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2004-11-24 Home Front: Economy

Dollar hits fresh low against euro - Russkies will sell

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Posted by anonymous2u 2004-11-24 12:30:03 AM|| || Front Page|| [3 views since 2007-05-07] Top

#1 I don't think what the Russians are doing really changes anything. The Asian countries have a choice - they can not intervene, and let their exports fall, meaning that there is a smaller US trade deficit to finance, or they can buy dollars to keep the dollar strong, their exports cheap and thus their export levels up. The trade deficit is a symptom of foreign countries propping up its value, not a sign of a lack of American virtue or profligacy. Reporters want to rap America for consuming vast amounts of imports, but this is due entirely to the intervention of foreign central banks. On the one hand, China keeping its exchange rate fixed and unconvertible vs the dollar, and on the other, regular interventions, via buying dollars, by the East Asian central banks. Eventually, their currencies have to strengthen as their level of economic development approaches that of the US. It happened with the European currencies and the yen, and it must continue, if the US trade deficit is to fall.

Posted by Zhang Fei 2004-11-24 1:10:56 AM|| [http://timurileng.blogspot.com] 2004-11-24 1:10:56 AM|| Front Page Top

#2 Sorosâ and the arabs revenge??? Nah! This is good news for the US economy. Just don't take any overseas holiday's for a while.

Posted by phil_b 2004-11-24 1:21:18 AM|| 2004-11-24 1:21:18 AM|| Front Page Top

#3 I think what Mr Li Ruogu, the deputy governor of the People's Bank of China, had to say about the US deficit is rather telling, maybe more than he wanted?

"The appreciation of the RMB will not solve the problems of unemployment in the US because the cost of labour in China is only three per cent that of US labour. They should give up textiles, shoe-making and even agriculture probably."

I think that gives away most of the Chinese long term strategy. Make the U.S. depend on basic goods imported from China, widen the trade deficit so much that the U.S. has to export high tech (including military high tech I suppose), which comes along with know how, of course.

And then raise prices and squeeze... and dominate U.S. markets.

A further fall of the dollar is not in Chinese interest because it eats up the $515 bn reserves the Chinese are holding. It basically means that China pays off the U.S. trade deficit. So for now they will try to stabilize the dollar.

But the U.S. can't let the dollar fall much more because in the end a selling panic will set in. I don't think that the Russians will trade too many Dollars for Euros at this point.

But the U.S. should not speculate on letting others pay off their deficit because that will mean a much weaker dollar, rising interest rates and rampant inflation. The danger right now is that nobody sees any reason why the dollar should hold firm and this will make speculation run wild. Leading European (including the big Swiss) banks are quietly telling their clients to dump their U.S. investments and go Euro. A plunging dollar will also renew the idea OPEC has about switching from dollar to euro. This would lead to cataclysm. I guess OPEC is too afraid of the consequences and I don't see Europeans encouraging the idea but the danger is there. For an export orientated economy like Germany the rising euro is just at the border of becoming real painful. Before it reaches $1.40, a joint and massiuve Treasury-ECB intervention is in order. For the benefit of both.

Posted by True German Ally 2004-11-24 1:43:19 AM|| 2004-11-24 1:43:19 AM|| Front Page Top

#4 TGA: I think that gives away most of the Chinese long term strategy. Make the U.S. depend on basic goods imported from China, widen the trade deficit so much that the U.S. has to export high tech (including military high tech I suppose), which comes along with know how, of course.

And then raise prices and squeeze... and dominate U.S. markets.

The Chinese government doesn't have the power to raise prices. The price environment is a free-for-all involving large numbers of firms. The moment costs in China go up, production starts shifting to third countries. I know this because I know people who manufacture in China and are contemplating moving elsewhere because of what they consider unacceptable price hikes brought about by real estate and wage increases - which are still a tiny fraction of what they are in the West. China isn't the only game in town.

Posted by Zhang Fei 2004-11-24 2:05:59 AM|| [http://timurileng.blogspot.com] 2004-11-24 2:05:59 AM|| Front Page Top

#5 Zhang Fei, they don't have the power yet, and of course they will do it in a very very gradual move. At least that's the Chinese strategy. It's not a given that it will work. China will face a lot of challenges as well in the next year.

Still I wouldn't feel very comfortable with a weak dollar as an American. Like Germany, America can't really compete with low prices, only with quality. Once the euro hits $1.40, we're looking at the weakest dollar ever (in the mid 90s it hit it's all time low to the DM), but with a deficit and total debt so much higher than ten years ago. It's a dangerous path to go.

