Euro almost at it's introductory value vs the Dollar!

[Combat Ingrid]

Somehow this thread reminds me of the Monty Python argument sketch

[Kidlicious]

Originally posted by Imran Siddiqui


If you can't prove principles at some level (which, actually they have been) they really aren't worth having.

And obviously you didn't read a single textbook while getting your BA.

What proof is there for any principle in economics? Oh, that's right, you don't even know what the principles are. Nevermind, go back to sleep.

[el freako]

On point is that a lower dollar will surely lead to lower return on dollar denominated asset's won't it?

And as the US is enormously dependent on foreign financing for the increase in it's living standards (domestic savings in the US is only high enough to keep the capital stock stable - which would translate into a long-term growth rate of only 0.5% a year, foreign financing bumps that figure up to 2.5%) then any change in the perception of the profitablilty of US investments could have large consequences.

[Kidlicious]

Originally posted by Combat Ingrid
Somehow this thread reminds me of the Monty Python argument sketch

It's perfect.

[Imran Siddiqui]

el freako, while that may be true, I don't think that a lower dollar will last forever (in the next boom cycle, the strength will probably rise).

However, if the Euro gets stronger (faster than the dollar gets stronger... just go with me ), would the perception of profitability change all that much? You may have some people invest in Europe because of a higher percieved return, but I'm not sure the US investments will be hurt that badly by it (assuming they have the same profitability as investments did in early boom times).

[Kidlicious]

Originally posted by el freako
On point is that a lower dollar will surely lead to lower return on dollar denominated asset's won't it?

And as the US is enormously dependent on foreign financing for the increase in it's living standards (domestic savings in the US is only high enough to keep the capital stock stable - which would translate into a long-term growth rate of only 0.5% a year, foreign financing bumps that figure up to 2.5%) then any change in the perception of the profitablilty of US investments could have large consequences.

I knew sooner or later someone else would come in here and say something intelligent.

I agree el freako, and thank you.

[Dauphin]

Originally posted by GP


They will be driving for efficiency regardless. This will mean that some noneffecient competitors will drop out of the market.

With a poor economy they will be trying to be more efficient, but the change in value of currency effects all sectors with foreign trade. So even sectors that weren't necessarily that depressed by the current economic situation before will feel the pinch. It also racks up another reason to improve efficiencies for those who were going to anyway, probably by even more redundancies just like Fez is so worried about.

Of course companies that primarily import goods will probably be quite happy with the situation. Let the good times roll!

[DrSpike]

Since I was mentioned overnight.

Kidicious I reread your earlier posts just to see if I could make sense of your position, and regretably I can't. So this means that either your ideas are so deep and clever that they are over my head, or that they are a bunch of rhetoric it's not really possible to understand.

My money is on the latter.

GP's bull**** sensors picked this up too, and he and others have asked some pertinent questions, and there seems little in the way of response.

On a serious note please be careful about the books you read, since you do seem sincere at least to start with in this thread. Many 'hack' books have been written by journalists over the last few years, proclaiming to yield deep insights into things the author clearly has no idea about. This is especially true about international trade.........and these books are something of a huge joke within my profession.

I can provide you with great references on the topics you have posted on if it is desired.

[TCO]

Originally posted by el freako
On point is that a lower dollar will surely lead to lower return on dollar denominated asset's won't it?

And as the US is enormously dependent on foreign financing for the increase in it's living standards (domestic savings in the US is only high enough to keep the capital stock stable - which would translate into a long-term growth rate of only 0.5% a year, foreign financing bumps that figure up to 2.5%) then any change in the perception of the profitablilty of US investments could have large consequences.

1. Can investors hedge this exchange risk so that they are just investing in the projects?

2. If there is a step change in exchange rate, that will screw current foreign investors. But why should that change the propensisty for new investors investing at the new exchange rate. Even for current investors, it is a sunk cost, no?

[DrSpike]

Regarding the earlier debate:

This was the initial material:

"The United States occupies by far the largest share of both global trade and foreign currency reserves, which means that other countries are forced to ensure that their own currencies trade at stable rates against the US dollar. Because of this constant pressure, American financial and fiscal policy has the power to affect other countries as well."

