Power And Dollar

What Do You Care About Greek Default? Or Andrew Jackson?

My employer has no business ties in Greece.  I have nothing Greek: no property in Greece, no mutual fund based in Greece, no IRA fund based in Greece, relatives in Greece.  So, what do I care about Greek?  You got to be kidding me.  Eh…. Do you care about the US recovery?

Greece is part of Euro.  A fiscal instability leads to the instability of Euro, or more precisely the depreciation of Euro.  Now, that is the beginning of problems.  First off, US exports get more expensive in the Euro land, i.e. the continental Europe that Rumsfeld called the Old World.  Euro’s depreciation is no good if it happens when US wants to export more.  But then, where can US export?  China?  Even when Chinese are buying Walmart products, how does that help US unemployment rate when those products were made in China to begin with?  Of the products that are US made, how many of them can be sold in China without violating either US embargo (regulated high tech products) or Chinese sanctions (produced by companies who sell arms to Taiwan)?  Do you think US can sell solar panels to China when China is the largest solar panel producer (by footage) in the world?  How many jobs can be produced in the US if Chinese eat more MacDonald’s?  It certainly gives a higher return for your pension funds, your 401k funds and IRA funds.  But jobs? No. 

Secondly, it is not a good idea when US wants to sell assets in Europe and the bring cash home.  It will either make the sale less appealing to the buyer if the seller wants it to be a US dollar deal, or it will make the sale less appealing to the seller if the buyer wants it to be a Euro deal. 

GM for sure will not be happy since they are selling SAAB.  Although the deal for SAAB is in US dollars, it certainly makes it more difficult for the buyer to finance the deal.  And if you have bought a house before, you may recall that the deal is often contingent on funding availability. 

Third, it certainly makes US assets more expensive to Euro investors.  NYSE (or NASDAQ) stocks are looking for more expensive to Euro investors now, although US and/or UK assets may have to become the safe harbors for the time being.  But they certainly are looking more expensive. 

The value of a currency (Euro or USD) has a great deal to do with the expectation how well that currency’s assets are.  The assets in Greece, i.e. Euro, are not looking good due to Greek fiscal policies.   A comparison of Greece in Euro land has been made to California.  While that may resemble somewhat in economics sense, I tend to think of this crisis as the early United States where the federal government was still responsible to foreign debts incurred during the Revolution War but all the states retained their rights to print currencies.  European Union has long been criticized as an elitist creation.  Voters mistrusted it in Ireland (2008), France (2005), Denmark (2000).  Urbanite/merchant Hamilton created the central bank to monopolize monetary power and ruralite/agrarian Andrew Jackson removed it.  As a result of multiple currency issuer and each currency has its own exchange rate (inevitably), interest rate, and ultimately credibility, the United States became worthless monetarily.  

The striking difference here is US were debating about the monopoly of monetary power whereas Europe already got their monopoly of monetary power.  Is this a lesson where Europeans have to reflect on their European federalism or a lesson where urban elitist (in the sense of Sarah Palin’s “East Coast Elites”) creations, European Union, never work?  The answer will prevail if Brussels elites managed to figure it.

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February 11, 2010 Posted by | banking, Current Affairs, Current Events, politics, US politics, wordpress-political-blogs | Leave a comment