Posted by True German Ally 2004-11-24 2:15:32 AM|| 2004-11-24 2:15:32 AM|| Front Page Top

#6 TGA: But the U.S. should not speculate on letting others pay off their deficit because that will mean a much weaker dollar, rising interest rates and rampant inflation. The danger right now is that nobody sees any reason why the dollar should hold firm and this will make speculation run wild. Leading European (including the big Swiss) banks are quietly telling their clients to dump their U.S. investments and go Euro.

The reality is that as the US dollar goes lower, US assets become more attractive, thus counteracting the fall of the dollar. Imports to the US become more expensive and exports from the US become cheaper, thus cutting the size of the trade deficit. American companies generate real value and are highly competitive vis-a-vis their European competitors. This makes them highly attractive investments, from both a current income and capital gains perspective. (The only reason there is a trade deficit is because of significant trade barriers on the European side, meaning that many US firms must produce in Europe to sell to Europe).

TGA: A plunging dollar will also renew the idea OPEC has about switching from dollar to euro. This would lead to cataclysm. I guess OPEC is too afraid of the consequences and I don't see Europeans encouraging the idea but the danger is there.

I don't really see this as a problem. The reality is that they have tried doing this before and found that it makes no difference. The idea that pricing oil in euros will help oil producers is a false one. A higher dollar price will just depress demand in America. Oil producers understand this dynamic, just as the East Asians understand their predicament concerning exchange rates.

TGA: For an export orientated economy like Germany the rising euro is just at the border of becoming real painful. Before it reaches $1.40, a joint and massiuve Treasury-ECB intervention is in order. For the benefit of both.

It's funny how the Europeans weren't complaining when the Euro fell from its issue price of $1.10 dollars to the Euro to $0.80 to the Euro. Now that it's swung the other way, it's somehow the end of the world. Business reporters really need to get a grip.

Posted by Zhang Fei 2004-11-24 2:16:19 AM|| [http://timurileng.blogspot.com] 2004-11-24 2:16:19 AM|| Front Page Top

#7 TGA: Zhang Fei, they don't have the power yet, and of course they will do it in a very very gradual move. At least that's the Chinese strategy. It's not a given that it will work. China will face a lot of challenges as well in the next year.

At the risk of repeating myself, let me reiterate that Chinese government does not have any leverage over prices. Most of the production that is sited in China was moved over from other East Asian countries. The moment costs went up in Malaysia, Thailand, Indonesia and Singapore, manufacturers moved production to China. Now that Chinese costs are increasing, they're looking at Vietnam, Bangladesh, Pakistan, et al. There is no central Chinese committee setting prices. They're all contractors and sub-contractors trying to stay afloat, and the ones who don't make cut on price don't get new business, meaning they shut down. The manufacturers I'm talking about are businesses that employ 1,000 people and up.

TGA: Still I wouldn't feel very comfortable with a weak dollar as an American. Like Germany, America can't really compete with low prices, only with quality. Once the euro hits $1.40, we're looking at the weakest dollar ever (in the mid 90s it hit it's all time low to the DM), but with a deficit and total debt so much higher than ten years ago. It's a dangerous path to go.

Every manufacturer competes on quality and price. If you can produce the same quality product for 10% less than your competitor, he is dead. This is what the exchange rate issue is all about. For years, US companies had to deal with the fall of the Euro from $1.10 to $0.80. Now that the shoe's on the other foot, European companies are complaining and various central banks are hemming and hawing about dumping dollars. I welcome it - this means I can buy US assets at lower prices. I'm sure the Asians also welcome this, knowing that they can buy dollars at undervalued rates while undercutting European competitiveness in the bargain.

Posted by Zhang Fei 2004-11-24 2:26:30 AM|| [http://timurileng.blogspot.com] 2004-11-24 2:26:30 AM|| Front Page Top

#8 TGA, I have to disagree with you on 2 points. The US economy is relatively trade independant. That is it doesn't need to trade to function. Oil is a problem, but I doubt oil will go to USD100 and if it does, it will be the trigger necessary to get off its dependence on oil imports. As many of us point out on a regular basis, thats not such a hard problem. What is lacking is the political will. The second issue is a dollar free fall will hurt the USA. Because of reason one, the USA will be the least affected of the developed economies. Germany unfortunately will be the worst affected. ZF is probably right that the Europeans will ensure a dollar collapse does not occur becuase they are the ones who will feel the pain.

