Posted on 11/17/2007 10:16:45 AM PST by 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.
(Excerpt) Read more at latimes.com ...
I was reading an article in the WSJ today that 90% of ‘new money’ being put into Mutual Funds are going into International Funds. Only 10% Domestic. 5 years ago it was reversed. Basically, it was saying that Americans putting money into overseas companies are one of the main reasons for the dollars decline.
Only about 5% of the apples sold here are from New Zealand. Get real. The great majority of our produce is grown domestically. About the only time it’s not is if it’s a crop that is out of season here.
Not really, but sometimes people are to silly or in pursuit of a “story” in the media and good trends are overlooked or even twisted into bad news. Bad news sells. Do you think it’s a coincidence that US exports are on the rise over the last few years? So you think foreign investment capital flowing into the US is a bad thing?
The dollar is doing fine. In fact, long term I can imagine it falling even more, and our economy would not suffer but “benefit” from this. You see, unlike others, we are not as reliant on imports to fuel our economy, example Germany. If their currency devalues, the relative cost of oil per barrel for example goes up as do copper, gold, and every other strategic resource they need to fuel their industry and high tech sector. With us this too is true, but to a much lesser extent. The rise in costs are relatively not as significant for us as they are for many EU states. The positives of a lower valued dollar by far outweigh the negatives unless the dollar were to drop significantly more and stay at these low levels for a long time, which won’t happen.
Think of the dollar as a commodity on a market with a supply and demand. For many years the dollar was in high demand and that actually has negative implications for the US as a base of production and for US exports. This pressure today is largely reduced. The US is actively pushing to allow the value of the dollar to float freely and not be pinned while at the same time you have economic zones create new currencies that are competing with the dollar as reserve and trade currencies. To the Germans, French and Italians shock, at least the common man (Those with a clue of how this works knew what would happen), this powerful Euro is crushing them economically, and the ability to play little currency devaluation games as in the past is no longer possible. Think of the dollar as having adjusted to a lower average value and this adjustment is long term but by no means bad for us.
Well, it doesn’t seem like a good thing to me, personally. If it’s going to take twice as many of my own dollars to get goods that I got for half as much before — that doesn’t bode well for me or others (in the same position as I am in). My paycheck won’t double in short order and just as radically as the dollar could collapse in short order. That’s simply not good for me. Maybe the “government” figures it’s good for “them” — I don’t know.
Also, there is that element of inflation being spread among all those others (around the world) who were holding the dollar. In that way, it takes the load off me (although those other holders don’t necessarily like it) and makes that weight of inflation a little bit easier to bear on my part.
But, you dump all those dollars, and then find others are no longer willing to hold them, and find them all being repatriated back to this country and divided up between me and everyone else here — that’s going to be a disaster for me and others.
Now, maybe the “government” considers this all good news — but I call that bad news for me.
>A weaker dollar is for us “long term” a good thing.<
SSorry, but I disagree. Watching the value of my personal assest go down like a blowout tire isn’t encouraging.
The weaker the dollar becomes the cheaper it is for foreigners to buy up every profitable American company. Yes, the jobs stay here for a while but the coporate profits are taken back overseas and when enough are accumulated they come back and buy another company.
Don’t expect to see any national pride in foreign owned corporations, the multinational board of directors is not thinking about the American flag.
Perhaps if we removed the taxes from our products BEFORE we export them, it may help. Can you explain why we are the only country that doesn’t understand what a value added tax is?
I read recently that we have actually become a net importer of food in terms of $ value. I cannot vouch for anyone's spending patterns but my own. Yes, fresh produce that I purchase is for the most part produced domestically. Virtually all other foodstuff, all the value added stuff, cheese, wine, chocolate, spices and condiments, etc. is imported, and that is where the money is.
You are either an idiot or a crank.
Highly doubtful, the retail company I work for is an upscale grocery store. We only have about 10-15% of our total volume as imports. Mainly seafood, some cheeses, some wines, and a few grocery items here and there. Produce off season is imported to the US.
I don't know why this is so hard to get. The $ dropped for a simple reason - fewer people want $ or the products and services they can thereby purchase. Price is one factor, but the fact that we don't produce finished goods that others want is another (not in an absolute sense, but in a relative one that there is a great imbalance in what we produce that others want compared to what we preferrably consume from elsewhere.)
The quality issue is a big deal. Why can BMW export expensive cars everywhere, but Detroit can export cheap cars almost nowhere?
They’ll be cutting interest rates anyday now in Europe. They really have no choice with the dollar as weak as it is.
My company is having the best year in it’s 60 year history. A big chunk of that is due to FX.
It is possible that we are on the verge of becoming the next great export machine.
It’s already happening..and it’s going to get even better.
You said — “I don’t know why this is so hard to get. The $ dropped for a simple reason - fewer people want $ or the products and services they can thereby purchase.”
I didn’t say “I didn’t get it...” What I said was that it was bad news for me. “Getting it” does not make it better news for me or help when my dollars only buy half as much as it did before a big and dramatic collapse. “Getting it” is absolutely no consolation to me.
And along with that, “getting it” doesn’t make it a “good thing” either — as far as I’m concerned. Even while “getting it” — it’s as big a disaster as it was before (”getting it” — if someone did not...).
We DO understand VAT. It's a a tax on wealth creation. At every step of production, the VAT penalizes the manufacturer for improving the raw material he received. Talk about a drag on production.
The problem as I see it is that we don't understand the damage we're doing to ourselves by having the highest corporate tax rates in the industrialised world.
I am agreeing with you. It is some of our interlocutors on this thread I am having trouble understanding.
