Question on Euro
Dec 17th, 2003, 09:39 AM
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Question on Euro
Maybe some of the economists on the board can help me...
By all signs, the US economy has recovered very nicely. The stock market is getting better and better (DJ well over 10,000 now for the first time in months).
So the question is with the economy in such good shape, why is the dollar still losing ground to the Euro? It just doesn't make any sense to me unless the gentleman who the Supreme Court put into the White House doesn't have a clue about this and feels that a weaker dollar is good for the big business tycoons who make up the bulk of his constituency and is just pushing the dollar lower.
By all signs, the US economy has recovered very nicely. The stock market is getting better and better (DJ well over 10,000 now for the first time in months).
So the question is with the economy in such good shape, why is the dollar still losing ground to the Euro? It just doesn't make any sense to me unless the gentleman who the Supreme Court put into the White House doesn't have a clue about this and feels that a weaker dollar is good for the big business tycoons who make up the bulk of his constituency and is just pushing the dollar lower.
Dec 17th, 2003, 09:43 AM
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I'm not an economist but the weak dollar is great for trade (US exports) and an incentive for foreign tourists to visit the US. Those things help our balance of payments and reduce the trade deficit. So, many believe the weak dollar helps to stimulate the economy.
Dec 17th, 2003, 09:49 AM
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Countries can support their currencies through various means to prevent it from going too high or too low aside from the international free trade. From what I comprehend, part of the reason for the weakness of the US dollar are the low interest rates in the US as compared to Europe which means foreigners would be most unlikely to want to invest in US fixed securities earning a lesser amount than they could by investing in European securities.
Having said that, I am not pushing any political agenda. It just seems to me that for whatever the reason, the current administration in the US is very happy with a weaker dollar and is doing nothing to prop it up.
My point is that I always thought the strength of the currency was also influenced by the economy and the economy seems to be doing quite well so I still don't understand why the dollar continues to weaken.
Having said that, I am not pushing any political agenda. It just seems to me that for whatever the reason, the current administration in the US is very happy with a weaker dollar and is doing nothing to prop it up.
My point is that I always thought the strength of the currency was also influenced by the economy and the economy seems to be doing quite well so I still don't understand why the dollar continues to weaken.
Dec 17th, 2003, 10:00 AM
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XYZ123--
Sounds pretty clear to me that you are trying to get another firey political debate started:
"It just doesn't make any sense to me unless the gentleman who the Supreme Court put into the White House doesn't have a clue about this and feels that a weaker dollar is good for the big business tycoons who make up the bulk of his constituency and is just pushing the dollar lower."
Sounds pretty clear to me that you are trying to get another firey political debate started:
"It just doesn't make any sense to me unless the gentleman who the Supreme Court put into the White House doesn't have a clue about this and feels that a weaker dollar is good for the big business tycoons who make up the bulk of his constituency and is just pushing the dollar lower."
Dec 17th, 2003, 10:15 AM
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It is a multifaceted question that is very complex to answer fully. The low US interest rates are not attracting not attracting as much foreign investment as they were 4 years ago. Our international balance of payments is very much against us. The US buys from abroad far more than it sells. Hence on balance we owe billions to the rest of the world.
The bottom line right now is that the euro is a more sought after currency than the dollar. Hence demand for it on international markets is up while demand for the dollar is down.
Also, the US Treasury has taken few if any steps to hold up the value of the dollar by buying up dollars to keep them at home and create an artificial scarcity.
The weaker dollar is actually good for the economy because our products and services are cheaper now than they were 3 to 4 years ago. That means American businesses have a better price advantage because foreign currencies buy more dollars.
Granted, if you are going overseas, that 100 € hotel room is now running you 40% more than it did in 2001. You could have gotten it for $87 a few years back; now it will cost you better than $122, without paying a surcharge to have the money converted.
The balance of payments is maintained very much like double entry bookkeeping in a business with debits and credits, but there is no requirement that the two balance out at the end. The 3 major categories are (1) goods, services and income, (2) unilateral payments such as gifts, and (3) investments such as bank accounts, stocks, bonds, and other debt instruments of money transfer.
Right now the US for the past quarter ran about $133 billion in the red.
The Fed kept interest rates low, hence foreigners could find better deals elsewhere. I am told that individual financial dealings are under reported and are very difficult to track.