The phrase 'A perfect storm' keeps coming to mind.

Posted by phil_b 2004-11-24 2:27:32 AM|| 2004-11-24 2:27:32 AM|| Front Page Top

#9 One other thing, I interpret the Chinese comments as a sign of weakness. A rough calculation says they are losing in the region of half a billion dollars a DAY!. They understand that is a lot of money and they have no idea what to do stop it. The reality is they can't.

Posted by phil_b 2004-11-24 2:34:17 AM|| 2004-11-24 2:34:17 AM|| Front Page Top

#10 phil_b: ZF is probably right that the Europeans will ensure a dollar collapse does not occur becuase they are the ones who will feel the pain.

There's more to it than that. The theory is that US dollar could collapse because Americans have sinned in an economic sense, and must therefore be punished. This is a load of garbage. The US has hundreds of thousands of real companies that produce real goods and real profits. The moment the dollar starts to fall, US assets become more attractive in foreign currency terms, triggering foreign purchase of US assets and thus reversing the fall of the dollar.

A similar thing happens with the trade deficit - US goods become cheaper overseas, increasing US exports, and foreign goods become more expensive in the US, reducing US imports. This means that the trade deficit becomes smaller, thus causing the value of the dollar to rise.

Posted by Zhang Fei 2004-11-24 2:35:47 AM|| [http://timurileng.blogspot.com] 2004-11-24 2:35:47 AM|| Front Page Top

#11 Zhang Fei, Europeans complained quite a bit when the Euro took it's dive. For a while this really created a mistrust in the new currency.

US assets may become more attractive (I guess you mean companies etc) but the U.S. needs 2bn dollars a day of direct foreign investments to keep up with the borrowing needs. Investments in U.S. bonds will only rise when people believe that the dollar has hit the bottom, but right now nobody knows where the bottom is. Of course what you will get is more foreign owned companies in the U.S., but they might create less jobs than you might hope for.
I'm afraid, the bankers I know (and I'm not talking about the guy running the local bank next doors) don't share your optimism.
We can assume that there will be a U.S. bounce back but it may take a few years to materialize.
Major German investors are quietly reconsidering their U.S. assets because there is more money to be made elsewhere.
As for the pricing of oil in Euro: Don't forget that Russia's trade with the Eurozone is much higher than with the U.S., so you'll see a gradual shift. Middle Eastern investors are also reconsidering... they import more from Europe than from the U.S. and they might also worry about what happens to their investments should terror strike again in the U.S.
Anyway, even if the U.S. does nothing, I see a massive joint European/Asian intervention before the Euro hits $1.40. Whether this will really help much I don't know.
Unfortunately oil demand in the U.S. is not likely to drop much (this would be great news if it did). So prices are likely to rise if Iraqi production doesn't rise substantially (and Iran's production is not cut off by a crisis). The Chinese are set to increase their oil reserves as much as they can, too.
A sinking U.S. demand of oil is likely to be gobbled up elsewhere right now.

Posted by True German Ally 2004-11-24 2:38:26 AM|| 2004-11-24 2:38:26 AM|| Front Page Top

#12 ZF, I consider fixing a trade deficit by weakening the currency as a risky business. Germany actually increased its Trade surplus in the last years quite substantially, despite of the strong Euro. It's true that a lot of this trade is inside the Eurozone and exports to the U.S. have slowed down somewhat, but have been mostly counterbalanced by exports in other regions outside the Eurozone.
I simply doubt that half a trillion trade deficit can be mended just by letting the dollar drop. How much will it drop?

Posted by True German Ally 2004-11-24 2:47:27 AM|| 2004-11-24 2:47:27 AM|| Front Page Top

#13 TGA: US assets may become more attractive (I guess you mean companies etc) but the U.S. needs 2bn dollars a day of direct foreign investments to keep up with the borrowing needs. Investments in U.S. bonds will only rise when people believe that the dollar has hit the bottom, but right now nobody knows where the bottom is.

There is plenty of money in the US for financing the budget deficit - $34T worth, at last count. The reason more people don't do it is because of low interest rates (and hence, yields). If foreigners stop buying Treasury bonds, American investors will step in as interest rates rise.

