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Dollar Dump: Central Banks reduce dollar reserves

by LondonYank Sat Apr 22nd, 2006 at 04:31:48 AM EST

I had a long series of Dollar Dump diaries on DailyKos in late 2004 following a weakening dollar.  I was humiliated in 2005 by the FX markets ignoring my brilliant rationale and Warren Buffett's dire warnings.  Instead they preferred dollars to less frothy currencies, buying into the Bubbles Greenspan (Jerome's moniker) myth of a new paradigm where trade and fiscal deficits don't matter and housing bubbles are not really dangerous.

Now that Greenspan is gone, the housing bubble is rapidly deflating, and the Fed is nearing the end of its interest rate raising cycle, the markets are once again fearing for the fate of the greenback.  Central banks hold dollars as reserves, so stand to lose two ways if the dollar declines - in asset value and support for their own currency's strength.

Today we learned that the Riksbank, the central bank of Sweden, has cut its dollar reserves from 37 percent to a mere 20 percent, favoring the euro instead.  Reuters is already fanning the embers of concern into the flames of panic by asserting that this may indicate a broader trend - especially if China gets stroppy.

From the diaries ~ whataboutbob

LONDON, April 21 (Reuters) - The euro reversed earlier losses on Friday after the Swedish central bank said it had increased the euro's share in its foreign exchange reserves to 50 percent.

The move follows dollar-negative comments in recent weeks by Gulf central banks that they are considering increasing the share of the euro in their reserves.

"There's a feeling that central banks hunt in packs so even though Riksbank reserves are relatively small markets will speculate about others doing the same," said Tim Fox, foreign exchange strategist at Dresdner Kleinwort Wasserstein.

The United Arab Emirates central bank board met at the beginning of the month to discuss shifting away from the dollar for its reserves as well.

The board of United Arab Emirates' central bank met over the weekend to consider shifting 10 percent of the bank's reserves, which stood at $23 billion in December, from dollars to euros. They have not yet announced any decision.

"If that turns in to a trend throughout the region that will then have a significant impact and could well lead the way for a more global move towards the euro more as a reserve currency," said Stannard at BNP.

As usual, the Bushistas blame nasty foreigners for their problems, saying that the Chinese must revalue their currency, the renimbi, rather than the US doing anything about the dollar, the record federal deficits, or the record $726 billion trade deficit.  Given that the Chinese proportion of the American trade deficit is only 27 percent, Chinese revaluation alone will not solve the US dollar problem.

It may be that the lack of political will, fiscal discipline and monetary leadership from Washington will be corrected by the judgement of the central bankers and the markets.  The judgement of markets is usually harsh and painful for economies who have strayed so far from prudence and restraint.  

The only comparable case is the decline of Britain from proud issuer of Sterling ("safe as the Bank of England!") to indigent beggar of IMF hand-outs in a mere 30 years.

If you want me to restart the Dollar Dump series now given current conditions - or want me to shut up - let me know in the poll.

The Dollar Dump series is
. a valuable record of the decline of a once fine reserve currency 33%
. an informative forum for discussing currency implications of Bushista misrule 20%
. a good way to dip a toe in the murky waters of international monetary policy 33%
. okay but needs more pictures like Jerome would have 8%
. not relevant to my weekly shopping yet 0%
. a self-serving way of talking LondonYank's trading book 0%
. irrelevant and boring 0%
. other 4%

Votes: 24
Results | Other Polls
Thanks for bringing this over from Dkos...it is relevant to us here too!

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia
by whataboutbob on Fri Apr 21st, 2006 at 10:48:53 AM EST
kinda hard to find so I'd really appreciate it if you listed links to the previous instalments. <wink></wink>

By the way, does LondonYank mean you are physically in London, like moi? Maybe we could meet some time?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Apr 21st, 2006 at 11:10:36 AM EST
leafy suburban Hertfordshire.  

As for links to the old Dollar Dump diaries, the best I can suggest is using Google and search terms "LondonYank", "Dollar-Dump" and "site:DailyKos.com" to get a flavour of the 2004 series.  

by LondonYank (LondonYank (at) aol.com) on Fri Apr 21st, 2006 at 11:52:38 AM EST
[ Parent ]
Remember: the market isn't rational!

