Tag Archives: dollar

SYRIZA WINS GREEK ELECTION

Alexis Tsipras

In the last few weeks we’ve developed a taste for Kerrygold butter, which comes from Ireland.   Diane did the research – Kerrygold and Anchor (from New Zealand) are the two healthiest butters you can buy.   The milk comes from “happy” cows!

Unfortunately, Kerrygold costs more than regular butter.

In theory, the price should have come down recently as the euro has fallen in value against the US dollar.   It now takes only $1.11 to buy a euro; it was twenty-five cents higher fairly recently.   Ireland uses the euro, so the price of everything they produce should have come down with the lower value of the euro.   But the price of Kerrygold has not fallen – in fact, it’s gone up by 50 cents for half a pound.   (We can’t buy Anchor in Lansing but it, too, should have fallen in price as the US dollar has risen.)   Not only has the euro decreased in value, transportation costs have also fallen with the drop in the price of oil.

My favorite beer also comes from Ireland.   I don’t buy it as often as butter (you will be pleased to know) but I’m hoping that the price has not similarly risen.

Sometimes, there’s no logic when it comes to money and exchange rates.   All money today is built simply on confidence.   The value of the dollar and the British pound usually rise when there is great turmoil in the world – people around the world have more confidence in the two older democracies, which have a longer record of stability.   When the euro was launched in January 1999, its’ value was $1.1743. It reached its highest rate against the dollar in July, 2008, when it took $1.6038 to buy a euro.   This was at a time when confidence in the US currency was low.   It’s now almost a third less against the greenback.

Monday will likely see a further fall in the value of the euro, so perhaps I should expect Kerrygold to go up in price again, when it should, in fact, come down.

The reason that the euro will likely drop further in value is the Greek election held today, Sunday.   The “very left-wing” party, Syriza, has been voted into power.   The party campaigned on a promise to end austerity, imposed on the country for its extreme profligacy.

The party leader, Alexis Tsipras, rather naively hopes that he can cut Greece’s debts by 50% in a new deal with the troika (the European Central Bank, the European Union and the International Monetary Fund).   If that fails, withdrawal from the eurozone is a definite possibility.   Other members may even encourage Greece to leave before they do greater harm to the single currency.   Withdrawal would enable Greece to have its own currency.   They could then print money and print more money and then even more money . . . you get the picture.   This would not, of course, solve their problems but it might give them a temporary high.

Spain is watching developments in Greece closely.   The Spanish economy is a lot bigger than Greece’s.   It has also been going through a long period of austerity for the same reasons as Greece.   The Podemos (“We can”) party is Spain’s equivalent of Syriza.   It, too, could win the next election, due later this year.

Germany is unlikely to approve any deal for Greece that absolves them of debts owed to German taxpayers lest Spain make the same demand.

The eurozone is not really in danger, though Greece and Spain could certainly withdraw from the currency union.   Other profligate countries could follow – Italy and Portugal, for example.   Corruption is a big problem in all four countries.   Mr. Tsipras has promised to do something about it, as have other earlier prime ministers.

Nineteen countries are now members of the eurozone.   Six other European countries also use the currency.   Outside of Europe, remaining overseas territories of European countries also use it. Additionally, 210 million people worldwide use currencies pegged to the euro, including 182 million Africans.   This makes the euro the most used hard (convertible) currency in the world.

Expect further turmoil in world financial markets as well as possible changes in the composition of the EU, though few on the continent of Europe seem to want that, at this point in time.   The EU and the euro have brought many advantages and have a great deal of support.   Even Mr. Tsipras is calling first for changes that will simply end the long period of austerity that has devastated his country.

 

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COMMENTARY

Dollar

I want to begin by clarifying something I wrote in yesterday’s post.     I shared a quote from Eleanor Clift on the McLaughlin Group, “The dollar is the indispensable currency,” she said. I added that, on this point, she is correct.

I should have added two words to that comment, “for now.”

