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 ...
Red6,
I think you have some great points. But I am no economic expert. Could you distill some of the basic trade stats rising for us? How much have the trends been rising?
Thanks
As I've said before, our monthly trade deficit with the EU has been slashed by over half in only 2 months. Up until July, we had been running monthly deficits to the tune of up to $13 Billion but after August and September, that number is down to $6.4 Billion. It is entirely possible that we could be running trade surpluses with the EU in very short order.
Or you are filling your gas tank...
Buying a TV or computer as well, for that matter.
I thought that West Texas raised a large number of lambs. Maybe they’d taste better than Idaho lamb?
I used to have a good friend, a mathematician, that could never quite understand why the electric company would constantly turn off his power. Even when I’d ask him if he’d paid the bill.
Of course, he’d usually respond that he hadn’t, but he usually never made the connection.
Book-smart, yet life-stupid.
And 2007 is running about 14%-15% ahead of 2006. Exports added 1% to our GDP last quarter from the previous quarter the increase was so big.
Have you seen the price of TVs & Computers recently? TVs have been dropping non stop for the last 2 years straight. Computer prices continue to drop AND get way faster. You can buy 2 GB of GREAT DDR2 RAM for $70 now. Last year at this time, it would have been $250. You can buy laptops now for $500 and a desktop for $300 (or $350 with a monitor) that's actually pretty decent. The same computers 2 years ago would have been over $2,000.
Thanks for the help. When I hear the word “math” my brain runs away and hides under a stack of comic books!
Numbers make me shiver!
LOL
Absolutely. And in addition, if we did away with an income tax in favor of a consumption tax, then our exporters, already benefiting from the exchange rate, have the cost of every product and service reduced by the amount of the tax they've been paying. This means jobs, jobs, jobs, not to mention the lessening of the power of "favors through tax policy" now poisoning the investment landscape.
Our economy would truly become turbo-charged.
These are several complex ideas muddled into one here. The end of the US$ as the world's reserve currency will be the one good thing coming out of it, but for very different reasons than you have suggested.
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, and since the entire world pays into this scheme, it is not just the product of workers in the US that is stolen. It is a global theft. One might argue that this underhanded tax on world consumption is fair exchange for our guarantee of world peace, but others don't exactly see it that way, and I for one think that taking this power of the US government away will do a lot to rein in our post WWII imperialistic imperative.
Unhinged as the world's reserve currency and ceteris paribus every $ printed will result in a proportionate drop in the value of the $.
Taking up another issue that deserves much more extensive examination, you and most folks use the terms "strong" or "weak" with regard to a currency rather sloppily as if the exact numberical exchange rate between say the $ and the Euro is meaningful in itself. That $1 might have purchased $1M Italian Lire tells you nothing other than that perhaps both currencies aren't worth the paper they are printed on. It is trends in purchasing power that are meaningful, and the trend has been strongly negative for the $ for a long time, along with trade balance, debt flows, etc.
One's power and prestige are in economic terms set by the demand for your products and services abroad. A strong currency (one whose purchasing value in international markets remains releatively stable rather than declining by 50% in ~3 years) reflects that you have been trading on something like equal terms with the rest of the world.
Surely Buffett and I are not the only one's who think that borrowing abroad, mortgaging our real estate abroad to finance consumption from abroad is a sign of underlying economic weakness, you know, like the Congo or Sierra Leone or Brazil in the bad old days. That our currency is in decline is a reflection of that underlying weakness.
And as for all of your claimed experience in Germany, it must have been a long long long time ago, because in the past 20 years being stationed in Germany for married service members has been to be cast into financial hell. The Mark / Euro has been a strong and stable currency for a long time, and Germans have had one of the highest standards of living in the world for many years now.
And people buy BMW's and Audi's not because they are cheap because of their reputation for quality (reliability, design, performance, total cost of ownership over the real life of the car, etc.) Surely even you are not that much of a dolt despite your fancy perfumed finery flapping in the wind with the little MBA monogram on it.
No one hates the present tax code more than me, but this is meaningless sophistry. Consumption and production are flip sides of the same coin. Production we view as morally good, but consumption is morally bad, yet without one there will be none of the other. Shifting the tax from an income tax to a sales tax (consumption tax) to a VAT on exports will do nothing to change the total price of goods offered on foreign markets, since the total price will be set by international market factors and the variable costs - US wages and profits and total taxes collected can only be derivative thereof.
Are you saying that, if a particular foreign country imposed an income tax on its corporations, that didn't previously have a corporate income tax, that its exports to America wouldn't suffer a margin squeeze? Would they not have to raise prices? Something tells me you might be right, but address this hypothetical specifically, please.
btw...everything was hugely expensive, this is the first trip that has seen us coming back empty handed.
You gave a long answer, but the first line is the very telling line — “The product made in U.S.A. will not rise in cost like its imported counterparts, that’s what you fail to realize.”
And that’s the problem. I go into stores and I look at the products that I can buy and I actually try to find products that say “Made in the USA”. And, you know what? Sometimes I can’t find even one product for what I’m looking for. I see all sorts of products from all over the place. In fact, I keep seeing China all over the place.
Therefore, I’ve got the same problem I was talking about before, in that my places where I normally go and normally shop (all the standard places that normal people go to anyway) don’t have “made in the USA” products. The rare product like that (USA) stands out like a sore thumb, if you can ever find it.
I’m afraid what you’re saying is totally out of whack and misleading in that I can hardly find any USA products (which you say won’t be affected). And besides that, I doubt that they won’t be affected (even if I could find them...).
That’s because China has loosely pegged their currency to the dollar. While the Trade gap with Europe has halved this year, China is still growing (albeit more slightly than before). The Yuan has only risen around 12% vs the Dollar since the Chinese let it start a few years ago. Meanwhile, the Euro went from .82 to 1.45 making it much more difficult for European exports. This will change in the future as the Chinese have begun to allow the Yuan to rise more than in the past (It’s up 4.9% this year vs the dollar).
I presume they are charging what the market will bear. Income taxes will eat into their profits, at which point they could decide that margins are insufficient and raise prices, lowering demand for their product.
8GB flash memory would probably be $35.
You can get them at that price next Friday and next year at this time I've read estimates you can get a 100GB one for around $40-$50. Hard Drives will be going obsolete in 2-4 years. A weaker US Dollar means some of that production will move back to the US. We've already started to see some of that.
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