Posted on 04/18/2008 9:19:58 PM PDT by bruinbirdman
Jean-Claude Juncker, the EU's 'Mr Euro', has given the clearest warning to date that the world authorities may take action to halt the collapse of the dollar and undercut commodity speculation by hedge funds.
Momentum traders have blithely ignored last week's accord by the G7 powers, which described "sharp fluctuations in major currencies" as a threat to economic and financial stability. The euro has surged to fresh records this week, touching $1.5982 against the dollar and £0.8098 against sterling yesterday.
"I don't have the impression that financial markets and other actors have correctly and entirely understood the message of the G7 meeting," he said.
Mr Juncker, who doubles as Luxembourg premier and chair of eurozone financiers, told the Luxembourg press that he had been invited to the White House last week just before the G7 at the urgent request of President George Bush. The two leaders discussed the dangers of rising "protectionism" in Europe. Mr Juncker warned that matters could get out of hand unless America took steps to halt the slide in the dollar.
World central banks last intervened eight years ago - with mixed success - buying euros in September 2000 to support the fledgling currency through its worst crisis.
David Woo, currency chief at Barclays Capital, said the Europeans and Americans are talking past each other. Whatever the G7 wording, Washington is happy to watch the dollar slide. "They are not going to worry unless there is a knock-on effect on US equity or bond prices. So far that hasn't happened. There are no signs that the dollar decline has turned disorderly," he said.
European industry has managed to live with the high euro so far, but the damage of major currency shifts can take years to surface. "The moment will come where the exchange rate level will start to cause serious harm to the European economy," said Mr Juncker.
Louis Gallois, head of the Airbus group EADS, said his company is already taking dramatic steps to shift plant to the dollar-zone. "The euro at its current level is asphyxiating a large part of European industry by shaving export margins," he said.
The European Central Bank revealed in its monthly report that foreign direct investment (FDI) into the euro zone has contracted by €269bn over the last two years. Foreigners are gradually winding down operations. This will have powerful long-term effects.
George Soros, the hedge fund baron who "broke" Europe's exchange system in the early 1990s, said yesterday that the euro could never anchor of the global system. "I don't think the euro can replace the dollar as the main world currency. The euro is not a truly attractive alternative," he said.
Mr Soros said the dollar would reclaim its crown eventually, but for now the financial crisis is leading to a flight from all paper currencies, causing a dash for gold, silver, and oil futures.
Otmar Issing, the ECB's former 'High Priest', said the single currency had started well but could face a "disastrous outcome" if the eurozone failed to embrace a flexible market system. "The 'single-size' monetary policy would simply not fit at all. In such a scenario, the single currency would risk straining cohesion " he warned in a new book, 'The Euro'.
This is already occurring. North and South have diverged further. While Germany and Holland have prospered under the strong euro, most of southern Europe and Ireland is in trouble. Current account deficits have reached 9.2pc of GDP in Spain and may touch 15pc in Greece. The European Commission's economists fear that the loss of competitiveness against Germany over the last decade may have passed the point of no return. At best, these countries face years of belt-tightening as their property booms deflate.
Silvio Berlusconi, Italy's newly elected premier, has called for a change in the ECB's mandate, proposing a dual mission akin to the US Federal Reserve's mandate to promote growth as well as fighting inflation. He has the support of France's Nicolas Sarkozy.
A key reason for the 30pc rise in the euro agasint the dollar over the last two years has been the move by Asia central banks and Mid-East wealth funds to parking huge sums of newly acquired wealth in European bonds as an alternative to the dollar.
BNP Paribas said Asian surplus countries and commodity exporters have accumulated $1,160bn in reserves over the last year alone. US Treasury data shows that only 19pc of this was invested in dollar assets. This is a sharp break with past practice. A large chunk of the money was invested in euro-zone securities. The question is whether China, Saudi Arabia, and others, have now reached euro saturation.
“Only one fellow in ten thousand understands the currency question, and we meet him every day.” - Kin Hubbard, quoted in ECONOMICS by Paul A. Samuelson
So true! If 6 of these a sholes read Samuelson, they would at least be smarter than Barak.