It would be cool if you re-started that series.  After all:

Money makes the world go around
The world go around
The world go around
Money makes the world go around
It makes the world go 'round.

A euro, a yen, a buck, or a pound
A buck or a pound
A buck or a pound
Is all that makes the world go around,
That clinking clanking sound
Can make the world go 'roun

Sitting Pretty from Cabaret.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Apr 21st, 2006 at 11:32:07 AM EST
The fakery of the outgoing Alan Greenspan administration, in burying the "M3" report, was clearly intended to conceal the fact that the rate of rate of increase of world prices of primary materials has the world as a whole currently on the same kind of "least-action pathway" curve of hyperinflation which gripped Weimar Germany during the second half of the year 1923.

Comparing the present rates of rates of increase of primary materials prices with the pattern for Germany 1923, indicates the likelihood that, under present U.S. and European policies, the world system could reach a point of collapse of the monetary system by not much later than September 2006, if not earlier. [[Figure: Weimar 1923 hyperinflation curve]]

Under the present trends in policy-making in the U.S. government, both in the careening economic-financial lunacy of the current Bush Administration, but also the "Alfred E. Newman"-like diffidence of a negligent U.S. Congressional fraction of the Democratic Party, the likelihood is that the world system as a whole will be in a U.S.-dollar-triggered collapse-phase before Autumn.

The point is not to predict what could happen by Autumn; the point is to kick the relevant political circles in the Democratic Party with the proverbial two-by-four prescribed for reluctant donkeys, and to do so hard enough, soon enough, and often enough, to move to the kind of emergency reform of U.S. policy which could stave off an otherwise onrushing general breakdown-crisis of not only the U.S. system, but the world system as well.

There is a relative handful of persons, typified by the Brookings Institution-based Hamilton Project team, who are capable of understanding this, and who already have command of most of the essential facts to be considered. There are professionals in other parts of the world, who could begin to understand this quickly, if they were kicked hard enough to come to the necessary state of wakefulness.

The world is thus, now, in the terminal phase of a hyperinflationary collapse of not only the dollar-system, but the world-system as a whole. To bring this into focus, consider the elementary features of the way in which Federal Reserve Chairman Greenspan's lunacy orchestrated the 1987-2006 phase of the relevant hyperinflationary cycle. Keep three illustrative curves in view:

1.) My "Triple Curve," which, since January 1996, has described the general characteristics of the ongoing collapse-function of the 1995-1996 interval

2.) The curve of 1923 Weimar, Germany hyper-inflation

3.) The current hyperinflationary rate of rate of increase of primary commodity prices, as led by petroleum and metals.

(Leave the "supply-and-demand" freaks, and other statisticians from Swift's Island of Laputa, to play with themselves behind the barn, where they will be happy.)

Essentially, what Greenspan did, was to bail out the banks whose coffers had been emptied by the events of October 1987, by laundering the mortgage-based securities packages of Fannie Mae and Freddie Mac. The real-estate bubble was built up to its presently cancerous proportions for this continuing purpose. This, in turn, provided the base-line of monetary and derived financial emission for what was to become a hyperinflationary expansion of a physically contracting economy. (See my Triple Curve.)

In the end, this became the core of a global financial-monetary bubble comparable to that of medieval Venice's tool, the Lombard League of Europe's Fourteenth-Century collapse into a New Dark Age. However, in [the current] case, the end-game phase of this hyperinflationary process was cornering of the world market in primary materials.

For those shrewd enough to recognize that the present world financial system is already hopelessly doomed, the witting class of predators must have a "landing place" outside the bounds of such a general financial-monetary collapse. Essential raw materials represent that landing-place.

Therefore the rate of inflation of the rate of inflation in the market for primary commodities is the characteristic curve of the present world monetary-financial system. This rate of rate of inflation, as reflected in the concealed behavior of M3, is the curve which corresponds to the Weimar, Germany hyperinflationary curve of June-November 1923.

