When dollar falls, European exporters count their bruises

LA Times ^ | 17 November 2007 | Geraldine Baum

[shrinkermd]

The euro's rise and dollar's slide are squeezing European exporters' profits or multiplying their losses, prompting layoffs and plant closings. Companies are not only curbing production of goods headed to U.S. buyers but also rethinking the way they do business.

The euro recently passed the record $1.47 mark, gaining 11.5% since the beginning of the year against the greenback. It closed Friday at $1.46; a dollar bought 0.68 euro.

Most emblematic of the problem has been the impact of the euro-dollar relationship on the aeronautics industry -- and particularly on France's Airbus, whose main rival is U.S.-based Boeing.

With a falling dollar making Boeing's products cheaper outside the U.S. and Airbus' more expensive, Louis Gallois, chief executive of Airbus' parent EADS, recently described the sinking U.S. currency as a "sword of Damocles" hanging over the company's future. He vowed to cut an additional 1 billion euros in operating costs by 2010 or 2011.

This would mean more layoffs at a company that is already purging 10,000 jobs, a decision made when one euro equaled $1.35.

Survival strategies

Less dramatic but no less crucial is the impact on other European companies that export sophisticated equipment, technology, cosmetics, cars and luxury goods. For firms that make a large portion of their sales in the United States or compete with firms that deal in dollars, survival depends on raising prices, cutting costs or hedging currencies.

The strong British pound, moribund Japanese yen and undervalued Chinese yuan also play roles in this tale of currency chaos, from a European exporter's perspective. Nearly every day, another company announces more lost earnings and job cuts and blames the currency commotion.

[expat_panama]

"...why did sir Allan write an article saying that one of the roles of a fiat currency is to create money to finance the deficit?"

Right, the tract linked in your post 94.  Pretty heady stuff: "Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process."    He may have changed his mind since then, because in the forty years since he wrote that (if he wrote it) we've deficit spent, stayed off gold, and real private wealth has quadrupled. 

Regardless, the article didn't specifically say the Fed prints  creates money to finance the deficit.  Congress is in charge of deficits, and the Fed's job is supposed to be holding inflation down around 2 or 3%.

[expat_panama]

By your logic, would a further 50% fall in the dollar be good?

Oh yeah, by your logic, pegging the dollar at $1,000 euros is good? 

Hmmm.  When I do that I feel like an idiot --how do you stand it?  Yeach.

[Joan Kerrey]

It is possible that we are on the verge of becoming the next great export machine.

---

The way things are going we might not be making anything to export.

[dollarbull]

Oh yeah, by your logic, pegging the dollar at $1,000 euros is good? Hmmm. When I do that I feel like an idiot --how do you stand it? Yeach.

When did I advocate a currency peg?

Attributing a statement to someone else and then refuting that falsely attributed statement isn't a good way to win an argument. Please brush up on your debating skills.

[groanup]

post 94.

An essay by Greenspan in 1966. I skimmed and didn't find your statement. I really am not inclined to study it further. Which paragraph?

[groanup]

Sir Alan utters a phrase and a whole thread turns into whether that phrase is a law of economics or not. Greenie caused a nosedive in the stock market in 1998 by uttering a phrase.

[groanup]

If everyone is so worried about S&P earnings coming from overseas why aren’t they worried that something like 60% of the growth in the SP is coming from the same place. Got growth?

[dollarbull]

I think people are worried about the dollar losing value, not S&P earnings from overseas.

If the dollar falls 50% in value and KO makes 100% more overseas profit due to this (because of currency translation), they haven’t really earned anything but the right to pay more taxes on that “extra” $US revenue.

[AndyJackson]

Part of the relevant bits are contained in the following: The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.

[Toddsterpatriot]

So, was all that a yes? Try again. Do you agree that “The real problem with the US$ as a reserve currency is that whenever the US government has been running a bit short it just prints some more”?

[Toddsterpatriot]

Now, on the one hand I have Toddsterpatriot, who says the government doesn't print money to help fund itself.

Maybe you can tell us how much the Fed printed so the Treasury could spend it? I'm sure you could Google it.

[AndyJackson]

And most specifically, this part: one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion

Now, I hope that since you have already argued the point, I don't have to go back and find where you have lectured us all on how the Fed controls bank credit expansion through market operations designed to "control" bank reserves.

[dollarbull]

Post 93 was pretty clear. I guess I assumed too much when I thought you'd follow it.

I'll summarize in a few sentences for you:

The dollar's 36 year reign as the world reserve currency is coming to an end. It's happening right now in small steps (gulf states pulling dollar peg, Foreign central banks setting up sovereign wealth funds, OPEC states accepting currencies in payment for oil, etc)

Reducing the big picture concepts to a red herring question that you demand a yes/no answer to is a pointless distraction. You're really not a very good debater.

[Toddsterpatriot]

Reducing the big picture concepts to a red herring question that you demand a yes/no answer to is a pointless distraction.

So you agree with poor Andy? I'm shocked.

Come on, you won't hurt his feelings if you admit that the Fed does not monetize the debt.

[AndyJackson]

you won't hurt his feelings if you admit that the Fed does not monetize the debt.

Well, I am shocked, because implicit in this statement is the admission that the Fed could monetize the debt. The only question now is does it? Greenspan says they do. You say they could, but don't.

This is a toughie. Who am I going to believe? Lemme see, ennie, meenie mighty mo? Loves me, loves me not... O man someone here help me decide.

[AndyJackson]

The dollar's 36 year reign as the world reserve currency is coming to an end.

No it isn't. Toddspatriot said so, and he knows it all.

[AndyJackson]

Maybe you can tell us how much the Fed printed so the Treasury could spend it? I'm sure you could Google it.

No, but you could make a good back of the envelope guess, namely, the total outstanding treasury debt times the reserve fraction that that amount of debt represents.

Of course the beauty of it all is that as a consequence the Fed only has to create reserves representing a fraction of the total. The rest gets created in the manner in which all credit is created in a fractional reserve banking system - as groanup just told us.

[Toddsterpatriot]

Well, I am shocked, because implicit in this statement is the admission that the Fed could monetize the debt.

The Fed could do lots of things. The question is, do they do the things you claim?

So if you feel they do, you could post some proof? Or you could get hysterical again. I'm not sure which I prefer. I'll leave it up to you.

[groanup]

Our tax system is, IMHO, the single greatest factor in offshoring. The others are: threat of litigation, regulation, union wage scale.

KO, et al, have currency hedging traders of course. They are probably all profit centers.

[Toddsterpatriot]

No, but you could make a good back of the envelope guess, namely, the total outstanding treasury debt times the reserve fraction that that amount of debt represents.

So do it. LOL!