I don't deny that there might be a financial panic like the crash of 1987, but the reality is that US is still the engine of technological and financial innovation, meaning that it has large numbers of companies with real revenues and real profits. We will survive this. The question is whether Europe can survive it.

TGA: I'm afraid, the bankers I know (and I'm not talking about the guy running the local bank next doors) don't share your optimism. We can assume that there will be a U.S. bounce back but it may take a few years to materialize. Major German investors are quietly reconsidering their U.S. assets because there is more money to be made elsewhere.

Actually, it would make sense for them to redeploy their assets until the US dollar bottoms out. And bottom out it will, upon which European investors will try to rush back in before the bargains are all gone. But they will be competing for assets with American investors. I understand European journalists and investors think that America has been bad, both in terms of its foreign and economic policies.

But whatever you think about America's foreign policy, its laissez faire economic policies produce a self-adjusting economy. You bet against America at your own financial peril. If you think the US economy will go down the tubes as the result of a dollar collapse, I think you should put your money where your mouth is and short the S&P 500.

Posted by Zhang Fei 2004-11-24 2:52:37 AM|| [http://timurileng.blogspot.com] 2004-11-24 2:52:37 AM|| Front Page Top

#14 TGA: I consider fixing a trade deficit by weakening the currency as a risky business. Its the only way to fix a trade deficit (short of long term structural changes in the economy). And BTW you seem to have bought into the myth that the US federal deficit is the 'root cause'. It's not.

Posted by phil_b 2004-11-24 2:59:44 AM|| 2004-11-24 2:59:44 AM|| Front Page Top

#15 Well the thing is, I put (some) of my money where my heart is... maybe not always wise but didn't fare too badly in the last decades.
You may be right: the strongest asset America always had was optimism and innovation. But these are not ordinary times.
The major problem for Europe lies in the fact that the Euro is actually overvalued right now. The German mark was often very strong, but rightfully so.
I'm not happy with the current situation. Europe needs to boost consumer spending, slash taxes. The crazy thing is we boxed ourselves in with the Euro that doesn't allow for these measures.
We need to do some wise things on both sides of the Atlantic or we're facing a rough ride.

Posted by True German Ally 2004-11-24 3:04:41 AM|| 2004-11-24 3:04:41 AM|| Front Page Top

#16 phil_b, it's an important cause but certainly not the only one.

Posted by True German Ally 2004-11-24 3:06:22 AM|| 2004-11-24 3:06:22 AM|| Front Page Top

#17 TGA: ZF, I consider fixing a trade deficit by weakening the currency as a risky business. Germany actually increased its Trade surplus in the last years quite substantially, despite of the strong Euro. It's true that a lot of this trade is inside the Eurozone and exports to the U.S. have slowed down somewhat, but have been mostly counterbalanced by exports in other regions outside the Eurozone.
I simply doubt that half a trillion trade deficit can be mended just by letting the dollar drop. How much will it drop?

Note that the US doesn't just compete with Europe in Europe. It also competes with Europe in Asia and in the rest of the world, including in America. Airbus is now going to face considerable difficulty pricing its products at competitive levels. To make the same number of Euros as it did when the Euro bought $0.80, Airbus will now have to increase the dollar price of its planes by 60%. In fact, Airbus may have to lose money on every plane it sells to remain competitive against Boeing. This will kill Airbus profits in America, and perhaps Airbus sales as well. Stack this up across various industries and products, and it becomes apparent how the US trade deficit could shrink several hundred billion dollars quite easily. And that's all it needs to shrink - about $300B is a reasonable number. In fact, the $500B number is inflated by oil imports, which are now shrinking or not growing as fast as it would have - as it has always done - in response to higher prices.

Posted by Zhang Fei 2004-11-24 3:06:27 AM|| [http://timurileng.blogspot.com] 2004-11-24 3:06:27 AM|| Front Page Top

#18 Trust the market. It sends the right signals.

Posted by Classical_Liberal 2004-11-24 3:10:30 AM|| 2004-11-24 3:10:30 AM|| Front Page Top

#19 TGA: Well the thing is, I put (some) of my money where my heart is... maybe not always wise but didn't fare too badly in the last decades.
You may be right: the strongest asset America always had was optimism and innovation. But these are not ordinary times.

