Allen:
U.S. corporate debt levels:
Your friend has mis-interpreted my point re U.S. companies borrowing in Europe. Many U.S. companies ARE carrying historic levels of debt (he should examine a few balance sheets if he thinks otherwise,... IBM as an example), but much of that debt was acquired in the U.S. A significant Europe/U.S. interest rate differential (2%)is a relatively recent thing, (and says much in and of itself,... remember the smugness relating to the "Japan Premium" of a few years ago?) and it has only been since this differential appeared that it made sense to borrow in Europe. The point made was that much of the money flowing from Europe to the U.S. (which puts downward pressure on the Euro and upward pressure on the U.S. dollar and also offsets some of the massive trade deficit) is debt,... more debt on top of already worrisome levels of debt. The other point, which I sort of thought would be obvious, is that part of the current strong U.S. dollar and weak Euro has resulted, not from strength in the U.S. economy (as is trumpeted by the talking heads), but from borrowing by U.S firms.
Euro as "reserve currency".
Perhaps your friend missed the importance of the words "reserve currency". At the moment, there is only one "reserve currency" in the world and that is the U.S. dollar. My point is that the Euro is emerging as an alternative "reserve currency",.... and one that does not hump the baggage that encumbers the U.S. dollar. If (when?) the Euro becomes an officially recognized "reserve currency" (which appears inevitable), then the U.S. buck, bonds and treasuries take it in the ear. Any events that move the Euro closer to "reserve currency" status, pounds another nail into the coffin of the U.S. dollar as the world's exclusive "reserve currency". It makes little sense to me to ignore this inexorable progression.
I think your friend needs to have another look at the European economic numbers. Aside from the fact that they are not tortured with accounting baloney as are the U.S. numbers, they paint a picture of a continent that is getting its act together very nicely. Your friend reminds me of BGR, who frequently talked about Europe as it used to be, not Europe as it is emerging today. I have no ax to grind with respect to Europe. In fact, I don't even like visiting over there. That said, I also prefer my head well clear of the sand. Sure, Germany has specific problems, but it has still done a remarkable job with respect to getting the former East Germany off its back (incredibly expensive, but largely completed) and its economy is humming (have a look at that country's exports if you want an eye-opener). That Germany is experiencing a "dismal economic situation", is utter nonsense.
The Euro not backed by 15% gold? Then I guess their central bank is just telling fibs when they state as much. As a passing comment, at least the gold held by central banks over there has been recently audited, so there is no question as to the fact that the gold is actually there. Check when the last audit of U.S. gold holdings took place and guess which government refuses to allow the conducting of a new independent audit, in spite of many requests for same.
Euro baggage vrs U.S. dollar baggage.
How do we spell order-of-magnitude? How many zeros are there in $1.6 trillion? Maybe the Euro will pick up plenty of baggage over time, but it simply hasn't been an abused reserve currency for decades, hence the opportunity to paper the world hasn't been available.
I note the gentleman's summary comment with respect to the value of my comments. Of course, everybody is entitled to his perspective. We shall see which of us has completed the more intelligent research as time goes by. (g)
Best, Earlie |
