OK, from the bottom up.
In the most dramatic slide in the dollar, between 1985 and 1987, the greenback fell 54 per cent against the deutschmark. HSBC is now forecasting that the euro will rise to $1.35 by the end of next year.
Yep, I remember the time very well. Those were the days! I paid less than $60 per month rent for a German studio. My 1985 VW Jetta with U.S. specs cost less than $8,000 delivered to me in Germany. The primary reason for the "sudden" devaluation was because the Fed and Western European banks collaborated on stopping the U.S. dollar which, in Feb of 1985, was at record high levels. In otherwords, they were killing us. Ronnie and company had domestic interest rates so high that foreign investors had little choice but to put their money in U.S. currency.
The dollar v Euro is 1.19 today.. if it goes to 1.25 foreign investors in US market stock will almost be forced to abandon... especially the portfolios with built in move activators.
What the Sterling and Yen do is not important (as much) regarding this issue and the holders of US issues and moving commodities (oil) denominated in dollars... The EEO wants oil to move to the EURO and Snow seems not a bit worried at the moment. Should he be? Is something more important afoot?
Well HJD1, I remember very well how all the international financial talking heads in '92-'93 were predicting the demise of the U.S. currency. Yep, the almighty German D-Mark was to be the currency of choice. It was so strong that some other European currencies were falling from the currency mechanism they had in place at the time. Yeah, I know, it should be different this time around with the Euro and all. Problem is, that it ain't.
Let the Europeans pay less for oil! Jeez, that is the least we could do. The doomsday experts were predicting the same thing a decade ago and it didn't happen. Everybody is in such a panic that their long-term recollections fail. There is no panic. I don't see the dollar disappearing anywhere because the European mechanism,
as we currently know it, without Russia, does not have the combined GDP to sustain it. Their service industies suck. Their capital goods industries stink. Their equities markets are a joke and their socialist labor is expensive. They can't maintain it. Now if the Russians climb on board with them, I'll immediately rephrase this little rant. Even with Russia
in its current condition on board, they don't match up. Russia first needs to get corruption under control. Then they need a capitalist kick in the ass.
The dollar devalued against the D-Mark, Swiss Franc, Dutch Guilder and Scandinavian currency in nearly precisely the same manner a decade ago. One reason was that the reunification engine cranked up in Germany. They had some serious (as in the context of the early 90s) inflationary problems due to reunification, housing shortages and refugees. Therefore, they raised interest rates. Everybody and their brother (i.e the Americans, Brits and Japanese) had a fit at the time. The U.S. economy was just emerging from the recession and was on shaky ground. Interest rates were still low. Since the Germans paid more and the old red bear was no longer a threat, all the currency trader mobs were purchasing D-Marks, Swiss Francs, etc by the truckload.
Meanwhile, our multinational corporations were just loving every second of it. And, mark my words, they are gonna love it all over again - to a little lesser degree. Yes sir, Coca-Cola, McDonalds, Proctor and Gamble, Colgate Palmolive (to a much lesser extent because of smaller European exposure than PG), Boeing, Disney, Microsoft, Intel, Pepsi, General Motors, Ford, Altria (Phillip Morris) Dow Chemical, General Electric etc. just ate it up. Why? Simple. They had a bigger return from international operations and sales because of the currency disparity. PG is actually larger than Unilever NV in Europe. European businessmen will tell you that Proctor and Gamble gets what it wants in Europe. If they want to sell Airbus planes against Boeing, then they must subsidize that program even more than they are now. At any rate, in my opinion, this devaluation could not have come at a better time for U.S. industry.
Well now the equation becomes somewhat more muddled. The Germans, who are the real economic powerhouse of Europe as we currently know it, are no longer fighting inflation. But with a stronger dollar, they find themselves faced with other problems. Exports, and their own interests in the U.S. and Great Britain. Not only has the dollar fallen against the Euro, but comparatively speaking, the British Pound Sterling has as well. From a simplistic view, our goods become more attractive to the continent. Additionally, since our currency is worth less, Daimler-Chrysler, BMW and VW, for example, experience less returns from their operations in the US and UK. They can't keep it up. They don't have the GDP to keep it up. They can't afford to keep it up. Either the banks intervene with currency sales or they lower rates. This currency devaluation isn't some government magic or skullduggery. It is simply a case of supply and demand economics. Fewer Euros and more dollars are out there on the market.
I think we are once again at the beginning of a turnaround, so to speak. This time it will be different as I really don't see a reincarnation of the IT sector. Other industries should gain enough momentum to get things rolling again. Will things be as peachy as 1994-2000? No, probably about half, which is better than we have now.
Enough of my ranting. Time to crash out.
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