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The Euro has been in free fall versus the dollar this year. What conclusions can be drawn? Here are mine:
The Euro became overvalued versus the dollar though now the opposite may be occurring
The dollar seem to go inversely to the price of oil. But it seems that the Europeans would benefit even more from a lower oil price, why haven't they?
Just that the US economy is performing better than the Europeans.
Europe costs more and people make less compared to the USA, eventually that affects the currency
The dollar was negatively impacted by the 911 attacks and the US response which included negatvie world opinion of US actions. We are now seeing things go back into a more normal pattern.
Comments and conclusions?
When we did QE and they didn't it was our turn. now it is theirs.
For all the folks whining about high value USD and labor encouraging the offshoring of production once again... How in the world does Germany and Switzerland manage to achieve relatively balanced trade with China, even though their labor is just as expensive? Let's see... They make high quality stuff that China wants, namely machinery.
People in America don't seem to understand that there are many factors that encourage a business decision of such scale. Nobody just wakes up one day and decides they'd like to offshore the bulk majority of their work on the other side of the globe. As a matter of fact, it creates a whole other set of challenges that most people never seem to acknowledge, or even be aware of.
I do think we will may see a decline in domestic production for a whole different set of reasons though, or at least a long period of consolidation in industry. America is going to be a very weak nation in the coming decades as she is stripped of all that made her mighty... People will scorn the decisions made by our elected idiots, and we will be blamed for electing them...
Nobody just wakes up one day and decides they'd like to offshore the bulk majority of their work on the other side of the globe.
That's true. It requires long term agreements and coordination on both sides. We keep the $ boosted in value, they buy our bonds, and we buy their goods. Companies that offshore get rich, the public gets depressed wages and debt. Been going on for decades now. Political administrations don't touch it. Ever wonder why you don't read read about it in the news?
Other countries don't run a trade deficit with China because they don't want to.
For all the folks whining about high value USD and labor encouraging the offshoring of production once again... How in the world does Germany and Switzerland manage to achieve relatively balanced trade with China, even though their labor is just as expensive? Let's see... They make high quality stuff that China wants, namely machinery.
That is 1/2 of it. The other 1/2 is they save a lot of money and buy other people's debt with it. That finances the trade surplus.
Quote:
Originally Posted by andywire
People in America don't seem to understand that there are many factors that encourage a business decision of such scale. Nobody just wakes up one day and decides they'd like to offshore the bulk majority of their work on the other side of the globe. As a matter of fact, it creates a whole other set of challenges that most people never seem to acknowledge, or even be aware of.
I do think we will may see a decline in domestic production for a whole different set of reasons though, or at least a long period of consolidation in industry. America is going to be a very weak nation in the coming decades as she is stripped of all that made her mighty... People will scorn the decisions made by our elected idiots, and we will be blamed for electing them...
I think his policies were good for the nation for a short period of time. Unfortunately, access to credit exploded largely due to his policies. We now have an economy that requires large amounts of debt to enable our unsustainable consumer based economy. Basically, America's most critical role in the global economy has been to consume.
Quote:
Originally Posted by rruff
That's true. It requires long term agreements and coordination on both sides. We keep the $ boosted in value, they buy our bonds, and we buy their goods. Companies that offshore get rich, the public gets depressed wages and debt. Been going on for decades now. Political administrations don't touch it. Ever wonder why you don't read read about it in the news?
Other countries don't run a trade deficit with China because they don't want to.
Not everybody gets rich offshoring. There are many horror stories that people refuse to acknowledge or consider. All anyone can talk about is wages. The worker in America has been brainwashed to believe that they are not competitive, when we are surprisingly competitive when we do things correctly. Unfortunately, many companies try too hard to cut corners or pad the books.
American goods have a poor reputation for quality in many parts of the world. With China being right around the corner for consumer nations like Australia, nobody wants to buy overpriced American junk when they can get what they paid for "buying China".
I think his policies were good for the nation for a short period of time.
Like any bubble. It isn't sustainable.
Quote:
Basically, America's most critical role in the global economy has been to consume.
It wasn't by accident. Policies were designed to support offshoring and trade deficits. It was the way for the rich to get richer at a much faster rate than previously. It resulted in a capital drain away from the US and depressed wages for workers. Credit was relaxed so we could keep consuming at a high rate.
Quote:
The worker in America has been brainwashed to believe that they are not competitive, when we are surprisingly competitive when we do things correctly. Unfortunately, many companies try too hard to cut corners or pad the books. American goods have a poor reputation for quality in many parts of the world.