Other governments are not buying US Treasury bonds and bills as much, which means that foreign investment in the US is way down and the flow of foreign money into dollar denominated assets is weak.
It gets very complicated as you can tell. But right now, US industries want a weak dollar so that they can sell better overseas. We tourists have no choice but to stay home or pay more.
The bottom line right now is that the euro is a more sought after currency than the dollar. Hence demand for it on international markets is up while demand for the dollar is down.
Also, the US Treasury has taken few if any steps to hold up the value of the dollar by buying up dollars to keep them at home and create an artificial scarcity.
The weaker dollar is actually good for the economy because our products and services are cheaper now than they were 3 to 4 years ago. That means American businesses have a better price advantage because foreign currencies buy more dollars.
Granted, if you are going overseas, that 100 € hotel room is now running you 40% more than it did in 2001. You could have gotten it for $87 a few years back; now it will cost you better than $122, without paying a surcharge to have the money converted.
The balance of payments is maintained very much like double entry bookkeeping in a business with debits and credits, but there is no requirement that the two balance out at the end. The 3 major categories are (1) goods, services and income, (2) unilateral payments such as gifts, and (3) investments such as bank accounts, stocks, bonds, and other debt instruments of money transfer.
Right now the US for the past quarter ran about $133 billion in the red.
The Fed kept interest rates low, hence foreigners could find better deals elsewhere. I am told that individual financial dealings are under reported and are very difficult to track.
Other governments are not buying US Treasury bonds and bills as much, which means that foreign investment in the US is way down and the flow of foreign money into dollar denominated assets is weak.
It gets very complicated as you can tell. But right now, US industries want a weak dollar so that they can sell better overseas. We tourists have no choice but to stay home or pay more.
Dec 17th, 2003, 10:29 AM
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The real point is that there is very little the politicians or inhabitants of a country can do if the rest of the world decides its currency is overvalued. A currency's value is the world's judgement, not its citizens'
And the US is every bit as subject to this law as Peru or Uzbekistan.
If the US really, really, wanted to increase the value of the dollar (thus making US goods dearer to the rest of the world, and so increasing US popularity in, for example, Airbus factories), there are things that might work:
- increase US interest rates to Eurozone levels. May be be OK for savers. But truly lousy for all other Americans
- sell US assets (like the gold in Fort Knox) to buy dollars. A great way to make holders of US bonds (like China) happy. But it seldom works anyway.
Currency declines are just Nature's way of reminding us all that no-one can control the forex market. The state of the US stock market merely tells us how much Americans value American companies. It has nothing to do with how much the other 6 billion of us are prepared to pay for your currency.
And the US is every bit as subject to this law as Peru or Uzbekistan.
If the US really, really, wanted to increase the value of the dollar (thus making US goods dearer to the rest of the world, and so increasing US popularity in, for example, Airbus factories), there are things that might work:
- increase US interest rates to Eurozone levels. May be be OK for savers. But truly lousy for all other Americans
- sell US assets (like the gold in Fort Knox) to buy dollars. A great way to make holders of US bonds (like China) happy. But it seldom works anyway.
Currency declines are just Nature's way of reminding us all that no-one can control the forex market. The state of the US stock market merely tells us how much Americans value American companies. It has nothing to do with how much the other 6 billion of us are prepared to pay for your currency.
Dec 17th, 2003, 10:56 AM
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I think you are obviously trying to start some spirited argument, however, I have a couple thoughts on this, so why not. The fact that the stock market has just broken 10,000 again hardly makes the US economy the greatest and basically it means investments here have gained nothing over many years. That doesn't make it any great investment. I think my stock mutual funds are now showing an avg 1 pct per year gain over the last five years, and still an avg -10 pct over the last three. That's not exactly outstanding, I could have made about that much in a money market, probably. Some gains over a short time period don't impress me that much.
I have read that part of the dollar drop last year was related to China, that a lot of investors there pulled out investments in USD to invest in euro instead. ALso, the rally in the stock market doesn't mean this country still doesn't have a huge debt and are now spending more and more money we don't have, and a lot of which was given away by this admin. a couple years ago in tax rebates. Others in the world know that we have budget problems, a lot related to increasing debt of incurred expenditures or planned expenditures.
I have read the dollar was overvalued a few years ago, in similar reasons as the high tech stocks which crashed also. I don't think a lot of those companies have ever gotten back to their higher levels and I think it's part of that. However, I don't agree with flanneruck that the value of the stock market is determined solely by Americans, because it isn't. I have investments in both the European and Pacific stock markets, for example, and I'm American.
