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WHY CONTINUE WITH THE EURO ?


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#1 passacaglia

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Posted 22 July 2015 - 11:40 AM

Is it worthwhile to continue the experiment with this artificial currency, the Euro?

The original promise of a semi imperial Europe chosen between the best of the land was a strong incentive to those who saw the declining forces of the Empire as it stood. Ever weaker and divided facing the growing USA colossus, for whom there never was much sympathy in Europe.

Besides there was the added incentive of a new additional, well rewarded, bureaucracy, to quench the ambitions of new, as well as left behind, public personalities. And this stirred highly the ambitions of "important" persons in Europe who, naturally, fought to create the EU and the Eurozone.

The creation of the EU was partly decided on studies of a better future for Europe, but mainly by influential people who saw their return or their incorporation to an elite and well paid bureaucracy.

In the minds of many aspiring candidates this was a return to the glorious European era of knights, dukes and all the ancillary noble titled persons where what counted was not how efficient or effective they were (with very few exceptions) but who were their friends and acquaintances and to which family they belonged.

These people say that to maintain an order to surmount the small and big glitches they have it is imperative to create a political union: The United States of Europe. Let us hope that when these things are tried out they do not forget the possible Wars of Secession.

The United States people were a rather homogeneous group of people split only by the means of production of their wealth. Besides this, they enjoyed a very similar culture. Notwithstanding, they had a traumatizing Civil War. But this is not the situation in Europe.

Europe is the result of many nation states with their own and different sovereigns (compare the Ottoman Sultans to the absolutist Kings of France and to the Kings of England, who gradually transferred their power to a Parliament mainly composed by commoners.

They speak different languages and have their own views on how and where they fit into a proposed Supereurope. This is not the union of 13 US states. This is a collection of vastly different cultures, legacies, languages, traditions, treaties and wars.

All the aforementioned words are to show how difficult or impossible it is to keep trying to unite these countries using a common currency (artificial) without first trying to reach politically unifying deals stamped by the wills of their own peoples.

Italians won't like to unify with Germans and Swedes won't like to be considered as Greeks. And the whole EU bureaucracy want to keep their jobs.

It is my belief that unless a common political and cultural identity can be reached, like the United States, it will be impossible or, at the least, extremely awkward, for Europe to be able to transact with anyone in Euros.

And then there is the local currency parity position to the Euro, which can be highly influenced by power politics since economic power and development should try to help a union and not destruct it. But that's not the way this game is played. Can Albania force Germany into a specific Euro/Mark parity? Or Kosovo or San Marino for that matter?

Well, the result was that Germany got such a nice parity that it became the export motor of the world losing that first position to China only about a year ago.

Without political will there will never be a united EU. And this presages the disappearance of the Euro sometime after the EU countries realize this fact. Out of convenience, a few countries may try to keep the Euro within their own frontiers. But with a ECB making monetary policy decisions, their situation will be untenable.

Knowing how difficult it is to have the political will to change something important in a country like the United States, imagine how difficult that would be in a whole bunch of different countries.



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#2 Bezukhov

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Posted 22 July 2015 - 02:06 PM

All the aforementioned words are to show how difficult or impossible it is to keep trying to unite these countries using a common currency (artificial) without first trying to reach politically unifying deals stamped by the wills of their own peoples.

That about sums it up. I'm not exactly sure who appoints the head of the ECB, or its other members, even after reading the Wiki about it. There does seem to be more of a disconnect between the people running the ECB and the average European in the street. At least with the Federal Reserve the President appoints the Chairman, er, Chairwoman right now, and the other Board members, with Senate approval. So if by some reason the average American isn't too pleased by the choice there is always the ballot box to show their displeasure. Personally I would do away with all Central Banking, and go back to the Gold Standard. It's much more honest, IMHO.


Edited by Bezukhov, 22 July 2015 - 02:07 PM.

To err is Human. To blame it on someone else is even more Human.

#3 PhotoAce

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Posted 22 July 2015 - 02:09 PM

Churchill returned Britain to the gold standard in 1925, with dire results:

 

http://www.skidelskyr.com/site/article/the-first-100-years-a-policy-that-crippled-the-gold-standard-debate/

 

http://econ.economicshelp.org/2009/02/gold-standard-explained.html


Edited by PhotoAce, 22 July 2015 - 02:10 PM.


#4 Bezukhov

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Posted 22 July 2015 - 02:21 PM

@PhotoAce
 
That article mentioned Keynes, which reminded me of this little gem that I haven't heard in a while:


Edited by Bezukhov, 22 July 2015 - 03:04 PM.

To err is Human. To blame it on someone else is even more Human.