Hyperinflation like Weimar 1923:
World System on Weimar Collapse Curve

by Lyndon H. LaRouche, Jr.
April 20, 2006

Triple curve referred to is here:

Weimar 1923 hyperinflation curve is illustrated in this PDF on page 10.  http://www.larouchepub.com/eiw/public/2006/2006_10-19/2006-16/pdf/04-23_616.pdf

by Gary McGowan on Fri Apr 21st, 2006 at 02:41:26 PM EST
FRED is your friend:

Note:  The M3 is no longer being published by the FedReserve.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Apr 21st, 2006 at 04:02:21 PM EST
[ Parent ]
Wikipedia on Lyndon H. Larouche (I knew that name rang a bell!):

Lyndon Hermyle LaRouche, Jr. (born September 8, 1922) is an American political activist and founder of several political organizations in the United States and elsewhere. He is perhaps best known for being a "perennial candidate" for President of the United States. He is currently listed as a director and contributing editor of the Executive Intelligence Review News Service, part of the LaRouche Movement [1].

Although LaRouche has no formal qualifications, he has written extensively on economic, scientific, political, and cultural topics as part of his political views. Critics regard him as a conspiracy theorist, crackpot, attention-seeker and political extremist, while Chip Berlet, Dennis King, and others have described him as a fascist, a cult leader, and an anti-Semite.(8 footnotes here) [...]

LaRouche has run for the Democratic nomination for President in every election year since 1980, including in 1992 while he was in prison, a record of eight attempts. Generally, electoral support for the LaRouche Movement has been inconsequential, despite the fact that LaRouche has received some support in Democratic presidential primaries; the zenith of electoral support for LaRouche's movement may have been the 1986 Democratic Party primary in Illinois, in which two of his followers were nominated for statewide office.

LaRouche was sentenced to 15 years imprisonment in 1988 for conspiracy, mail fraud, and tax code violations, but continued his political activities from behind bars until his release in 1994 on parole.

Also, Weimar might be considered a special case in that the Weimar Republic inherited a severely weakenend financial system (losing a war does that) while at the same time having to shoulder the burden of large reparations.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Sat Apr 22nd, 2006 at 06:12:15 AM EST
[ Parent ]
LaRouche is a nut case, though sounds rational...

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia
by whataboutbob on Sat Apr 22nd, 2006 at 06:54:34 AM EST
[ Parent ]
If you are right, you could be an incredibly wealthy person by the end of the year.  I'm just wondering if you are backing your theories with you pocketbook--and if so, what investment strategies are you taking?
by wchurchill on Sun Apr 23rd, 2006 at 03:13:37 PM EST
[ Parent ]
Does it ever occur to you that not everyone has a large enough pocket book to put a bet behind every one of their "insights" about the economy?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Apr 23rd, 2006 at 03:15:50 PM EST
[ Parent ]
sure.  but he is talking about a huge change in the economic system, and a very small investment in various ways of playing the futures markets would lead to very nice returns.  And I would guess by his description of the economy and investment world, he knows how to make those leveraged bets.  He's talking about an unexpected catastrophe--and a correct call, plus maybe some margin or a home equity loan to further leverage the bet--he could get returns of 10 to 100 times his money, depending on what level of risk he wants to take and how firm his convictions are.

but my question is really trying to test the strength of his convictions.  I hope that Jerome has not been following this strategy on $100 oil over the last years--that would have been a catastrophe for sure.  You have to be right on the timing on the kind of bets i'm talking about--not just the final answer.  I also believe $100 oil would be reached, but the people that will do well on the investment side on this one, will also be able to call the timing.  I certainly can not.

by wchurchill on Sun Apr 23rd, 2006 at 03:33:07 PM EST
[ Parent ]
I suppose if we believe the US will hit Iran within the year we should all be buying oil futures expiring in December...

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Apr 23rd, 2006 at 05:14:55 PM EST
[ Parent ]
Chart (such as it is) here:


It has a caption as well.  Anyone care to explain what's happening in the commodities markets? (I assume the chart  refers to industrial metals and petro primarily, but not sure.)

If this continues for months, aren't we looking at real hell?

by Gary McGowan on Mon May 1st, 2006 at 01:37:58 PM EST
[ Parent ]
Ok, i admit my first thought was, "No, please, i'll be working in the States this summer." (That'll be after i finish my semester here in Bulgaria.)