I have read that part of the dollar drop last year was related to China, that a lot of investors there pulled out investments in USD to invest in euro instead. ALso, the rally in the stock market doesn't mean this country still doesn't have a huge debt and are now spending more and more money we don't have, and a lot of which was given away by this admin. a couple years ago in tax rebates. Others in the world know that we have budget problems, a lot related to increasing debt of incurred expenditures or planned expenditures.
I have read the dollar was overvalued a few years ago, in similar reasons as the high tech stocks which crashed also. I don't think a lot of those companies have ever gotten back to their higher levels and I think it's part of that. However, I don't agree with flanneruck that the value of the stock market is determined solely by Americans, because it isn't. I have investments in both the European and Pacific stock markets, for example, and I'm American.
Dec 17th, 2003, 11:25 AM
#9
But, Ira, you're trying to be logical with someone who would rather believe whatever tripe his preferred politican dishes out than to think. It's a battle of wits, and xyz123 isn't armed.
That said, xy (for short), weak dollar = more factory output than under strong dollar = jobs. (that's important when companies are downsizing due to outsourcing to China). Wouldn't you be equally upset if the administration weren't doing something to strengthen employment? It's illogical to be against both sides of a two sided argument. Further, did xy ever consider why companies are sending production to China? (no, it's not because they're greedy profiteers, it's because they have to meet their competitors' costs/prices, which are driven down by the market, i.e. customers). Example: did you know that 10% of the production of eastern China is sold to Walmart.....only Walmart? Don't you think Walmart's prices would be higher if they bought instead from, say, Italy? I shudder to think how many people shop at Walmart, yet complain about the decline in factory employment, when that decline is caused to some degree by people shopping at Walmart. Consider: what changed over the last decade, to cause production to shift overseas (the Chinese didn't just wake up from a 3000 year sleep). Answer: low tariffs under the WTO. Question: under what administration (President, Senate and House) was China voted into the WTO, and given "most favored nation" status?
Answer: William Jefferson Clinton
xyz123: try reading the right side of your newspaper (if it has one); keep asking questions with an OPEN mind
That said, xy (for short), weak dollar = more factory output than under strong dollar = jobs. (that's important when companies are downsizing due to outsourcing to China). Wouldn't you be equally upset if the administration weren't doing something to strengthen employment? It's illogical to be against both sides of a two sided argument. Further, did xy ever consider why companies are sending production to China? (no, it's not because they're greedy profiteers, it's because they have to meet their competitors' costs/prices, which are driven down by the market, i.e. customers). Example: did you know that 10% of the production of eastern China is sold to Walmart.....only Walmart? Don't you think Walmart's prices would be higher if they bought instead from, say, Italy? I shudder to think how many people shop at Walmart, yet complain about the decline in factory employment, when that decline is caused to some degree by people shopping at Walmart. Consider: what changed over the last decade, to cause production to shift overseas (the Chinese didn't just wake up from a 3000 year sleep). Answer: low tariffs under the WTO. Question: under what administration (President, Senate and House) was China voted into the WTO, and given "most favored nation" status?
Answer: William Jefferson Clinton
xyz123: try reading the right side of your newspaper (if it has one); keep asking questions with an OPEN mind
Dec 17th, 2003, 11:30 AM
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Despite the editorialiaing by XYZ, these are some interesting responses to a biased question. I've said it before, but I am sometimes humbled by the level of info available from posters here.
Because I suspect XYZ's question was a pretense to express his lack of understanding of the electoral college, I don't regret sharing the following thoughts, which might be the kiss of death for this thread: Recently, the Democratic party must have put out a memo saying that the way to win in 04 is to portray Bush as "divisive" or "dividing this nation." I've heard the same or similar line from multiple politicians and spokepersons within days of each other. The interesting thing is that whether you are a Dem or Repub, Bush has had generally favorable reviews and approval numbers, which means if there is a "division" it isn't a 50-50 (right-left) split. There are large number of Dems that approve of Bush. The division seems to be between middle of the road Democrats and vocal, left wing, anti-Bushers (which may include xyz). So the Democratic party is lamenting, in effect, a fracture within its own party. The interesting thing is that the Dems are blaming Bush for this, even though it is kind of his job (as a politician) to collect as many converts from the other party. I don't know what to make of this, nor do I add one spin or the other, I just thought it was kind of interesting. [I know, I know, what does this have to do with travel.....]