The financial press is obsessed with Iraq and thinks that the US should be punished for what it views as America's political sins. But there is nothing wrong with the American economy right now. The budget deficit is not at historically high levels (relative to GDP), and the trade deficit is inflated by China's extraordinarily low costs (in the form of $40 DVD players and $60 leather jackets) and unusually high oil prices. In time, the budget deficit will fall, as the economic growth pays for the tax cuts, and the trade deficit will fall, as the US dollar becomes more competitive relative to foreign currencies.

As to oil demand being higher elsewhere, this is wishful thinking on the oil producers' part. Americans and other developed countries can afford high oil prices. Developing countries cannot. Again, TGA seems to have overlooked the one thing that markets tend to do - swing towards equilibrium. Oil producers sell us oil not because they like us, but because at equilibrium, this is the best price they can get. Without America in the market, oil prices would take a huge dive.

Posted by Zhang Fei 2004-11-24 3:17:34 AM|| [http://timurileng.blogspot.com] 2004-11-24 3:17:34 AM|| Front Page Top

#20 Germany's trade surplus for 2004 is estimated at â¬ 158 bn ($207 bn at current rates), exports rose by 9,5% (â¬ 725 bn total).
Exports to China are up 27%, all despite the yearlong strong euro.

Just making your currency weaker doesn't cut it, imho.

Posted by True German Ally 2004-11-24 3:42:14 AM|| 2004-11-24 3:42:14 AM|| Front Page Top

#21 TGA is right about a weak currency being an incomplete stragegy. There's a huge amount of economic and political jockeying going on in the world, which raises risks but also may present possibilities for every player. A few factors to watch out for:

drilling in ANWR
a possible move to expand refinery capacity in the US
an attempted attack on existing oil and nuclear plants here
the situation in the Ukraine, Georgia and Beloruss

Population flows. IMO Bush is absolutely right that a guest worker program would be valuable to the US for the next decade or more.

The exports issues that are wrapped up in the relative currency rates are real. But so too is the issue of international power.

Posted by MBA 2004-11-24 4:43:18 AM|| 2004-11-24 4:43:18 AM|| Front Page Top

#22 TGA: Germany's trade surplus for 2004 is estimated at â¬ 158 bn ($207 bn at current rates), exports rose by 9,5% (â¬ 725 bn total).
Exports to China are up 27%, all despite the yearlong strong euro.

Just making your currency weaker doesn't cut it, imho.

At the beginning of the year, the Euro wasn't quite as strong. How many of these German exports are for contracts negotiated in prior years? Note also that the Chinese government is trying to buy more European goods in order to provide incentives for the breaking of the arms embargo on China.

It is also my understanding that many sectors of the European economies are not quite as open as the US economy, which may be why Germany actually has a trade surplus with China. This is also why China is so dependent on exports to the US.

Posted by Zhang Fei 2004-11-24 5:04:12 AM|| [http://timurileng.blogspot.com] 2004-11-24 5:04:12 AM|| Front Page Top

#23 MBA: TGA is right about a weak currency being an incomplete stragegy.

The US doesn't have have a weak currency strategy - it has an equilibrium exchange rate strategy. Foreign central banks have been buying dollars to prop their own economies up for years now. It is time for the dollar to fall to its equilibrium level. As other countries develop, their currencies will progressively strengthen vis-a-vis the dollar. Buying dollars does nothing to stop the long-term trend and runs the risk of severe dislocations. It is time for the dollar to adjust.

Posted by Zhang Fei 2004-11-24 5:09:25 AM|| [http://timurileng.blogspot.com] 2004-11-24 5:09:25 AM|| Front Page Top

#24 ZF's right! It's other countries strong dollar policy that is the problem.

Posted by phil_b 2004-11-24 5:21:23 AM|| 2004-11-24 5:21:23 AM|| Front Page Top

#25 phil_b: ZF's right! It's other countries strong dollar policy that is the problem.

If the US breaks foreign countries of their strong dollar habit (akin almost to a crack/cocaine habit), this will be GWB's other signature achievement. The trade deficits will stop piling up, and employment numbers might actually significantly improve.

Posted by Zhang Fei 2004-11-24 5:42:03 AM|| [http://timurileng.blogspot.com] 2004-11-24 5:42:03 AM|| Front Page Top

#26 Stephen Ceccehtti has this to say in the Financial Times (payment required, so just c/p relevant section. See also latest post above)
"We can start to see why governments with large dollar reserves would be concerned about both keeping the dollar from depreciating and ensuring that US treasury bond interest rates do not go up. Both of these would result in capital losses for the entities holding the foreign exchange reserves. Given that these reserves are huge - more than $800bn in Japan and more than $500bn in China - the potential losses are big, as is the potential embarrassment. A 10 per cent appreciation of the renminbi means a capital loss of $50bn for Chinese authorities. Assuming the duration of their bond portfolio is three to five years, a 2 percentage point increase in US interest rates means another loss of $30bn-$50bn.