They aren't now. Else we wouldn't have such a high trade deficit.
For most companies the choices are to offshore (if possible) or cut costs (lower wages, lower capital investment, lower standards). When you have a population that is declining in real purchasing power, price becomes more important than quality.
It isn't that difficult to make the US cost competitive. Our large and persistent trade deficit can be fixed with a lower US$ exchange value. If we lowered it enough, investment and production would increase, and the trade deficit disappear, and we'd be on a good track again. We've been a big sink for foreign production for over 30 years now. This has allowed many countries to rapidly develop. But I think the US worker/consumer paid enough.
The Euro has had an unexpected bounce up because billions of USD investments are pouring into Euro stocks with the expectation of cheap VW, BMW, Mercedes, etc.
The US GDP in 2014 was 17,419bn USD. The German GDP in 2014 was 2,904bn Euro. The exchange rate in 2014 was 1 Euro = 1.33 USD. With this exchange rate the German GDP was 3,863bn USD.
By using the PPP conversion the German GDP in 2014 was 3,722bn USD (using figures from IMF).
That would mean that the prices for domestic made products were by an exchange rate of 1.33 cheaper in the U.S.
But that seems very dubios. If a grocery retailer in Germany builds a 400k sq ft distribution center for €40m, then the GDP will increase by €40m. A same size distribution center in the US cost about $70-80m. This will increase the US GDP by $70-80m. It's a similar distribution center and the construction should increase the GDP in both countries by a similar amount. But that isn't the case. Those huge price differences can be found in almost all domestic made products.
A basket of food products in Germany for €10 would cost about $17 at Walmart or about $18 at Kroger's. Building materials at a DIY store in Germany for €100 would cost about $200 at Home Depot in the U.S. The prices for tv, internet, and phone plans are about twice or even three times more expensive in the U.S.
Health care spendings in Germany in 2013 were €3,910 per capita, compared to $9,255 in the U.S. Maybe the quality in the U.S. is somewhat higher, but therefore the German populatoin need surely more health care services, because of the much higher average age of the population. The commodity healt care is completely overpriced in the U.S. But those inflated prices boost the US GDP.
It's the same for domestic flights and almost everything else. Really, from a German point of view, everything in the U.S. seems completely overprices. This forum is full of threads where people are talking about how much money they need to live comfortably in certain regions in the U.S. The required salaries seems so high, it's unbelievable. The required net incomes to live comfortably that are stated in the various threads on this board are way higher than the median household income in the U.S. Does that mean, that it's not possible with a median income to live well in the U.S., at least not in most regions? Single person households with a net income of $3,000 per month are struggeling to make ends meet in an average region of the U.S. With such an amount you can live very well, everywhere in Germany.
The prices for domestic made products in the U.S. seems so inflated. But the announced CPI rates in the U.S. doesn't seem that high. Maybe because they use more hedonic measurements than other countries for calculating the CPI?
It's so astonishing that most Americans think that the prices in Europe are higher than in the U.S. It's quite the opposite. Maybe American tourists compare the food prices at small corner shops in tourity places in Paris with the food prices at Walmart in the U.S.? Or maybe they compare prices for iconic American products like Coca-Cola or the prices for fast food at American fast food chains? It's mysterious why American think that Europe is more expensive.
With the current exchange rate, the wages in the American manufacturing industry have to be very low to stay competitive. So low that it will even more difficult for American workers to buy domestic made products. Several industries in the U.S. seem quite unproductive. I can't see an other explanation for the disparity of hourly wages and the prices for domestic made products. That is the explanation for the large trade deficit of the U.S. and not that the USD is the world reserve currency. The UK has also a large trade deficit and the Pound isn't the world reserve currency.
Most American products made in the U.S. can't be exported to Europe, because they are way to expensive. Most American made products that are exported to Europe are imports by european factories owned by US companies, or by European companies that operates factories in the U.S. With a few exceptions it's for example impossible to find American made consumer goods or processed food stuff in Europe. Because they are not competitive priced, even with an exchange rate of 1 Euro = 1.40 USD. In contrast, it's easy to find European made consumer goods or processed food stuff in the U.S. It's exactly the same like it is with the UK. The USD and the British Pound are completely overvalued.
I think US manufacturing will make a slight comeback but not that much.
Wages are going up in China.
Germany is an extreme example.
With 1/4 of US population their exports are roughly the same.
This has to do with Mittelstand and their resistance to outsourcing.
They're almost ideologically against it.
Yet Americans just don't care about that.
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