Don't shut up, LondonYank. Keep giving us Dollar Dump stories. What i'm particularly interested in are the political implications of the dollar problem. Can we expect a change in the balance of power in the near future? Sorry my question is so general: that's because i don't know many specifics on the topic.

by Brownie on Fri Apr 21st, 2006 at 04:45:41 PM EST
courtesy of the Economist this time:

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Apr 21st, 2006 at 06:27:45 PM EST
It's certainly possible that a scenario of euro's replacing dollars will play out (or a shift in that direction), but let's look at this from strictly an investment standpoint to see other criterion that will be used in making this decision.
  1.  What is the creditworthiness of the US versus the EU?  One criterion to answer this question is how does each parties' current debt compare to their current income?  As this graph from the OECD shows, the US debt has fallen from roughly 75% to just below 65% of GDP from 1995 to 2004.  During the same period, Euro area debt has risen slightly, to just under 80%.  Euro debt load is 80% of their income versus 65% for the US, as of '04.  Advantage clearly to the US.
  2.  What is income, or GDP, growth like in the two areas.
    Real GDP growth

Average annual growth in percentage, 1991-2004

The OECD chart does not show a Euro summary here, but we note that the largest economies supporting the Euro, France, Germany, and Italy, all show GDP growth below 2%.  Meanwhile the US shows GDP growth of close to 3.5%.  Advantage clearly to the US.  This trend continued in '05 and appears to be continuing in '06.
3.  What is the situation with the budget deficit on an annual basis, which shows each areas ability to live within their means?  The OECD graph shows the Euro area averaging budget deficits of just over 3% from '02 through '04, while the US is running about 3.5% over that timeframe.  However, here, while I have not been able to quickly find '05 figures, I would imagine US will run a larger deficit, perhaps 4.5--5.5%, while I would imagine the EU stays at just over 3%.  This would be primarily due to the Iraqi war, but also increases in social spending and tax cuts in the US.  US forward looking budget defecits call for this getting back into line, but this is an issue that leans to the Euro.

Other issues could play into this.  The US is currently running large defecits in their current accounts--ie. they are buying more things from abroad than they ares selling abroad.  This is currently being offset by investors willing to invest in Treasury bonds, which are roughly 5% for the 10 year bond; and in American assets such as the stock market.  This means that foreigners are buying more of the US debt, and more of American companies, than they have in the past.  And over the last 15 months the dollar has strengthened from 74 cents to the Euro to 82 cents today--though that shows a slight slippage from 84 cents over the several months.

So the argument is certainly not overwhelming that there will be a downfall of the dollar, and in fact I would suggest there is a pretty strong argument that investors will continue to choose to invest in the US, and in effect, support the dollar.  While their may be some imbalances, they may be corrected by the normal swings in exchange rates--Euro's versus dollars versus the yen versus other currencies.  There is also a reasonably strong financial reason for countries trading with the US to want to maintain a strong dollar.  The US current account deficit means that the US is buying a significant amount of manufactured goods from overseas.  A lowering of the value of the dollar would make foreign goods appear more expensive to American buyers, who would likely respond by cutting back on foreign goods and buying more American produced goods, and by cutting back on their spending habits in general.  (And of course it would make American exported goods look much cheaper to overseas customers).  This would have the desired effect of correcting the current account balance,,,,but likely for many countries would lower demand for their products, with all of the side effects that follow from that--certainly recessions in certain countries could result, including the US, and perhaps a global recession.

by wchurchill on Sat Apr 22nd, 2006 at 05:37:58 AM EST
I consider the GDP figures suspect as most of the expansion in the US in the past 5 years has been in defense and security sectors (government employment), healthcare spending (massively out of line with international costs elsewhere) and the housing construction boom.   None of the sectors is actually "productive" in terms of future earnings potential and international competitiveness.  The US also supports a huge prison population which distorts unemployment statistics.

By contrast, although Europe has its problems the accession states will provide scope for a lot of future growth and employment, as well as prompting a realignment of old Europe industries toward more competitive footings.  And the grey economy is much bigger.