It is hard to see a way for the Asians to get out of this bind without American help. Statements by the treasury secretary will not do the trick. Foreign exchange intervention will be equally ineffective unless it signals that something fundamental has changed."

Posted by tipper 2004-11-24 6:08:23 AM|| 2004-11-24 6:08:23 AM|| Front Page Top

#27 tipper's FT article: We can start to see why governments with large dollar reserves would be concerned about both keeping the dollar from depreciating and ensuring that US treasury bond interest rates do not go up. Both of these would result in capital losses for the entities holding the foreign exchange reserves.

But the currency interventions are essentially jobs programs. The Japanese have had extensive experience with cost of this particular kind of jobs program, given that they held treasuries all throughout the dollar's slide from the 200+ yen/$ range to the 100+yen/$ range. The Chinese are a different story. All of the other East Asian countries have had to deal with it as well. You play the strong dollar game, you pay the price.

Posted by Zhang Fei 2004-11-24 11:06:09 AM|| [http://timurileng.blogspot.com] 2004-11-24 11:06:09 AM|| Front Page Top

#28 This is horrific news for Germany and to a lesser extent France. With their exports getting more and more expensive by the day, there is absolutely no way that Germany can grow even 1% next year. As to the Russian decision, it means little. Russia's reserves, while at an all-time high, are still puny relative to the Asians' reserves.

Everything depends on the Asians' willingness to continue to hold Treasuries. If they panic and start to sell them off-- extremely unlikely, as they've been through this game before-- then the US will have to slash government spending and get serious about inducing its citizens to save more.

Isn't that Bush's endgame, after all? A poker player, indeed. With icewater in his veins.

Posted by lex 2004-11-24 11:22:01 AM|| 2004-11-24 11:22:01 AM|| Front Page Top

#29 TGA: Of course what you will get is more foreign owned companies in the U.S., but they might create less jobs than you might hope for.

Foreign, especially Japanese and French, companies' strategic investment history in the US during the last twenty years has been comically bad. Japanese investments typically favor "trophy" assets, and the Japanese are famous for buying at the peak. See the purchase of Rockefeller Center ca 1990 and Goldman Sachs' repurchase of it several years later from the Japanese for about 35% of what the Japanese banks paid. Ditto for the French, though their binge occurred at the peak of the market in the late 1990s.

Posted by lex 2004-11-24 11:35:35 AM|| 2004-11-24 11:35:35 AM|| Front Page Top

#30 Outstanding commentary. Econ 301 at Rantburg U is again in session!

Posted by Steve White 2004-11-24 12:00:59 PM|| 2004-11-24 12:00:59 PM|| Front Page Top

#31 Speaking of buying at the peak: if Euro companies wish to make acquisitions now, they'll likely pay a premium above current valuations which are still very high. Given growth projections, the Dow's real value is almost certainly lower than 10,000.

That said, I think Bush's strategy here is to offset any sales of US assets by Europeans by increased purchases from Americans taking advantage of Bush's new "ownership society" incentives for saving and investment.

Posted by lex 2004-11-24 12:13:49 PM|| 2004-11-24 12:13:49 PM|| Front Page Top

#32 I hate to sound like a dufus after all the interesting discussion, but exactly who is gonna buy all these nasty bad worthless dollars the Russians want to sell? Wouldn't it have been a little more intelligent to sell when the dolllar was high?

Posted by Anonymous6206 2004-11-24 12:17:02 PM|| 2004-11-24 12:17:02 PM|| Front Page Top

#33 Frogistan's selling 20% of its' gold reserves over the next 5 years.

Bros. Judd had that last week.

Hope they capture Z - watch the market fly! I think the $ would solidify, too.

Just food for thought. My husband is in mfg and he knows of a couple of cases where the Chicoms won the bid but the parts were made in America. They cannot afford to keep lowering their currency. I wonder if that's part of W/Greenspan's plan?

As to the Chicoms ruling ag-wise, they can't even feed their people and don't want NorK to fall cos they couldn't handle an extra 15 million.

We could. Hope they like cheese and butter.