HELLOOOO!
ECON 101?
Anybody.. anybody..
Buehler...?
Maybe someone is getting hip to Soro’s monkey games?
The way I see it, without the dollar's weakness against foreign currencies, our exports would not be booming as they are. The stock market gains this month indicate that the market approves, however, the market does not approve of any further drops, or should I say more properly that their currencies are elevated because of a propped up Euro. Japan has intervened in theirs, and it's getting in line, and the Brits adjusted theirs, so now it's up to the other to follow suit, and certainly up to China to release their float completely.
All this would not have happened if not for China to begin with.
When this all clears up, the libor spread will ease, and the feared major resets will not occur in mortgages.
I see this as a currency war that has been going on for more than 7 years. We have come to the final battles and it looks like the U.S Fed is winning, but at a cost. After giving that cost a lot of thought, I figure the cost of stagflation would have been much higher and lasted years. As it is now, we will have a mild slowdown for a couple quarters and some re-valued securities with their various offshoots and that lost value will return in 12-24 months as all the fears calm and people realize that it was over done.
Soros has made a huge profit during this cycle of fear, and we can expect a good part of it to be spent against McCain.
Ha, ha, it's only to get worse.
Bernanke's hari-kari policy better have a silver cloud.
It is a curious episode. Europeans can unload their Euros and buy US property, businesses, and take vast vacations that they never dreamed about. The amount of European products coming into the US now? It is apparently decreasing because no one can seriously afford to overpay for a product. I’m one of those Americans working for DOD in Europe...where I’m paid in dollars and there is almost no real cola given by the company...so this is almost turning into charity work for me.
I doubt that the rate can stay like this...with most European analysts predicting that the new president in January...will likely trigger a reverse trend...no matter who it is. You will likely see a huge buying spree by the Europeans by the end of summer....buying into houses and property across the US.
It's a built in tariff that makes European imports very expensive. and increases the number of Europeans vacationing in America.
ping for saturday reading
We just have to sell to those who are likely to sell it straight back to us when the dollar rebounds at their expense.
Can you move to a pension and learn to live on sandwiches until Bernanke re-bounds the dollar?
Shouldn't that be, "franc?"
Oh cry me a river you Europansies!
Their real gripe is that we are paying less on our deficit but still getting the same value.
After WWI,Germany was required to pay billions of Marks to the Allies in war reparations.When the Mark fell and thousands of them were equal to a few dollars,the overprinted Mark easilly payed off the outrageous debt though the Allies recieved little more than decorative paper.
Washington DC has put America so far in debt a real dollar could never pay for it without wrecking our economy.A de-valued dollar,on the other hand,may be our only hope to pay off the global liabilities that may cripple us in the long run.
Once the debt is paid or lessened suficiently,we can issue the “new” dollar and start over.
Right now,a short recession or perhaps even a depression,may be a somewhat unpleasant plus if we wish to preserve America for our children.Our plight will be harsh,but the plight of the nations we owe money to will be worse but at least we will be done with our debts to them.
It goes without saying that if Washington DC politicians had had the interests of America in mind instead of egomaniacal self-interests this bitter pill would not be necessary.
One of the biggest problems is all the currencies, pegged to the greenback, that are undervalued. That is: ChiCom yawn, Saudi (Middle East) currency and any others that are state controlled and do not float. These guys are hording undervalued currency and can't spend it fast enough.
yitbos
Not to mention the jobs that are being created here in the US as euro companies rush to take advantage of the exchange rate to build factories here and build business.
My anecdotal evidence is that I know of FOUR different German businesses being created in the States in the next year.
I know of NO ONE that has lost a home to foreclosure.
And, no, business is not my business :-)
Would u be terrible bothered if I asked u to move my deck chair on the Titanic to the high side of the boat?
Fiat money has to have a down side for someone!....Its the nature of the beast
Soros probably made a fortune as the dollar fell and is now poised to make another when it rises.
i do believe he's been trying to make it fall for some time now
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