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  •  The Euro is a flawed currency (3+ / 0-)
    Recommended by:
    Schtu, corvo, Cliss

    However, it has a strong economy and trade balance behind it.

     Why do I say it is flawed? Because responsibility for the currency is shared.
     For example, Spain has a huge current account deficit (like America). It also has a housing bubble that is starting to burst (like America). It also has a problem of not having large foreign currency reserves (like America).
      However, Spain is in the euro-zone. So if foreign investors suddenly leave Spain, thus depleting Spain's currency reserves then Spain will have a currency crisis. Normally this means that Spain will have to devalue its currency.
     But wait. Spain's currency is also Germany's currency. Does that mean that Germany will have to bail out Spain? Not likely to happen.
      Spain can't devalue its currency in that event, and there is no instrument in place to bail out Spain. I don't know what will happen when/if something like this takes place. But I bet foreign investors will get spooked.

     Greece and Portugal also have similar problems and are in the euro-zone.

    The 2nd Red String Conspiracy

    by gjohnsit on Tue Nov 27, 2007 at 11:41:25 AM PST

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    •  Nah (9+ / 0-)

      that's been the traditional argument against the euro - all the way back to the early 90s.

      Spain is playing catch up, for a long time with money from the core European countries, and has been investing (not spending, investing) in its infrastructure massively in the past 20 years: roads, high speed trains, networks, wind power, etc... and it has enjoyedrecord growth.

      So: the bubble is there, but to some extent reflects fast growth; the deficit is there, but reflects smart investment, and European solidarity exists and will continue. That's what reading the English-language press will never convey to you: Europe is fundamentally a political project, not an economic one.

      The euro will not fail and the eurozone will not break up.

      •  Have to disagree (1+ / 0-)
        Recommended by:
        Cliss

        the deficit is there, but reflects smart investment,

        By every measure, Spain has built more residential houses than it needs, and prices have gone up many times faster than incomes have.
           If you think that Spain doesn't have a housing bubble then you are unaware of the facts of the matter.

         But beyond that, Spain's current account deficit is even larger than America's as a percentage of GDP. It's the current account deficit that is the main reason for the fall in the dollar.

         Spain might bounce back despite the malinvest. But then the dollar might bounce back as well.
         I've haven't seen a good reason for either to happen.

        The 2nd Red String Conspiracy

        by gjohnsit on Tue Nov 27, 2007 at 02:29:23 PM PST

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    •  "flawed" (1+ / 0-)
      Recommended by:
      Jeffersonian Democrat

      I agree.
      According to Stan Goff, "the Euro will never take over the U.S. dollar because it's a satellite currency" [to the dollar].

      Europe: fragmented, with its own problems.
      I believe Europe as a whole, while they obviously have done a better job than the US, particularly with energy, they still seem to be a satellite of the U.S.
      When the US Subprime Hydra reared its ugly head in August, notice it first appeared in Germany.  The German bank IKB gave out signs of distress.  Next:  the french bank PNB Paribas was the next one in line at the Guillotine.  In September:  UK Bank Northern Rock has a run on its bank.  The Bank of England gets sucked into the Vortex.
      A big part of Europe now seems to be in the middle of Spring Cleaning, wiping out Millions + Billions of Losses to their balance sheets.

      Headline in Swedish newspaper Dagens Nyheter:  "We have a housing bubble which is worse than the U.S." .  (I find that truly hard to believe)
      The article singles out Spain, the U.K., Denmark and Sweden as the most vulnerable right now.  Also France but not as serious as the other 4.
      I just don't see Europe as taking over in any kind of leadership position, with the U.S. following in the Caboose.
      Europe has typically been fragmented, unable to agree on many issues.  The US pounced on that vulnerability.
      As the US tide sinks, Europe will sink right along with it.  

      •  RE Bubbles (1+ / 0-)
        Recommended by:
        Cliss

        The article singles out Spain, the U.K., Denmark and Sweden as the most vulnerable right now.

        Spain and the UK are well known. I've also heard Ireland, Australia, and China.
         Denmark and Sweden are news to me.

        The 2nd Red String Conspiracy

        by gjohnsit on Tue Nov 27, 2007 at 02:31:43 PM PST

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      •  Cliss, I Know You Are Right (2+ / 0-)
        Recommended by:
        gogol, Cliss

        ...cause you do your homework. Funny, I never thought of the Euro as a stand alone currency -- but always in relation to the USD.

        Now that I think of it, I don't really care what happens to the Euro other than its relationship to other currencies.

        Since August, I've been buying holding the Euro (and GPY) in a 50:1 Forex account. The chart below (snapped the other day) shows net profits in the $300,000 range. It's the same chart I've Diaried here many times along the way (with lower profits).

        I think the Euro bashing Jerome has documented is about pundit panic about the dollar crashing (and probably boils down to oil in the end).

        I'm not sure a single currency can replace the Dollar. The Euro works for now -- but I see a synthetic world trading currency forming soon (a basket of several currencies, especially Asian). It's inevitable.

        Meanwhile, consider my dilemma -- and the dilemma of banks everywhere.

        I can't really sell and take profits because then I'd be holding Dollars. And holding Dollars is a hot potato on its way to worthless. IMHO

        If the Feds lower interest rates this month, this account will make another $100,000.

        It's the only sure thing I've ever experienced in the markets.

        __________________
        Fascism ought to more properly be called Corporatism since it is the merger of state and corporate power. - Mussolini

        by Pluto on Tue Nov 27, 2007 at 04:01:32 PM PST

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    •  hypthetical scenario (1+ / 0-)
      Recommended by:
      wu ming

      OK, that scenario looks problematic, but how is it different from, say, California having a housing bubble while, say, Idaho doesn't? Wouldn't the argument work against the dollar nearly as well?

      Freedom is not just a word. 'Freedom' is a noun.

      by intruder from Old Europe on Tue Nov 27, 2007 at 05:50:37 PM PST

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      •  Big difference (0+ / 0-)

        The dollar is based on the taxpayers of all of America. Not just California.
          The Euro is based on the economies of the euro-zone, but which taxpayers? Spainish citizens pay taxes that go to the Spanish treasury. German citizens pay taxes that go to the German treasury. They may share a currency, but their national budgets are very different.

        The 2nd Red String Conspiracy

        by gjohnsit on Wed Nov 28, 2007 at 01:17:17 PM PST

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    •  this is no different from the US. (1+ / 0-)
      Recommended by:
      gogol

      historically, those living in the more prudent regions of the US have paid the price for the exuberance of their countrymen.

      I am further of the opinion that the President must be impeached and removed from office!

      by UntimelyRippd on Tue Nov 27, 2007 at 06:50:33 PM PST

      [ Parent ]

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