my lifetime its been said, that we must have less burocracy and forms. That we are very crazy in this respect. And the result is that each year there are more forms. Is this a natural law? I think not. But one might think, it is.
Smaller countries like Denmark, the Netherlands and Sweden have shown much more flexibility and creativity to reform the country than the big one in the middle with the 80 Mio inhabitants which used to start wars in the 20th century.

[ May 03, 2005: Message edited by: Axel Janssen ]
[ May 03, 2005: Message edited by: Axel Janssen ]