The Euro Trainwreck

The Euro is getting ever stronger against the dollar – that’s bad news for Europeans and good news for Americans.

The weakening:

The euro clawed closer to $1.38 on Thursday, briefly hitting new highs against the dollar, though German and Portuguese officials brushed aside concerns over the currency’s strength…

A higher euro makes goods from the euro zone more expensive for customers abroad, and cuts into manufacturers’ profits if they try to keep the U.S. dollar price of products constant.

However, German Economy Minister Michael Glos said in Berlin that there were no problems with the euro’s rise. “This is an exchange rate we can live with,” he said…

Europeans can “live with” any euro valuation, but at this rate they’ll just stay poor – here’s the normally anti-American Anatole Kaletsky:

…since the deregulation of currencies and financial markets in the 1980s and 1990s, currency strength has conveyed almost no information about the health of a national economy – and none at all about a country’s competitive position in global trade.

To the extent that any relationship has existed between currencies and economic performance, it has usually been the “wrong” way round – rising currencies usually preceded periods of economic decline, while weakening currencies have presaged economic strength.

…consider the strength of the US economy in the late 1990s, just after the dollar fell to its previous nadir in 1995. Even more spectacular has been the decade of growth in China since its currency collapsed to a record low in the Asian crisis of 1997.

…the European Central Bank seems determined to keep raising interest rates, thereby exacerbating the damage done by the euro’s excessive strength. Americans, meanwhile, will enjoy the benefits of a super-cheap currency, which will more than offset falling property prices and problems with a small minority of mortgage loans…

…Nicolas Sarkozy…travelled to Brussels this week to plead for a more expansionary economic policy in Europe. But his pleas were met with ridicule from the other governments and the ECB.

That is the reality of life in today’s Europe – and one of the main reasons why America, despite all its problems, will continue to dominate the world economy in the decades ahead.

So, I’ll stay out of European stocks and hang onto my dollars (until a Dem Congress screws things up).

As usual, this is not investment advice.


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