It’s Painfully Obvious
by Manwhore
Our evil American economy is starting to worry our more cultured neighbors in the land of whine and cheese. Europe smells failure coming.
Finance Ministers Discuss Dollar Woes
Finance Ministers to Talk Over Worries That Slowing U.S. Economy Will Drag Down European UnionBRUSSELS, Belgium (AP)—European Union finance ministers open two days of talks Monday to discuss the United States’ slowing economy, feeble dollar and massive current account deficit as major problems for the EU and the rest of the world.
Europe is starting to feel the bite as the U.S. dollar plummets, making French wine, Italian fashion and German cars expensive purchases for the EU’s main export market in the U.S.Last week, the employers federation BusinessEurope said that, by crossing 1.40 against the U.S. dollar, the euro exchange rate had reached a “pain threshold” for European companies. It also complained the euro was appreciating too fast against the Chinese yuan and Japanese yen.
While echoing their concern, the finance ministers of the 13 euro-zone nations will reiterate Europe is an innocent victim of others and that the euro-dollar exchange rate issue is part of a broader set of problems triggered by China’s trade surplus and America’s huge debts that require concerted steps to undo.
An innocent victim, huh? As much as I have learned from my European experiences, there are no innocent victims.
The end of innocence seems to be well summed up here:
The EU executive sees a more uncertain future in the months ahead, downgrading a forecast for the economy to grow this year from 2.6 percent to 2.5 percent after global financial turmoil sparked by mounting bad loans to U.S. homeowners.
It’d be hard to play innocent snapping up debt for pennies on the euro without questioning whther you would be paid back in full for the purchase. Watch American banks make a mint buying these debts back at huge bargains in the next few years. It’s a pretty ingenious plan.
Comments
But I’m sure you were just talking about economics, right? ;)
I have lived my entire life without even imagining the thought of a young boy’s ass.
If some shit I write in a post causes that image to be conjured up in your head, you need some help. :0
I dont understand the first post.
But is a weak dollar really good for american consumers. I am not an expert but i think a strong dollar is better than a weak one.
I know business do better but don’t we as consumers end up paying more for goods. And i dont mean wine from overseas but on almost all goods we import.
david
But is a weak dollar really good for american consumers. I am not an expert but i think a strong dollar is better than a weak one.
Like just about everything else, it depends on what you’re trying to do.
Americans have exceptionally high personal debt burdens right now due to the extended run of low prices and economic growth. That’s dangerous, and price inflation helps to correct for that: As the dollar devalues, more nominal dollars are required to buy the same amount of labor (and, of course, goods), but the nominal balance of (for example) your mortgage stays the same, while the real cost of paying it declines.
Like just about everything else, it depends on what you’re trying to do.
If we’d like to repurchase our debt that has been sold to foreign interests, this is an excellent way to do it.
French wine - overpriced and not quite up to the same standards I can get locally
Italian fashion - not buying many suits these days
German cars - extremely overpriced, and not as good as the Japanese
Give it a few years and some restraint on spending and things will shift the other way.
German cars - extremely overpriced, and not as good as the Japanese
Maybe for new, but a used Z3 can be had for the mid 20s. How bad is that?
Americans have exceptionally high personal debt burdens right now due to the extended run of low prices and economic growth. That’s dangerous, and price inflation helps to correct for that: As the dollar devalues, more nominal dollars are required to buy the same amount of labor (and, of course, goods), but the nominal balance of (for example) your mortgage stays the same, while the real cost of paying it declines.
Price inflation is only good for indebted consumers if there is wage inflation to match. With the dollar low there are really two possible outcomes, depends on the price elasticity of demand for imports.
If elasticity is low (Americans can’t give up their imports) then the price of these goes up, Americans make no more money, so Americans are poorer.
If the price elasticity is high that (or in the long term American companies can compete at the new price level) then Americans buy the goods locally, wages go up and things are ok. The problem is that most of the stuff you import is dependant upon very cheap labour which you can never compete on, are services for which there is a strong comparitive advantage (e.g. London, Hong Kong etc) or natural resources for which you have few alternatives. This suggests America will import inflation; which is bad.
The other problem of course is that unless there is some massive change, you still need foreign debt. As the $US falls, foreigners will demand higher interest rates for that debt. The Fed can lower rates as much as it wants, but if foreigners decide to stop holding US debt; you are completly buggered.
If we’d like to repurchase our debt that has been sold to foreign interests, this is an excellent way to do it.
Inflating your currency (as Bernake is doing, they don’t call him helicopter ben for nothing) does reduce the real value of your debt to foreign countries; while that debt is held in $US. The debt is held in $US because the $US is the worlds reserve currency, but by inflating the currency you loose (as is als happening) this benefit. Having the $US as the world’s reserve currency is of huge benefit to the US (essentially inflation of all $US assets around the world is income for the US), so lossing this benefit (likely forever) to reduce current debt is pretty short sighted. Not only that but you have the problem of finding someone to buy new debt, because it certainly dosen’t seem on the cards that either the US government or US consumers are going to balance their books anytime soon.
Having the $US as the world’s reserve currency is of huge benefit to the US (essentially inflation of all $US assets around the world is income for the US), so lossing this benefit (likely forever) to reduce current debt is pretty short sighted.
Only short sighted if American economists believe that American supremacy is the way to be forever and ever. It could also be viewed as the recoil of a spring effect.
I would like sometime to have a more rigerous discussion about the dollar since from what i have read it really is more complicated than i thought. And it clearly appears we have some posters with considerable expertise in this regard and i look foward to more remarks from them.
I look foward to this.
david
Only short sighted if American economists believe that American supremacy is the way to be forever and ever. It could also be viewed as the recoil of a spring effect.
A lot of American economists are not impressed with the actions of the Fed, Greenspan - probably the most overrated person on the planet; institutied a massive liquidity injection after the dot com crash. While this did help prevent the crash being worse than it possibly could have been, it created a new boom mainly in real estate and arguably in resources as well. The problem is that we are now going to face that crash and it appears this one is going to do a lot more damage. Lowering rates again, like they did last time, just istn’t going to cut it - because rates can only be lowered so far before foreigners stop holding US debt; which is endgame for your economy if they do.
Don’t think I am hitting on just the US, we have done exactly the same thing in the UK and I am off the opinion our housing problem is a *lot* worse than yours, it will just take about 18 months longer to crash. In lots of places around London, average house prices are 10x average incomes - my three bedroom flat I rent is apparently worth about $1,200,000 - it’s simply insane and just waiting to crash. They will try and lower interest rates again, but I doubt it will work.
I have lived my entire life without even imagining the thought of a young boy’s ass.
I dont understand the first post.
Sorry if my sarcasm was too deep.
I was pointing out the insanity of a statement like “There are no innocent victims” with an example that demonstrates how the children of predatory clery are actually to blame and are not innocent victims. Get it now?
Blame the rape victims, too, for “wearing that dress”. Geez.
No innocent victims, my ass.
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That reminds me of a bit by David Cross regarding the Catholic molestation scandal:
“"It’s those kids fault, c’mon....they’re the ones sitting there tempting the priests, anyway. Ya know? The priests are sitting there and all these kids are sitting there, ya know, going [kids voice] “I’m sorry, forgive me father for I have sinned.” How do you not FUCK that?!? How do you NOT FUCK THAT?!?!?!”
But I’m sure you were just talking about economics, right? ;)