Because I suspect XYZ's question was a pretense to express his lack of understanding of the electoral college, I don't regret sharing the following thoughts, which might be the kiss of death for this thread: Recently, the Democratic party must have put out a memo saying that the way to win in 04 is to portray Bush as "divisive" or "dividing this nation." I've heard the same or similar line from multiple politicians and spokepersons within days of each other. The interesting thing is that whether you are a Dem or Repub, Bush has had generally favorable reviews and approval numbers, which means if there is a "division" it isn't a 50-50 (right-left) split. There are large number of Dems that approve of Bush. The division seems to be between middle of the road Democrats and vocal, left wing, anti-Bushers (which may include xyz). So the Democratic party is lamenting, in effect, a fracture within its own party. The interesting thing is that the Dems are blaming Bush for this, even though it is kind of his job (as a politician) to collect as many converts from the other party. I don't know what to make of this, nor do I add one spin or the other, I just thought it was kind of interesting. [I know, I know, what does this have to do with travel.....]
Dec 17th, 2003, 11:40 AM
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Interest rates are a major factor. I'm not going to go macro/micro on anyone but, outside of traveling to Europe, I would guess the money you are saving on your mortgage (for example) should pay for several trips. As a whole the benefits greatly outweigh a current unfavorable (for Americans) exchange rate.
Dec 17th, 2003, 11:42 AM
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The Euro is an economical currency to use when travelling in the 'Eurozone'. Sometimes its value is high and sometimes low compared to the USA dollar. If you don't want to convert your currency at present rates to use in Euro countries
consider travel to non-Euro areas. I also think that the USA dollar really offers great value when buying ANY foreign currency.
consider travel to non-Euro areas. I also think that the USA dollar really offers great value when buying ANY foreign currency.
Dec 17th, 2003, 12:04 PM
#14
When large amounts of a currency are sold the value drops. Conversely, when large amounts of a currency are bought it goes up in value.
Some of the reasons a currency is sold are: a) interest rates are low therefore foreign investors move their money to other places, b) imports are high and foreign currencies must be purchased to pay for them.
In effect a low dollar is good for the economy. It makes goods more competitive in foreign markets.
Nobody here really cares that a low dollar makes foreign travel expensive. In fact, a low dollar encourages you to spend it here on local products.
Some of the reasons a currency is sold are: a) interest rates are low therefore foreign investors move their money to other places, b) imports are high and foreign currencies must be purchased to pay for them.
In effect a low dollar is good for the economy. It makes goods more competitive in foreign markets.
Nobody here really cares that a low dollar makes foreign travel expensive. In fact, a low dollar encourages you to spend it here on local products.
Dec 17th, 2003, 12:09 PM
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If you want value for your USD take a trip to Cuba - that's the only currency worth anything - regardless from which country (France, Italy, Germany, UK, etc.) you're visiting from, the currency of business in Cuba is the good ole greenback. Try it!
And like everything else, it's all cyclical - eventually the USD will be on par (or better than) other currencies. So for the time-being, avoid Europe and travel where you'll get the "best bang for your buck."
I believe most travelers to Europe (France in particular) can remember the days when one got 12Francs/USD, as well as 5Francs/USD - and it didn't stop most people from traveling.
And like everything else, it's all cyclical - eventually the USD will be on par (or better than) other currencies. So for the time-being, avoid Europe and travel where you'll get the "best bang for your buck."
I believe most travelers to Europe (France in particular) can remember the days when one got 12Francs/USD, as well as 5Francs/USD - and it didn't stop most people from traveling.
Dec 17th, 2003, 12:52 PM
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Hi SA,
I'd forgotten to mention that. I recently refinanced my mortgage and now have and additional $105 (85E) per month to put toward my European vacation.
Hooray for Allan Greenspan. (How come we don't hear much about him anymore?)
I'd forgotten to mention that. I recently refinanced my mortgage and now have and additional $105 (85E) per month to put toward my European vacation.
Hooray for Allan Greenspan. (How come we don't hear much about him anymore?)
Dec 17th, 2003, 01:52 PM
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I'm sorry some feel I was politicizing the issue...I truly haven't understood why the USD has continued to slide with the economy in many respects doing great. I also read several articles that some in the administration are much in favour of a weak dollar and I was only looking at it from the view point of a tourist.