So is every other tax that one can imagine, including those things that some folks delude themselves into thinking are morally superior because they are consumption taxes. Well, the two are opposite sides of the same coin. Without production there is no consumption and vise versa, unless you are quite happy to have goods pile up in a warehouse, which is still consuming good land and building space.
I’m the idiot?
Have you looked at US exports the last few years and what the trend is? Do you know what right now is happening with some of the trends in of-shoreing? Do you realize that firms like EDS, Perot Systems and others have as their major clients today accounts from firms like Lufthansa, VW (PS) and the British government (EDS)?
You have no argument. Resorting to “name calling” says something about your intellect and lack of knowledge on this subject. Intentionally I tried to keep it simple, nor used any jargon; yet it appears that this concept is simply beyond your grasp of understanding even when trying to keep it simple and at a macro level.
If you call sending the Commerce Sec. over to oh so very politely ask that something be done and then being ignored "clamping down". I guess you can make that statement.
If you think the dollar is doing just fine then you are an idiot.
The product made in U.S.A. will not rise in cost like its imported counterparts, that’s what you fail to realize.
There is a reason why countries such as Korea, Japan, Italy, Germany, France etc. have all played the currency game in the past not only with us, but even with each other. Within the EU Italy was notorious for this before the Euro came along.
The problem is that foreign nations in the past have used the US market as an engine to drive their economic growth at our disadvantage by intentionally manipulating exchange rates. Indeed, post WWII the US intentionally had a policy that intended to stimulate growth in places like Germany by giving them highly favorable exchange rates as high as $1:DM4.50 which at that time were still fixed. The problem is that this makes the American factory worker making a widget more expensive than his counterpart abroad may that be in the US, in Germany or even in third party states. Essentially, despite the one of the highest per hour productivities, the low costs in water, land, energy, the low tax burden, the favorable labor laws, good infrastructure, well educated labor force, Judea-Christian work ethic, transparent laws and low corruption, stable legal environment, diverse geography offering unique abilities for certain functions - despite all this, when you have $1 = DM 3.62 (As in the mid 80s) the products made in USA are at a disadvantage even if sold in India, for example John Deer or Cummins/Caterpillar in the Middle East competing against someone like Deutz.
Again, as mentioned earlier: http://www.export.gov/tradedata/index.asp take a look at what exports are doing as a trend over the last few years.
Sometimes there are situations where some are at a benefit even if the nation as a whole suffers from this situation. My father works for the US state department in Germany. I too was stationed there for three years and from my “personal” position a high valued dollar gives my lots of purchasing power. However, what this also does is put the US as a nation at a disadvantage in trade. Again, as mentioned earlier, in the mid 80s when our deficit in trade exploded and young privates were buying new top of the line Audi’s, you had a very powerful dollar. Is it coincidence that Chrysler products are today being imported into Germany, or that all Z3’s, even those sold in Germany were made in the US; something unimaginable twenty years ago? Certain markets will be more affected than others, but when you talk about the auto, aerospace, home appliance, consumer electronics, IT, and others, these exchange rate changes long term have a profound effect.
The dollar dropping from its value of DM3.62 to DM1.86 in the course of five is a near 100% change in price; it forces the manufacturer to base production in the US. Think it’s coincidence that BMW (SC) and Mercedes (MS) opened plants during the 90s in the US? Do you think they were betting on what the trend would be?
The dollar devaluing is not a bad thing. It’s not a loss of power or prestige; rather the end of a bad situation where our currency was the sole global hard currency for trade and reserve, having many nations use our currency as theirs, and some pin their exchange rates intentionally at lower than free floating market value, which massively inflated the dollars value and hurt the US as a manufacturing base. The average American does not care about the American worker somewhere else. He’ll drive his Mitsubishi with a bumper sticker on the rear, “These colors don’t run.” The average American does not care if something was made in a sweatshop, if it was made using prison labor, if US EPA standards were violated in its production, if a vile totalitarian regime in a nation that 58,000 Americans died fighting against profiteers from the sale of these goods; all he will care about is if his kid’s toys might contain lead, then he’ll care. Perfect example is Wal-Mart. They don’t care if they are seen as an evil four headed dragon. They know tomorrow you’ll be back and buying their products because they are cheap. Such thinking is very short sighted and selfish, but conforms to the model of the rational consumer who in first place looks out for himself. The US government is not on a crusade for some self-interest, that picture is more appropriate for those profiteering from a status quo at their fellow Americans expense. What the US government seeks is a level playing field, where others are not playing games via currency to our disadvantage.
1. You’re not going to see everyone dump the dollar. Like our national debt, this is miss-characterized.
2. Actually yes, you will see more well paying manufacturing and industrial jobs come to the US as the dollar drops. You’ll see less off-shoring by US firms since these destinations become more expensive to operate from. You will even see more foreign firms set up shop in the US. But I guess that’s all bad?
3. Inflationary pressure will not be substantial as long as the dollar does not completely devalue. Outside of oil and a few strategic resources which we import in greater volume, the US is by virtue of size and resource independence in a position where even when the dollar drops, inflation won’t be as significant as you believe. Think of it like this. If we were in the position of Germany years past and the DM devalues, the cost of procuring copper, gold, cesium, platinum, helium, oil etc., all strategic resources required to fuel an industrial and high tech economy goes up. With devaluation comes an increase in the cost of resources. For us this is by far not as significant, and the shear volume of our market is also a factor since everything from rifle scopes, airplanes, to cars or MRI machines are made or at least largely made in the US. The answer is no, there won’t be some huge inflationary pressure overall. Foreign made products will become more expensive, but you won’t see the same with domestic manufactured goods.
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