#5 brainout

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Posted 22 July 2015 - 06:45 PM

Keynesian economics work for smaller countries and populations, which have more cultural homogenuity.  They cannot work in the US, though widely adopted here.  Culture is everything, in answering to economy.  Some cultures enjoy greater prosperity under what others would consider 'socialism', yet the culture employing it considers itself free.  And with a good deal of justification.

 

So to answer the Euro question, as posited initially, likely it shouldn't exist.  The 'market basket' of currencies are so dissimilar, should the Euro continue, it could actually generate war.

 

The US is an exception only because, we Yanks are so busy wanting to get away from Europe, we stopped having a 'culture.' Well, money.  And wit.  And individualism.  And chutzpah.  So really, the dollar unites us, Federalism unites us, and precious little else.

 

Is that better?  Who's to say.  Yet that's probably why the Euro is problemmatic, but the Dollar is not:  depends on how developed and attached you are to your own culture, versus those around you?

 

It goes down to the family level, really.  If a family's own culture is aggregate, the common group benefit rather than individual, then socialism or Keynesian policies might indeed help economic growth without so many of the known pitfalls.  But if the family is fragmented and individualistic in culture, then Hayek's ideas would be more beneficial.

 

I was gonna write my college honors thesis on this, 40 years ago.  But got jaded. :bubbles:


Edited by brainout, 22 July 2015 - 07:03 PM.

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#6 passacaglia

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Posted 22 July 2015 - 08:31 PM

The rate of increase in world production is higher than the rate of increase of gold discoveries. So there will be less money (gold) to buy more goods. Increasing the price of these goods will not have any effect since the total amount of money does not vary. So in order to sell all those goods, companies must reduce their prices. Overstocking is a lose-lose proposition so they have to sell all of it. This means some workers become unnecessary, so they are fired. This produces a lower demand for the products these workers used to buy. So this leaves those producers with extra stock they have to sell. To do this they must reduce prices. You will enjoy quite a few months of ever lower prices until it's your time to get fired. While prices are lower don't go on a shopping spree. Save as much money as you can. When the hard times arrive the most valuable investment you'll have is cash. Government revenues will decrease since company and personal incomes, being lower, will pay less taxes. Earmarked pork barrel expenses will gradually have to be cut. Those juicy campaign contributions and lobbying money that somehow spills into congressmen pockets will also decrease substantially. Until your typical (supposedly) corrupt congressmen feel the pinch and then, what will they do? Right!! they'll put an end to the gold standard and reinstate the FED. And I would not be amazed if they had a majority on both sides of the house.

 

https://maoistrebelnews.files.wordpress.com/2013/12/10-reasons-the-gold-standard-doesnt-work.pdf

 

http://www.businessinsider.com/why-the-gold-standard-is-the-worst-idea-in-the-world-in-one-chart-2012-9

 

http://www.cnbc.com/id/40088925

 

http://www.federalreserve.gov/boarddocs/Speeches/2002/20021121/default.htm



#7 YeahBleeping

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Posted 23 July 2015 - 12:51 PM

I'm waiting for the Aliens to come down and solve the almightydollar problem for the entire world.  LOL .. I asked my professor once while I was taking a few college classes on ' What happend to the American dollar? ' He said something to the effect of ' When OPEC decided to accept the Euro as payment for oil' They no longer relied on trading with the US for US money  to buy oil'  In that one major decision by OPEC the value of the US dollar has continued to decline though you won't find much information on it ' I think about that every so often when I go to the gas pump heheheheh.



#8 brainout

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Posted 23 July 2015 - 02:39 PM

So then imports fall, and Europe has to lay off workers, so then needs less oil, so OPEC gets less revenue, and then it starts accepting the Dollar again, then prices in Europe fall further, until the US decides to buy oil from OPEC again, wash rinse repeat.

 

I remember when a steak was 1.25 and gas was 25 cents a gallon.


Edited by brainout, 23 July 2015 - 02:40 PM.

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#9 passacaglia

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Posted 23 July 2015 - 03:28 PM

There are two types of Aliens. One is called Dollar Supply and the other one is Dollar Demand. When the world starts getting flooded with dollars the price of the USD will fall in relation to other countries. And interest rates go down. You see, we have too many dollars and the interest is the rent we pay to hold dollars. If there are many dollars you can rent them at a lower price.

 

There is an interesting aspect to this. If the dollar is cheaper, one Euro will buy more dollars than before. When you sell any made in USA product to Spain, the Spanish will need less Euros to pay for your product, so the demand for your product in other countries increases. This should lead to increased production in the USA and help fight unemployment. Regardless of whether gas costs 25 cents a gallon or 2 dollars a gallon.

 

We pay our oil at market prices. Other countries tie their gas prices to the price of the WTI (West Texas Intermediate) price per barrel. And add so many taxes that you are living in a paradise of cheap gas. I pay the equivalent of US$ 5.56 per gallon when I have to fill 'er up. For a steak, fortunately, I only pay a 19% tax.

