Misconceptions About Currency & Commodity Markets
A recent piece "Growth: Salvation, Addiction, Cessation" also addresses these issues in the context of well-being for ALL humans, not those in any specific nation, corporation, job, etc.: (scroll down to middle of section)
http://www.contratheheard.com/cth/comment/01oct.html
Both Chris and Keith make statements which are highly debatable as to relevance to the original post by Chris re Euro being a failure.
Steve
comments bold for ease of reading
CR:
Rather than about the weakness of the Euro, the article was about the problems that arise from the abolition of national sovereignity over national currencies. Note that 4 of the 5 countries mentioned have *weak* own currencies, so they should rather "gain" from the Euro. Nonetheless, as the EC report admits, the negative effects prevail.
The only 'gain' the weaker currency countries get is slightly cheaper imports. They lose export competitiveness if they don't increase productivity. National sovereignty is useless in the total picture of (floating) exchange rates. If a country devalues, it is seeking to take market share (via increased exports) away from competing sellers. (known as 'beggar thy neighbor')
there is also harm for the previously strong currencies such as DEM, because the DEM exchange rate has already been fixated to the Euro 3 years ago (i.e. the harm to Germany has already been done and little will change during 2002).
Only harm is slightly more expensive imports. The weakening of the DM this past year actually helped exports.
the CHF will have to be lowered artificially to prevent harm for our export industries and tourism, and a mix of both may apply to the GBP.
It is virtually impossible to devalue a freely floating currency. If the market (capital of the world)wants to own assets denominated in CHF or GBP, demand for them will dwarf/thwart lowering of interest rates or other policies. Unless the country doers self-destructive things, little will change. Intervention in FX (foreign exch) mkts can have short term effects, but the rate will turn only when the mkt decides there is better relative value elsewhere.
it's hard to see any *economic* argument in favor of the Euro (while there are lots of emotional, political/imperial and vested-interest arguments for it). Do you have one?Yes. The policy setting by the 'Euro countries' together gets many times the weight when negotiating with US, China, Japan, UK etc. That's why ( I think) Blair wants to give up the GBP.
Unfortunately, the EMU is indeed a straitjacket [policy wise]Nobody likes disciplines when they prove more difficult than anticipated. (ex.: a diet) The results from the discipline might still prove to be beneficial.
| Because the countries had joined the euro bloc, they could not put up their | own interest rates to calm their economies. Again, the banks and capital mkts set real world rates! The worship of the Central Banks is much like other forms of prayer: not necessarily rewarded as hoped.
The point is that there aren't "real world rateS" anymore but just ONE "real world rate" for the whole Euro area. This has devastating effects on different regions within that area.
The ONE interest rate = the overnight rate (like LIBOR, or Fed Funds). Corps., small businesses, and consumers borrow for months and even for many years. A central bank cannot set or have great impact upon the middle and long term rates.
Economies adjust, but the question is what it will cost in terms of additional unemployment, social unrest, organized and street crime, etc.
That's a causative stretch, Chris. I prefer massive population growth during one century (400% as the main driver of economic and social distress. We all have our own biases! :-)
What's especially worrying about this non-listening is
that it isn't simply incompetence on the EC's part, but rather a reckless
megalomaniacal calculation that is so concerned about the profits for the
few that it doesn't give a damn about the disastrous effects for the many.
If the evidence exists for this, it will come out. The fact that the bureaucrats wrote the report tells me that it is probably poor judgement rather than conspiracy.
(short bit re Keith's post)
CR)
Your prediction above may well be correct, but that won't have to be the merit of the Euro... (the USD may fall by itself, the CHF will have to be lowered artificially to prevent harm for our export industries and >tourism, and a mix of both may apply to the GBP.)
(KH)
Chris is right. The exchange rate of the GBP and CHF against the Euro is a sideshow.
Chris didn't say that! And to those in CH or UK, the exchange rates (& interest rates) are significant. A currency has relative value (all fiat - no backing) in relation to other currencies. Purchasing power parity keeps the relationships somewhat in balance to what one can buy with equivalent units at any point in time in different locales. If merchandise is mis-priced relatively, arbitrage (incl smuggling) comes into play.
It is swamped almost completely (approximately 10-fold) by the value of the Euro against the US$.
By the value of the TRADE being transacted, incl services and investment flows.
A rough-and-ready idea of the relative strengths of trade capacity (and also of exchange values via relative investment opportunities) may be given by the Price-Water house-Cooper list of the 50 most viable corporations. In this, the US has 26 mentions, EC 12. UK 4 and CH 2. The ups and downs of the US economy thus has a much more important effect on exchange rates.
Most large Corps are now multinational, with HQ not always where most revenues are derived. Also, when things get sour in the US,(getting worse by the day) huge outflows of dollars will fly electronically to other locales
I wouldn't bet on which way the Euro goes. It seems to be stabilised now after many years of falling.
(only 2 years old)
As both the US and the EC economies seem flat on their backs, the chances are that both will continue downhill for at least a year or two (probably for a lot longer in my view). If they both decline at the same rate then the leverage effect of the US economy means that the Euro will rise. Even if the economies of France and Germany slow down relative to the US then the Euro could still rise -- though by not so much, of course. The economies of France and Germany would have to nosedive before the Euro will fall further against the US$. But that could happen in 2002! In both France and Germany, small companies (still important for employment) will be taking a pasting next year. In France, the 35-hour working week will be imposed on small companies. Hitherto, they've escaped the draconian legislation. While large firms, with their larger workforces, have been able to flex and adjust in all sorts of ways so far to obviate the rigidity of the 35-hour week, small firms can't possibly do so. In Germany, the mittelstand (predominantly family-owned machine tool firms with high exports in good times) -- previously its pride and joy -- face huge problems of succession, being unable to rationalise in the usual ways of the US or the UK, and will die at a faster rate in 2002 than now, their owners simply dying or retiring. We live in interesting times.
The above&nb sp;may be relevant, but no countries have the cumulative debt of US (consumer, business,& Federal, state, and local gov't) and none are financed
to the HUGE extent of the US by foreign capital.
Enough on 'funny money',
Steve
________________________________________________________________-- http://magma.ca/~gpco/ http://www.scientists4pr.org/ Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.—Kenneth Boulding