The dollar right now is riding high and doing better than other major currencies.  But that does not mean the dollar is really strong. In fact, just yesterday Singapore and China announced the start of direct currency trading, bypassing the US dollar, which has been volatile and is not backed by anything. It’s just paper and is held up by confidence and nothing else. Note the following from Channel News Asia.

“BEIJING:  China will allow direct trading between its currency and the Singapore dollar from Tuesday (Oct 28), making it easier for companies here to do business with their Chinese counterparts.

The Sing dollar will be added to the China Foreign Exchange Trade System (CFETS) platform, which currently offers transactions between the yuan and 10 foreign currencies. The announcement came on Monday (Oct 27), after an agreement at the Joint Council for Bilateral Cooperation (JCBC) in Suzhou, co-chaired by Deputy Prime Minister Teo Chee Hean and Chinese Vice Premier Zhang Gaoli.

Previously, companies that wanted to convert a large amount of Sing dollars to renminbi (RMB) or vice versa had to do so via an intermediate currency such as the US dollar.

“This will lower foreign exchange transaction costs and encourage greater use of the two currencies in cross-border trade and investments,” the Monetary Authority of Singapore (MAS) said in a news release on Monday.

DPM Teo called this is a “major and significant” development which will reduce the cost of doing business and make it more convenient.”

Singapore is a major hub for the internationalization of the Chinese currency.   Some predict China will overtake America as the number one economy next year.   This means China can take on the burden of being a trading currency just as the US dollar has been.

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I’ve been reading a novel by Brad Thor set in Afghanistan. The 2009 book is titled “The Apostle.” The author clearly knows the country well and I’ve learned a lot about Afghanistan from it. Frankly, the book is as close to the country as I want to get!

I would like to share two paragraphs with you. The subject is not Afghanistan. The main character is Harvath.

“Harvath just couldn’t understand the liberal mindset. He was convinced that they believed deeply in what they said and what they did; his only problem was that it so often flew in the face of reality. They continually focused their rage on their protectors rather than their enemy. They denigrated their country, believing it was the source of all evil in the world. The truth was, when it came to Islam, it had been violent since its inception. Its clearly stated goal was worldwide conquest. And while Harvath believed there were peaceful and moderate Muslims, he knew from studying the religion that there was no such thing as peaceful and moderate Islam.

“The entire religion was a mess and needed a complete gut-rehab. And though he had a good feeling his country’s new president would probably not agree with him, he also knew that until the politically correct crowd stopped making excuses for them and undercutting any motivation to reform their religion themselves, the majority of Muslims wouldn’t do anything . . . Islam had been Islam for fourteen hundred years and what it had been was violent.”

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Which reminds me of the three teenage girls, all born in the USA and from the Denver area, who were detained in Frankfurt en route to Syria to fight with ISIS. All three were of Sudanese and Somali descent. It is not necessarily the case any more that second generations born in America become more American. It seems that, when it comes to Islam, assimilation doesn’t work any more.

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This is certainly the case in Tower Hamlets, a rundown poverty stricken area of east London, profiled this morning on PBS’ Focus on Europe. Tower Hamlets has the UK’s highest percentage of Muslims, over 30%. They are mostly from Bangladesh and Somalia.   A recent election there has led to accusations of corruption, including vote rigging. This is unheard of in British elections. Or was, until a significant percentage of Muslims took over an area and introduced their own brand of politics, just like home.

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It may seem a big jump from ISIS to Downton Abbey but it’s appropriate at this point.   The fifth series is already showing in the UK on ITV. It starts in the US on January 4th. Apparently, Lord Grantham is going to lose his dog in this series. The reason is quite simple – the dog is named Isis. Lord Grantham has had his dog for four seasons of the show, while the terrorist group is quite new. But viewers do not want to be reminded of terrorism when watching the series in their living rooms. Besides, Isis joined the family in 1912 and the series is now up to 1924. That’s about it for a Labrador’s lifespan.   Ours only made it to five.

US GOVERNMENT CRISIS HAS GLOBAL CONSEQUENCES

white house shut down

Only in America could this conversation have taken place!