Posted by anonymous2u 2004-11-24 12:57:50 PM|| 2004-11-24 12:57:50 PM|| Front Page Top

#34 lex: Speaking of buying at the peak: if Euro companies wish to make acquisitions now, they'll likely pay a premium above current valuations which are still very high. Given growth projections, the Dow's real value is almost certainly lower than 10,000.

The thing about US company profits is that they are bankable. I have no idea what is in the books of European companies. Many of the financial maneuvers for which American executives have been given jail time are not even illegal in Europe.

Posted by Zhang Fei 2004-11-24 1:03:05 PM|| [http://timurileng.blogspot.com] 2004-11-24 1:03:05 PM|| Front Page Top

#35 True, ZF. Ditto for EU governments' fiscal accounting games. There's zero credibility for EU budgets, esp France and Germany, which are almost certainly way beyond the Maastricht guidelines. Another good reason for foreign investors to avoid Europe.

Posted by lex 2004-11-24 1:13:51 PM|| 2004-11-24 1:13:51 PM|| Front Page Top

#36 A national sales tax, combined with major new incentives for investment, could have the effect of decreasing US consumer purchases of Asian junk like 50-foot-wide flat TVs and increasing funds flowing into the stock market and US treasuries. A very good development, IMO.

Posted by lex 2004-11-24 1:16:20 PM|| 2004-11-24 1:16:20 PM|| Front Page Top

#37 lex: A national sales tax, combined with major new incentives for investment, could have the effect of decreasing US consumer purchases of Asian junk like 50-foot-wide flat TVs and increasing funds flowing into the stock market and US treasuries. A very good development, IMO.

Call me a contrarian, but I think there's quite enough money in American investments. We don't have an issue with a shortage of capital - otherwise, returns would be huge. What we have is an overabundance of capital, fueled by overseas money inflows. In the long run, technological change determines real returns on capital. Having too much cash to invest simply creates bubble conditions (re: the internet and telecom bubble). The other problem with a national sales tax was pointed out by Milton Friedman - it's way too easy to raise, from a political standpoint. This is why the income tax is still the best way to collect taxes.

Posted by Zhang Fei 2004-11-24 1:21:42 PM|| [http://timurileng.blogspot.com] 2004-11-24 1:21:42 PM|| Front Page Top

#38 Point taken re the sales tax pinata. As to funds flows, I'm speaking mainly about marginal inflows; I'm addressing the problem of replacing outflows should foreign investors ditch treasuries in large numbers at some point.

Posted by lex 2004-11-24 1:24:32 PM|| 2004-11-24 1:24:32 PM|| Front Page Top

#39 David's Medienkritik has an article about Europeans boycotting American goods.

And while them raising the NST is a bad thing, it does bring in the underground economy.

Posted by anonymous2u 2004-11-24 1:25:35 PM|| 2004-11-24 1:25:35 PM|| Front Page Top

#40 A2U: David's Medienkritik has an article about Europeans boycotting American goods. And while them raising the NST is a bad thing, it does bring in the underground economy.

From the article: As a consequence of their frustration with the United Statesâ policies overseas, one in five European consumers indicate that they will avoid purchasing certain American-brands products and services in the future.

This may explain why Germany's trade surplus with the US is slated to increase - a drop in US exports to Germany. The problem with a greater European trade surplus is that it means a weaker dollar - unless the European central banks recycle their dollars by buying US assets. Any drop in the value of their assets is like the cost of a public works program.

Posted by Zhang Fei 2004-11-24 1:50:54 PM|| [http://timurileng.blogspot.com] 2004-11-24 1:50:54 PM|| Front Page Top

#41 I read on some blog, maybe here, the Euros put on a VAT tax recently on some of our stuff.

So, do I go to Siemens in IL and burn the German flag in front of the building???

Posted by anonymous2u 2004-11-24 2:04:26 PM|| 2004-11-24 2:04:26 PM|| Front Page Top

#42 anonymous2u: âAs to the Chicoms ruling ag-wise, they can't even feed their peopleâ

In the short term you are likely correct. However the Chinese are believers in biotech. Aggressively applying modern biotech in the next two decades should significantly increase crop yields while using less water and energy. So China could be self-sufficient or even a food exporter. (Whether it makes economic or political sense is a different question. I believe there are other countries more favored for exporting food. Low labor costs are only one factor.)