The OECD statistics don't capture reality fully.  An economist looks at the market in practice and wonders whether it works in theory.

by LondonYank (LondonYank (at) aol.com) on Sat Apr 22nd, 2006 at 05:59:32 AM EST
[ Parent ]
And I certainly agree with your title, "it takes two views to make a market".  Imagine a financial world where everyone agreed that that the price of General Motors should be exactly $30 a share.
None of the sectors is actually "productive" in terms of future earnings potential and international competitiveness.
So, not surprisingly as you might imagine, I have a contrary view on this point.  I think US business has a significant market position and competitive advantage in three industries that will grow rapidly globally over the next 20 years: information technology, healthcare (more in the sense of drugs, medical devices, and biotech than in the sense of the provider side (hospitals, doctors and nurses) and in financial services.  There are strong worldwide trends that will drive each of these business segments in the forseeable future, and US business will benefit greatly from that.  These industries dominate the S&P 500, which is a broad view of the importance of industries in the US.  These three industries represent half of the S&P value
S&P 500 Industry weightings   

How various industries were represented in the S&P 500 as of Jan. 22:

Financials 18.2%
Information technology 18.2%
Health care 14.4%
Consumer discretionary 12.9%
Industrials 10.9%
Consumer staples 8.4%
Energy 6.1%
Telecommunications 5.3%
Utilities 3.1%
Materials 2.5%

Source: Standard & Poors

(My apologies that this data is from 2002, but it was all that I could quickly find, but I'm quite confident this is still roughly the picture today.  Also I realize that there are other measures of industry importance, but I just didn't have the time to track these down this afternoon.)  Most of these companies have very significant sales outside the US, so they are truly global in nature in terms of market, but primarily American owned today--but I expect more global ownership over the next two decades.

I do think European companies will do well because they are also global in nature, as will Asian non-Japan companies.  Right now investors believe US companies will do better, as reflected by the 17 P/E ratios in America versus the 13.5 P/E ratios in Europe (I would have to dig to pull that out, but I saw it in the last few days--sure I could find it with a little more tiime).  The higher P/E reflects investor expectations that those companies wil grow faster than lower P/E companies.

However, and here I am very much the contrarian on this site, I expect the overall GDP growth rates (not addressing equity issues with these comments) to remain higher in the US than the EU.  The EU has made political, social and economic choices that have limited their GDP growth over the timeframe shown by the OECD graphs, and that has continued in 2005 and early 2006.  This is not meant to be a criticism of those choices made by the EU.  Clearly there are lifestyle benefits enjoyed by Europeans that they value when they make these choices, and I think it's illogical for people outside those societies to criticise choices made by people in free democratic societies.  But choices involve tradeoffs, and policies that have led to a broader social net and more equality among income classes, IMHO, have also led to lower GDP growth and higher unemployment.  But it's not just coincidence that these numbers have been so consistent over the last 15 years, and the policies are not changing, so I don't expect the numbers to change.

by wchurchill on Sat Apr 22nd, 2006 at 05:07:38 PM EST
[ Parent ]
Here are some comments on the healthcare and technology industries from a post, Significant growth over next 5 years , last September.
IMO two western industries will do especially well, and I mentioned this in an earlier post.  Those industries were information technology and health care (where I used medical devices as the example, and specifically the endovascular segment of this industry).  Demographics in Western countries and increasing wealth in developing countries will lead to rapid growth in healthcare, and many life savings products and technologies.  The technology base in healthcare is incredible right now to support new innovation, with gene structure information available and many new tools available to exploit that data base.  Minimally innvasive technology forms a wonderful base for miniaturized chips and "machines" to be placed in the body for diagnostic and therapeutic purposes.

In technololgy, there is the same type of opportunity in the sense of a wonderful existing base of technologies, tremendous opportunities to improve productivity in general industries by using these new technologyies, which is a key driver of improving GDP per capita.  Asia is heavily involved both as a consumer and a producer.  Both technology and healthcare are truely world wide markets.

by wchurchill on Sat Apr 22nd, 2006 at 06:27:57 PM EST
[ Parent ]

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Apr 22nd, 2006 at 07:02:24 AM EST
[ Parent ]
This is another one of our fundamental economic disagreements--we have two or three, I don't think many more than that.  I expect the US to run current account deficits for the coming years, particularly as the baby boomers retire.  I think today's situation is a little unnatural due to the yuan being artificially devalued through central control in China, but that will likely be corrected over the next three years or so.  but there will still be a current account deficit.  