A male immigrant was upset that his ex-wife and her new husband were allowing his kindergarten children to handle guns.  At the same time, he was frustrated that she would not allow him to take the children out of the country on vacation.

So he consulted a lawyer.

The lawyer couldn’t understand the problem.  To him, letting young children learn about guns was perfectly normal but taking children out of the country was very risky.

Most Americans have not traveled.  Some won’t even go to Canada.  Two thirds of congressmen don’t even have a passport.

So it’s not surprising that they do not take the rest of the world into account when making decisions.

Some years ago, Congress voted to change the dates when the clocks are put back and forward.  There was no realization that this might impact other countries (airline schedules, stock markets opening and closing to coincide with Wall Street, international phone calls, etc.).  It caused chaos around the world until other countries could make the necessary adjustments.

We see the same problem again but in a different way.

The government shutdown in Washington DC and the failure to agree on a new debt ceiling threaten the global economy.  It’s not just an inconvenience for those wanting to visit national parks and monuments.  The global economy is at risk.

Does anybody in Congress care?  Rather, the question is, does anybody in Congress understand?  I’m not sure they do.  Like the lawyer who was aghast that anybody would take a child to another country, they are ignorant of the rest of the world.  They haven’t a clue that their indecision threatens the world’s financial system.

Writing in the Los Angeles Times, October 14th, Jim Puzzanghera wrote from Washington:  “Five years after the U.S. financial crisis helped cause a deep global recession, foreign leaders are worried that history is going to repeat itself.

“The fiscal impasse that has partially shut the federal government now threatens to trigger a U.S. default that would roil financial markets worldwide, leading an agitated China to suggest replacing the dollar as the international reserve currency.

“As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world,” China’s official state-run news agency, Xinhua, said in an English-language commentary Sunday.”    (“China calls for dollar to be replaced as global reserve currency”.)

The London Daily Telegraph’s Jeremy Warner, wrote on October 14th that:  “The US is recklessly throwing away its future.”  (Article:  “The Sun is setting on dollar supremacy, and, with it, American power.”)  A default would trigger off a financial cataclysm.  That America’s financial pre-eminence  “…could so casually be put at risk by politicians on Capitol Hill is an extraordinary spectacle that may be indicative of a great power already seriously on the wane.”

Explaining America’s global role in the world economy, Warner continues:  “US Treasuries are the very backbone of the global financial system.  They are the supposed “risk-free asset” against which everything else is benchmarked and as such are the collateral of choice in a huge array of financial market transactions.  The dollar is also the currency used to price most commodities, from oil to gold.”

In similar vein, the BBC’s Chief Washington Correspondent Mark Mardell posted the following to the BBC’s website this morning, October 15th.  His chosen title was:  “US shut-down:  A dangerous cliffhanger.”

He compares watching the crisis in Washington to being addicted to a dreadful soap opera.

“You know it has few redeeming merits beyond the entertainment value of witnessing humanity at its worst.  The characters fling themselves from one gratuitous hysterical crisis to the next, barely pausing to reflect on the folly of their ways.  No remorse is one of the rules.”

Note his final comments:  “The world scratches its head in bewilderment.  But it has consequences that go beyond the United States.  Lurching from crisis imperils the world’s economy on an annual basis.

“That’s bad enough.  But it gives democracy itself a bad name, making it look like a system that is not fit for purpose in a modern world.  That is truly dangerous.”

A week or so ago, his colleague at BBC World News America, Lyse Doucet, asked an American expert on the constitution to explain the gridlock in Washington.  He began by saying that the framers of the constitution had intended the US to have an “inefficient” system of government.  Ms. Doucet immediately interjected:  “Well, they’ve succeeded, haven’t they?”

This crisis does not make America look good.  Unresolved, it could cause a collapse of the international financial system and end up costing America its leadership role in the world.

Sadly, a resolution will only be a delay – there is talk of putting something together to last three months, until January 15th.   Then, we will have to sit through yet another long, drawn out episode of the world’s most awful soap opera!