I think the problems start with the vagueness and imprecision here. It is of course true that the state of the US economy impacts elsewhere, but it most definitely is not due to countries "being forced to ensure that their own currencies trade at stable rates against the dollar".

Posters that interpreted this as a country that lost 'key currency' status as losing control over domestic monetary policy are forgiven given this information, but of course it is not the case. Giving a concrete example US monetary policy will always be directed at domestic (not exchange rate) issues, since trade is a very small proportion of GDP. Despite talk by officials the exchange rate pretty much falls where it does........you can only hit one target with monetary policy and it is a domestic inflation target not an exchange rate target. This will not change no matter what happens to the value of the euro, I promise you.

Tbh this 'Key currency' material smells a little fishy to me, but I will try to interpret it so that it has some intellectual credibility.

Now in recent years domestic savings in the US have not been sufficient to cover domestic investment. The gap is covered through capital inflows from the rest of the world, with a corresponding (exactly offsetting) trade deficit. The dollar has remained strong in the face of this deficit because the appetite of investors for US assets has not waned.........yet.

In retrospect the strong currency (though as Fez and other correclty pointed out export dominated sectors like manufacturing will usually suffer when the currency is strong) has been a huge boon to the US, since it has allowed monetary policy to be looser than it otherwise would have been due to the reduced cost-push inflationary pressures. I would also like to respond to Fez and others here to mention that there is little or no correlation between exchange rates and domestic unemployment (though there may be redistribution).......monetary policy breaks the link, so it is incorrect to draw the link between a strong currency and unemployment changes.

So the strength of the dollar has largely been beneficial.......so is this the same as saying when that strength ends (as it may well do) the dollar loses key currency status and may suffer? Well personally I think its a generous interpretation, but if you want to peddle the key currency stuff the arguments above are the ones you are going to have to make.......the ones given in the initial quote and some made afterwards have little or no credibility. Furthermore a weakening of the dollar at present provides a small push to aggregate demand at a time when AG is reluctant to use all his monetary firepower so close to the dreaded 0% nominal interest rate. I guess to close I'll say that neither strong nor weak currencies are always bad.......and usually they are strong or weak to reflect market conditions.

[TCO]

Originally posted by Big Crunch


With a poor economy they will be trying to be more efficient, but the change in value of currency effects all sectors with foreign trade. So even sectors that weren't necessarily that depressed by the current economic situation before will feel the pinch. It also racks up another reason to improve efficiencies for those who were going to anyway, probably by even more redundancies just like Fez is so worried about.

Of course companies that primarily import goods will probably be quite happy with the situation. Let the good times roll!

I hope that they are "trying to be efficient" regardless. Of course it will change the factor costs (in effect) so that certain enterprises will no longer be profitable so the value of labor will be less. (Not in the sense that a worker costs more or produces less "widgets" but in the sense that "widgets" are worse less.) I agree that export dominated businesses might need to do some layoffs and import-dominated businesses would grow.

[DrSpike]

Oops. Mispost.

Edit: my mispost..........not directed at you GP.

[Dauphin]

Originally posted by GP


I hope that they are "trying to be efficient" regardless. .

First hand experience teaches me otherwise. Efficiency drives tend to occur when business is bad or expected to be getting worse. The extent of these measures seems pretty much related to the current performance of the business.

[TCO]

oops, what?

[Kidlicious]

Originally posted by DrSpike
Since I was mentioned overnight.

Kidicious I reread your earlier posts just to see if I could make sense of your position, and regretably I can't. So this means that either your ideas are so deep and clever that they are over my head, or that they are a bunch of rhetoric it's not really possible to understand.

My money is on the latter.

GP's bull**** sensors picked this up too, and he and others have asked some pertinent questions, and there seems little in the way of response.

On a serious note please be careful about the books you read, since you do seem sincere at least to start with in this thread. Many 'hack' books have been written by journalists over the last few years, proclaiming to yield deep insights into things the author clearly has no idea about. This is especially true about international trade.........and these books are something of a huge joke within my profession.

I can provide you with great references on the topics you have posted on if it is desired.

What exactly do you not understand about what I was talking about? This is just bull****, telling me that what I said was nonsense and not even discussing it. I'll just categorize you along with Imran, Fez, and GP unless you do so.