I expect productivity in the agriculture sector in China to drastically improve. That will mean hundreds of millions of rural poor Chinese out of work. That means the Chinese economy has to keep growing rapidly to generate new jobs.

In two decades China is going through productivity and social changes that took a hundred years in the US. Should be a wild ride.

Posted by Anonymous5032 2004-11-24 3:53:42 PM|| 2004-11-24 3:53:42 PM|| Front Page Top

#43 Biotech?

Tsk, tsk, tsk, Europe won't like that!

Posted by anonymous2u 2004-11-24 6:28:23 PM|| 2004-11-24 6:28:23 PM|| Front Page Top

#44 "GMI World Poll finds that one in five European consumers will avoid purchasing products and services offered by many American-based companies - notably Marlboro cigarettes, American Airlines and AOL"

Ohhhh pleaaaase, who would use AOL anyway, it sucks, has a proprietary protocol, is too expensive and did I mention it sucks? Marlboro? Again, come on, about any major cigarette brand is American, are people going to switch to Camel? People are just reducing smoking due to prices and gorish anti-advertising. And American Airlines, sorry folks, simply sucks: Attitude, service, prices.
Last time I checked McDonalds was full and the chicks still wore Tomy Hilfiger shirts. This boycott talk is rubbish. No Californian wine is flowing into the gutters, sorry.

America does not have that "everything American is automatically cool" status anymore, but that's a trend that has been going on for decades.

As for the VAT tax: Everyone in Europe pays VAT for goods, whatever the provenience. Or does your local camera dealer not charge a sales tax because your new Nikon is from Japan?

Posted by True German Ally 2004-11-24 6:28:42 PM|| 2004-11-24 6:28:42 PM|| Front Page Top

#45 As for Biotech... if the stem cell reaearch ban gains ground in the U.S., quite a few scientists will leave for Europe.

Posted by True German Ally 2004-11-24 6:32:02 PM|| 2004-11-24 6:32:02 PM|| Front Page Top

#46 TGA: As for Biotech... if the stem cell reaearch ban gains ground in the U.S., quite a few scientists will leave for Europe.

This is anti-Bush propaganda. The ban is against Federal funding of stem cell research. Drug companies are free to do what they want.

Posted by Zhang Fei 2004-11-24 6:44:09 PM|| [http://timurileng.blogspot.com] 2004-11-24 6:44:09 PM|| Front Page Top

#47 ZF, please don't slap anti-Bush propaganda on me...not on me, ok?

You know very well that scientists prefer to work where they are most encouraged to work, and the stem cell discussion hasn't helped. European scientists are less willing to take up jobs in the U.S. even if they are better paid than at home. And I know quite a few cases of U.S. scientists relocating to Europe because they are not sure what will happen to their research work in the U.S.

Posted by True German Ally 2004-11-24 7:04:59 PM|| 2004-11-24 7:04:59 PM|| Front Page Top

#48 OT - happy Thanksgiving, TGA - to you and all your family! Figure that you and Gromky (happy T-day to you as well) will be the first to get Nov 25th LOL

Posted by Frank G 2004-11-24 7:07:53 PM|| 2004-11-24 7:07:53 PM|| Front Page Top

#49 Frank G, thanks... it has arrived already. Well, Halloween has gained quite a bit of popularity here although the U.S. style Thanksgiving is still widely unknown.

We'll have a few U.S. servicemen coming over for dinner, three are straight from Iraq. Enjoy your turkey as well!

Posted by True German Ally 2004-11-24 7:25:23 PM|| 2004-11-24 7:25:23 PM|| Front Page Top

#50 will do, and thx on the servicemen's behalf - that's hospitality!

Posted by Frank G 2004-11-24 7:45:37 PM|| 2004-11-24 7:45:37 PM|| Front Page Top

11:47 Kalle (kafir forever)
00:02 Kalle (kafir forever)
00:00 Bomb-a-rama
23:51 Rafael
23:48 Brett_the_Quarkian
23:46 Atomic Conspiracy
23:46 Kalle (kafir forever)
23:45 Bomb-a-rama
23:21 Beau
23:11 Kalle (kafir forever)
23:09 Capt America
23:06 Capt America
23:02 BillH
22:59 BillH
22:54 Verlaine
22:50 Verlaine
22:48 2b
22:48 2b
22:38 anon2
22:35 True German Ally
22:32 Laurence of the Rats
22:31 phil_b
22:23 Angie Schultz
22:05 lex