What do you think the US to Euro exchange rate will be in 18 months

[C0ckney]

it might appear premature, but if we look at the path that spain is now on and what has happened to other 'rescued' countries we can see that things are likely to get a lot worse rather than better.

i agree that spain is better situated than greece and portugal (i'm not sure about ireland), but this is more of a reflection of the terrible situation in those countries. spain faces huge challenges with an insolvent banking sector and massive unemployment. planned spending cuts are only going to make the latter worse. the banks have not disclosed the full extent of their losses, there is much more to come. this is exactly what happened in ireland and the steady drip, drip of bad news will erode confidence in spain.

let me rephrase my question. how do you think the 'rescue' will address the problems that spain faces?

[Dinner]

They don't need to get creative. They just need to tell the ECB print some more ****ing euros and make up for criminally undershooting their inflation target.

This. One of the miracles of the modern computer age is money can be added or subtracted by the central bank very easily thus expanding or contracting the money supply. They can spark a bit of inflation to devalue the debt, increase nominal GDP so it actually increases faster than inflation, and then easily cut back on inflation later. Europe will still need more policy changes besides monetary help (in order to fix structural problems and increase job growth especially for young people) but the monetary help could go a long way.

[Dinner]

As one example, the Irish bank recapitalization has totaled E150 billion. Spain's looking something more like E105 billion (it might grow I suppose). And Spain is an immense country in comparison to Ireland.

It will, by a lot. Spain is a much larger economy than Ireland and they had even more wild private sector speculation going on in the housing market. E105 billion is just the beginning and I wouldn't be surprised to see the finally total double or triple that figure.

[Dinner]

Well, Moody's has slashed Spain's credit rating down to just one step above junk status.

http://www.bbc.co.uk/news/business-18436076

[Alexander's Horse]

The US is holding its exchange rate down. That can't last. Once the US economy recovers I reckon the Euro, if it still exists, will be trading in the 50-60 cent range in 18 months. The big question is what will happen to the Yuan. What the US is doing now is what it did in the 90's to break the artificial exchange rate on the yen which was killing US exports. Japan still hasn't recovered. See Jim Baker's trips to Japan at the time.

[Dinner]

The Chinese have always tried to maintain a peg with the dollar instead of letting their currency float due to supply and demand.

[Alexander's Horse]

exactly Oerdin, just like the japanese did, and that is why the Chinese are the real villains

another reason to start bombing soon, and another reason I was sent to the Pacific (muwahaha!)

Are you up for another run downrange man?

[giblets]

The Chinese have always tried to maintain a peg with the dollar instead of letting their currency float due to supply and demand.

So what? Lots of developing countries have pegged currencies. A ****load of countries in west Africa have currencies pegged to the Euro.

[DanS]

What the US is doing now is what it did in the 90's to break the artificial exchange rate on the yen which was killing US exports.

What measures did the US take and what measures is the US taking? Can you be specific?

[Alexander's Horse]

What measures did the US take and what measures is the US taking? Can you be specific?

Yes see this link, which is only part of the story, Baker was one tough hombre. Bernanke is trying to achieve similar effects against the Yuan through low interest rates. Currencies are much less regulated now, except for the Yuan, which is held artificially low by China to boost exports, which is exactly what japan and Korea once did

http://en.wikipedia.org/wiki/Plaza_Accord

[DanS]

It would seem like the impact against the Yuan is a "nice to have" side effect of Bernanke's low interest rates, rather than the intended primary effect. Economy-wide, the US is less driven by exports and imports than other countries and we have all sorts of other problems in our non-tradeable economy that low interest rates solve.

I would be interested in the back-story surrounding the Plaza Accord. If you have a book or article recommendation, that would be great. Baker sure was a seasoned hand. I can just imagine being given the business by him in a very calm, even tone. *shivers*

[Alexander's Horse]

there is a great doco about it possibly called "the money wars". Japan never recovered. This currency management fed into the 1989 crash, see also the Louvre Accords. There were good effects though, Japanese and German carmakers setting up in the US for example.

Agree though other motives at play for US policy, but trade was part of it. Baker told the Japanese flatly the game was up, or else. Bernanke has been in Beijing and gave a smiliar message. He is screwing them with US Treasury rates, China is the largest holder.

also, not all countries have come out of the GFC badly - Japan and Germany have done particularly well. That is why Germany is fighting hard to keep the Euro alive, if it went back to the DM, its currency would be a lot higher and exports lower, but the industrious German public are appalled by Greece.

and you never knew economic diplomacy could be so much fun

[Dinner]

http://www.bbc.co.uk/news/world-18454900

What will happen to Greece when it returns to the Drachma. BTW they really soft balled that analysis by just saying foreign made goods might not be available and there maybe some power cuts. HA! There won't be any foreign made goods on shelves for several months including items like imported gasoline and when they finally do get a trickle of foreign stuff back the prices will be double or triple. Also they import most of their coal, and all of their oil and natural gas while they have no hydro worth talking about so, yeah, there are going to be power outages but not once in a while and more like most of a 24 hour cycle.

Greeks need to start hording and figuring out how to grow food on their suburban plots of land because the bad times are just beginning for them. Oh well. At least if this is horrible enough the lazy bastards might make reasonable efforts to balance their budget in the future.

[Alexander's Horse]

look at what happened in south america in the seventies and eighties to see what will happen to Greece

A lot of them are moving to Australia

[giblets]

Greeks need to start hording and figuring out how to grow food on their suburban plots of land because the bad times are just beginning for them. Oh well. At least if this is horrible enough the lazy bastards might make reasonable efforts to balance their budget in the future.

"Lazy bastards"? Are you trying to make people think you're a racist?