"are you insane?"
considering i chose to respond to your drivel, yes, i'm beginning to wonder.
:)
now try to educate yourself ray, and try not to project your investment failures onto the rest of the world, most especially our good friends the europeans
economist.com
I’d buy that for a dollar (and two dimes)
Dec 1st 2003
From The Economist Global Agenda
The euro is worth $1.20 for the first time in its history. That may hurt Europe. Will it help America?
TIME to hail the almighty euro? During trading on Friday November 28th, the currency was worth $1.20 for the first time in its history. It continued to hover around that price on Monday. Europe's exporters will bewail this development, but for everyone else involved in the European project, the currency's strength will bring some satisfaction. After being introduced at a rate of $1.17 in 1999, the euro slumped to become worth less than 83 cents the following year. But the euro’s weakness in those humiliating days was not evidence of a congenital defect in the new-born currency. Rather, it reflected the unusual strength of its older rival, the dollar. Likewise, the euro’s rise since February 2002 should not be taken as a great vote of confidence in the economies of the euro area. It is, instead, the flipside of the dollar’s fall.
What is pulling the dollar down? In short, foreign demand for America's output lags far behind American demand for foreign production, leaving the United States with a current account deficit of over $500 billion in the past year. To finance this unprecedented deficit, America needs to attract about $2 billion of foreign capital every business day. Much of that capital comes from Europe. Every month from January to August of this year, Europeans poured an average of $28 billion (net) into American stocks, bonds and notes. But in September they reversed course, selling off $403m. Since September, of course, America has posted breathtaking third-quarter growth rates and healthy corporate profits. But the prospect of enticing returns may not be enough to tempt Europeans back into American assets so long as the Damoclean dollar hangs over their heads.
The dollar also dangles over the heads of Europe's exporters. This matters, because they are currently the leading players in the euro area's nascent recovery. In Germany, in particular, exports grew by 3.2% in the third quarter, pulling the economy out of recession despite a 0.6% fall in domestic consumption. Stephen Jen of Morgan Stanley believes the euro area can probably tolerate a euro worth around $1.22 to $1.25. Any higher that that, he warns, and the region would reach its “pain threshold”.
But if the rising euro will inflict pain on Europe's exporters, it need not do lasting damage to the euro-using economies as a whole. The rising single currency boosts real incomes in Europe. It should also help the euro area to wean itself off its dependence on foreign demand and force it to pull its weight in the world economy. Upward pressure on the euro will prompt Europe to buy more of its own production, rather than shipping it across the Atlantic for Americans to purchase on its behalf. i'll believe that when i see it, america being the "consumer of first and last resort" and all<g>
Of course, the euro area is not the only region of the world economy that has come to rely too much on American demand. Asia, too, relies on America as consumer of first and last resort. But unlike in Europe, Asia's currencies are not free to rise to correct this overreliance. China’s authorities have kept the yuan controversially pegged to the dollar and Japan’s have spent well over ¥13 trillion ($120 billion) so far this year to keep the yen's value down. Asia’s central banks do not buy dollars as a rational investment; they are not looking for the best mix of risk and return. They are buying dollar assets to keep their own currencies competitive. If they think the dollar is going to fall, they may well buy more of them, rather than less.
Some, such as Peter Garber of Deutsche Bank, see Asia’s official purchases of dollars as part of a grand bargain: Asia ploughs its savings into America, and America, in return, remains open to the products of Asia’s export industries. But protectionist pressures rising in Congress raise worries that America may fail to keep its side of the bargain. If so, the central banks of Asia, the dollar’s most loyal customers, may threaten to switch, or at least spread their allegiance to euros. That would put intolerable pressure on the dollar. It would also drive up American interest rates, as Asian capital flowed elsewhere.
Though they will welcome the dollar’s steady decline, America’s authorities must tread carefully. Washington may complain about Asian currency manipulators, but without them the dollar could easily go into free fall. As Mr Jen points out, Washington’s best hope for a soft landing is for East Asia to try but fail to resist the dollar’s fall. America wants enough Asian money flowing into American assets to keep yields (and therefore interest rates) down, but not so much as to keep the dollar up. In so far as a “dollar policy” exists, it is being set in Tokyo and Beijing, not in Washington.
Copyright © 2003 The Economist Newspaper and The Economist Group. All rights reserved. |