Americans will sell their investments to cover their retirement and other spending.  American companies, many of whom already receive half or more of their profits from doing business outside the US, will be bought be "foreign" investors, and thus have much more foreign ownership.  Treasury bills will also continue to be bought by foreign investors, as long as the government has a plan to manage the annual deficit--which it does and it's laid out in the long term US budget projections--, the plan seems doable, and the plan is basically achieved over the years.  Investors will simply not ignore the fact that the debt/GDP ratio for EU members is significantly higher than the US.  If the US falters on its long term budget projections---well, that's a different story, and investors, such as me, will move more and more of our investments to the EU and Asia.  But my view today is that capital account surpluses in the US will have no problem covering current account deficits--and what's wrong if the US simply maintains a ratio of Debt/GDP that is lower than the EU (and that means a lot more borrowing due to GDP growth), and what's wrong if these American companies that are so global anyway are owned more and more by people outside of America.  This trend will not go on forever, but it will for quite a while.

by wchurchill on Sat Apr 22nd, 2006 at 05:22:25 PM EST
[ Parent ]
...I know of these matters, and despite the instructive post of yours, I also tend to agree with the points raised both by LondonYank and Jerome that the numbers upon which you build your "dollar confidence" are constructed on historical gains, and not on future projections. A smart investor looks ahead, not backward.


by Nomad on Sat Apr 22nd, 2006 at 02:36:03 PM EST
[ Parent ]
Thank you for your comments.  Please note my responses to London Yank and Jerome above.  I agree with you that trending from the past does not necessarily lead to accurate projections of the future.  But the above questions and yours have allowed me to lay out more fully the reasons for my views of the future.  To LondonYank I basically responded that I see US GDP continuing to grow strongly because of US domination of key growth industries in the world.  I also briefly explained that I think the American economic system will drive faster growth than the EU.  I think the past does support this comment (though not prove it), because clearly the economic/social policies of the two areas are different, and my understanding of economics made me predict faster US than EU GDP growth 10 years ago--and since the policies followed by the two are not fundamentally changing, I expect that to continue.  I don't criticise the EU for its choices--they are fair choices and don't really hurt other countries.  In fact, it's to some degree a plus for other countries, because if this model can provide better economic results with the social benefits--hey, let's all do it.

As to the current account deficit, I'll don't think I can add to how I responded to Jerome.

by wchurchill on Sat Apr 22nd, 2006 at 05:46:29 PM EST
[ Parent ]
Chinas moves will be interesting. I doubt whether it suits them at the moment to either dump dollars or to drastically revalue the yuan. However, they really are a major economic player now and will no doubt at some time have a major say on the way things pan out.
by observer393 on Sat Apr 22nd, 2006 at 07:13:50 AM EST
I'd like to ask you do you think that if a certain currency is used world-wide it makes that currency stronger or something? Or is it in Europe's interest the euro to be used more widely outside the euro zone? Well, I don't think that this will be economically sound for the ECB.

As to the US dollar, isn't it true that only 10% of the US dollars are circulating outside the USA?

by Laura on Sat Apr 22nd, 2006 at 09:30:53 AM EST

If a currency is used as a major trading currency it tends to become valued higher than it would be if it wasn't a major trading currency due to the fact people are buying the Euro would otherwise wouldn't.  The Supply/Demand ratio states the bigger the demand at a constant Supply means the Cost of that good will rise.  Which is nice for the Eurozone as the Euro will be worth 'more.'  

There are good and bad affects, effects, and aspects of this.  

isn't it true that only 10% of the US dollars are circulating outside the USA

Nobody knows, or at least I can't find, the amount of dollars floating around.  Thus, the answer is: I haven't a clue and I don't think anyone else does either.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sat Apr 22nd, 2006 at 12:45:20 PM EST
[ Parent ]
Thank you for the comment, ATiNM! I just want to ask you if the Euro appreciates, will this be worse for the Eurozone exporters. Worse because the prices of the goods, produced outside the zone will be supposedly cheaper for the customers in the Eurozone? So does this mean that the demand for imports in the Eurozone will increase as a whole? But then, a substantial part of exporters may decide to close their businesses. I guess that this will result in increase in unemployment rates and gov. spending. And this will be bad for the economy, so the ECB will have to keep the exchange rates of the Euro lower - as they used to be. And how is the ECB going to achieve it - by selling more foreign currency ,however, ECB is going to eventually lose from it, isn't it? And isn't appreciation a step towards inflation? So, it appears that a strong Euro won't be so good for the customers in the Eurozone, will it?
by Laura on Sun Apr 23rd, 2006 at 04:11:38 PM EST
[ Parent ]

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