As far as my description of the gentleman in the White House, what did I say that was untrue? I'm sorry it ruffles feathers but the fact is that it was the Supreme Court that put him in the White House. I never commented on whether it was right or wrong so nobody should be trying to read into what I meant. I simply stated a truth.
As far as my description of the gentleman in the White House, what did I say that was untrue? I'm sorry it ruffles feathers but the fact is that it was the Supreme Court that put him in the White House. I never commented on whether it was right or wrong so nobody should be trying to read into what I meant. I simply stated a truth.
Dec 17th, 2003, 05:27 PM
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Xyz123
Whether you intended to or not, your statement, "the Supreme Court put [Bush] into the White House" attacks the Supreme Court by claiming, falsely, that the Court didn't just rule on the legality of Bush's electoral mandate, they actually overrode the democratic electoral system and "put" him in the White House.
In fact, the Supreme Court held that electorate, not the Supreme Court itself, put Bush into the White House. Given that this ruling by the Supreme Court was obviously in Bush's favour, for you to attack the Court's integrity in this way indirectly attacks the person of Bush himself. This is but a variation of the logical fallacy known as 'ad hominem' (attacking the person instead of making an argument) and thus your statement isn't a truth but rather proves nothing about the present incumbent of the White House.
Your statement does imply that you don't like this "gentleman", which, while you are free to do, is very political.
Don't ya just love Philosophy? Now, back to Economics....
Whether you intended to or not, your statement, "the Supreme Court put [Bush] into the White House" attacks the Supreme Court by claiming, falsely, that the Court didn't just rule on the legality of Bush's electoral mandate, they actually overrode the democratic electoral system and "put" him in the White House.
In fact, the Supreme Court held that electorate, not the Supreme Court itself, put Bush into the White House. Given that this ruling by the Supreme Court was obviously in Bush's favour, for you to attack the Court's integrity in this way indirectly attacks the person of Bush himself. This is but a variation of the logical fallacy known as 'ad hominem' (attacking the person instead of making an argument) and thus your statement isn't a truth but rather proves nothing about the present incumbent of the White House.
Your statement does imply that you don't like this "gentleman", which, while you are free to do, is very political.
Don't ya just love Philosophy? Now, back to Economics....
Dec 17th, 2003, 05:58 PM
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To add some historical context, I saw a chart the other day that showed the dollar versus the British Pound and versus the Euro(based on the currencies in circulation at the time) from 1990 until today. The fact is, the dollar is actually a bit above where it was in 1990. Versus the pound, the dollar today is about 4 cents higher.
On a historical basis, the rates we had before the dollar's sharp decline have actually been the aberration. Said another way, getting 85 Euro to the dollar is not that far from normal. Getting 1.20 was.
On a historical basis, the rates we had before the dollar's sharp decline have actually been the aberration. Said another way, getting 85 Euro to the dollar is not that far from normal. Getting 1.20 was.
Dec 17th, 2003, 06:23 PM
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Your question was partly answered by dixon a little earlier, but we have to add the decline in the dollar does have a great deal to do with politics. The current administration is heavily indebted to big business and is not interested in supporting the dollar to any great extent until the outflow of dollars (foreign investments), due to the lowest interest rates in decades, begins to effect our balance of payments and some of the major business tied to the world market, Boeing, Microsoft, etc. When these companies need to sell more products, the government will move to support the dollar on the world market.
The Fed has already given notice that it will not raise interest rates in the near future, so you can expect the current situation to continue at least through the first half of 2004. One thing to take note of, the current strength, or weakness, of the dollar is nothing compared to the early 70?s and mid-80?s and early 90?s. This is a normal swing in the economy (based on politics) and is not due to change in the near future.
It?s nice when the dollar is as strong as it has been over the last few years, but get over it and plan your next trip. You may be too old to enjoy it the next time we are in that position.
The Fed has already given notice that it will not raise interest rates in the near future, so you can expect the current situation to continue at least through the first half of 2004. One thing to take note of, the current strength, or weakness, of the dollar is nothing compared to the early 70?s and mid-80?s and early 90?s. This is a normal swing in the economy (based on politics) and is not due to change in the near future.
It?s nice when the dollar is as strong as it has been over the last few years, but get over it and plan your next trip. You may be too old to enjoy it the next time we are in that position.