 

Back to oil. Do you know who America's larger supplier of oil is? That's right, Canada. So if you start a "jihad" to fight high oil prices you'll be facing the Mounted Police.

 

Now, if what you long for is a higher valued dollar, that comes with higher interest rates, just give Janet a call. She'll be happy to oblige selling all that stuff she has in her junkyard (they call it an "increased balance sheet") and taking in all the dollars from people who buy from her, therefore reducing the amount of dollars in the economy making them more expensive.



#10 brainout

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Posted 23 July 2015 - 03:41 PM

So how does keeping or jettisoning the Euro, affect the scenario painted above?


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#11 passacaglia

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Posted 23 July 2015 - 05:04 PM

Dollars are freely converted to Euros and viceversa in international markets. Exchange rates vary by the hour. Even by the second if you sometime have faced those screens with FOREX on the trading floor. But when you buy or sell oil, the contract stipulates delivery dates and type of currency. You can buy or sell contracts in the market but the terms don't change. It's like a bond that carries a coupon. Oil prices go up and down when you begin trading in the futures markets the rule is: if you're sure oil prices will go up you buy as many contracts to buy oil at cheaper prices and hold on to them. If your expectations turn 180º, you try to sell them, at a profit if you can or at a loss if you must.

 

Whether you are paid in dollars or Euros depends on the contract. ARAMCO may float a contract that stipulates it will deliver 100 million barrels of oil in Hamburg at 85 dollars per barrel on such a day + - x days for unforeseen contingencies. You cannot go to ARAMCO in Riyadh and tell them you'd rather pay in Euros. The contract is in the market as is and the highest bidder gets the deal.

 

Depending on what they are going to spend that money on, ARAMCO will decide if it is more to their advantage to receive it in Euros or in dollars. Naturally they will have to follow the prices of future oil contracts in both currencies before making a decision.

 

In the US all this buying and selling is made by private companies, except for the strategic reserve financed by the government. So, really, all movements of dollars and Euros, in this market (which is big), will affect exchange rates, making dollars vary their prices depending on the best decisions private companies may take.

 

But there are other big contract futures and goods traded in vast amounts of dollars. Like minerals and commodities. We have copper tradings, mainly in the London Metals Exchange. Steel, aluminum, gold, silver,etc. And Commodities Exchanges trade in wheat, maize, cattle and what have you.

 

All of the world's production goes mainly through these exchanges, with trillions of dollars changing hands every day, and let the coins fall where they may. It is them that will move exchange rates one way or the other.

 

There are other contracts that literally bet on the performance of other contracts. So their prices and profits are derived from other contracts. These are called "derivatives" and despite the trillions of dollars tied up in derivatives they did not have a dedicated exchange. So most were traded OTC (over the counter) with practically no controls and which, therefore, had an enormous impact in the 2008/2010 financial crisis. I understand this problem has been addressed to put some order in this market. It's difficult because you can make a derivative on almost everything you can  think of.

 

So the results of getting into or out of dollars and Euros is mainly decided by the markets. If a serious deviation occurs the Central Banks step in. Mario Draghi and his ECB can produce or reduce any quantity of rogue Euros destabilizing markets (if the Germans consent - a little problem there), and Janet Yellen can play havoc in the markets increasing or reducing dollars and interest rates. This, of course, can make big changes in expectations.



#12 softeyes

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Posted 23 July 2015 - 08:24 PM

Certainly we could establish "World Wide" currency! That would perhaps take all of the fun out of politics, unions, freedom, profits, and especially travelling!  I love to return from "anywhere" not USA, pay extra money and come home with left over souvenirs! Euros, Pesos, Pounds, Yuan!

1 Chinese Yuan = 0.16 US dollars.  How does that relate to the query about the Euro? Not sure?



#13 passacaglia

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Posted 23 July 2015 - 11:41 PM

The sovereign desires of most people on earth would make such a scheme impractical. Everybody would like to keep their own currency manipulated by their own Central Bank with no foreign interference. This is imbued since your most early age and it's called "patriotism". One of the most nefarious characteristics of societies.



#14 softeyes

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Posted 24 July 2015 - 12:39 AM

Since this is a sharing topic (not Google for me) what does " nefarious" mean in terms of the Euro?



#15 passacaglia

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Posted 24 July 2015 - 06:49 AM

In terms of anything, nefarious means something bad, wicked or villanous. You will rarely see this adjective connected to the Euro since there's nothing despicable in the Euro. It's simply another currency. Like pesos, pounds, yuan or yen. With the advantage that it's legal tender in many countries. I guess you can say the same for the dollar, even though it's not legal tender.






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