Thursday, November 8, 2007

Race to the bottom

Sarkozy fears 'economic war’ as dollar slides

"French president warns US it cannot allow currency to collapse as Europe suffers from euro's rise"

The race to the bottom for currencies/IRs has started.

The GBP will be next as our housing bubble bursts and consumers pull back.

The EUR will be last out of the starting blocks as it is not even clear that its IR tightening cycle has finished

Posted by sold 2 rent 1 @ 09:33 AM (913 views)
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5 thoughts on “Race to the bottom

  • My wife still has a load of EURs in an Irish bank from the sale of her house.
    It could be a canny move to keep it there as the GBP slips away into 2008.
    What scares me the most is that Irish banks may be exposed like the Japanese banks were in their housing bust of the 1990s.

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  • There is a very real danger that the USD could slide into oblivion, resulting in hyperinflation, and the Sarkozy (“hiccup!”) comments could be very relevant.

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  • Isn’t this essentially admitting that there is over-capacity in the EU and Asia? Essentially France is offering (threatening) on behalf of Europe to continue with exchange rate controls through intervention. France and others need to accept that their goods are fundamentally too expensive.
    I read somewhere that between 2004-2006 the US bonds bought by Japan were in fact bought with printed yen, so in some ways I think the problems of America are imported from the controls exerted elsewhere.
    I also am starting to think that in the end, should the US avoid dramatic movements, then the US will be able to bounce back from this. Unlike the EU, China, Japan, they have the luxury of an internal market so if they start booming with cheap goods for sale they could power on over the next ten years. Also, they still have lots of technology.
    Sooner or later somebody will start making shoes in the US again.
    Why on earth, with all this capacity, does no government simply increase vacation time. Japan would probably be saved overnight if they banned unpaid overtime and the 5 days holiday at a time method, nobody has time to spend.

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  • Stillthinking, increasing vaction time is utter blasphemy to our current economic world – common sense, but completely counterintuitive to business. In a similar vein – if you sit in front of a computer all day, try telling your boss you could work from home and see their reaction.
    The corporate world prefers the method by which you consume to relieve your stress from overworking, but never actually really use the goods you’ve bought – the initial purchase is the comfort. This leaves you time to work more, of course – they win both ways.

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  • s2r – you’re right about Irish Banks. A recent report showed that they were more exposed to the property sector than the Japanese Banks were. Big Irish developers – especially of those business parks in south Dublin – are highly leveraged (using the ‘equity’ from the first development for a deposit on the second development and so on). The developers are financial supporters of Fianna Fail, the Teashop’s party, so the regulators did nothing to stop the bubble – there’s little distinction between gamekeepers and poachers over there (at least Mervyn wrings his hands). Irish commercial and residential property values are falling and the pack of cards…….

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