What's propping up the Euro?

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They recently added Portugal to the bankrupt countries of the Euro, and the other countries trying to keep the Euro strong seems to be a losing battle of atomic magnitude. The healthy economies of the Euro are "lending" billions to the bankrupt countries, but that only means they are desperate to keep the Euro afloat in the world markets. The bankrupt countries do not have the means to pay back on those loans, and the lending countries wealth is being put into jeopardy. They will not see any payback for the foreseeable future, while their economy continues to suffer from the higher cost of fuel and food, and consumer spending drops to new lows.

How far will the Euro gain against the US dollar; when and how much?
With this increase in the value of the Euro, how do they hope to compete in the world markets?

Today's trade: US$1.42 vs 1Euro.

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@cicerone imposter,

It certainly depends on what you call "suffer". Food is generally as cheap as the last couple of years, and paying more for fuel ... well, that's something we are unfortunately used at .... since decades.
Consumer spending isn't really low, at least that's what is published (and what can be seen)

Speaking about the increase of the Euro

The reason for the current "high" (according to FT ):

Quote:

Traders cited heavy buying of the single currency from Asian reserve managers, keen to take advantage of any weakness in the euro ahead of an expected ECB interest rate rise next month.

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@Walter Hinteler,

Walter, Thanks. I sort of look at the more current events of the Euro countries that are going bankrupt rather than the longer-term trends in an attempt to learn why the Euro is gaining against the US dollar.

I wasn't aware that the Asian reserve managers were propping up the Euro in today's market. That info is very helpful, and thanks again. That makes a lot of sense; the expected higher interest rate. I wonder, though, at what level the increase in the value vs the interest rate makes any sense?

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@cicerone imposter,

Quote:

What's propping up the Euro?

Is this a quiz, if so I think the answer might be the USD and JPY.

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@cicerone imposter,

The Germans.

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@kuvasz,

Wouldn't higher interest rates hurt Germany more than it helps? With the billions in loans to so many Euro countries, a higher interest rate would mean the countries in debt would have a greater handicap to pay Germany back.

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@cicerone imposter,

What makes you think they will pay back their loans?

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@saab,

I don't; that's the reason why I don't understand why anybody is propping up the Euro. Greece's deficit is 112.6% of their GDP, and they are now paying 7.1% interest. Don't know how they'll manage the principle or interest on their debt. There's still Spain, Italy, and Portugal who's borrowings are 78.2% of their GDP. They're in crisis by any economic measure, so I'm stumped to understand why Asia is propping up their currency.

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@cicerone imposter,

CI, I answered the question put. If you want to think that I was answering yours a priori to its exposition, I was not.

The strength of the German economy is what is holding up the value of the Euro, and Europe generally. If Germany was not the second leading exporter in the world the Euro would be as valuable as the old Italian Lira was before it was terminated as a currency.

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@kuvasz,

How long can a farmer feed his PIGSS when he sells less and does not get back money others have borrowed?

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@saab,

Again, that was not a part of the question first posed, which was "What's propping up the Euro?"

Bringing into the argument porcine farming is not germane; unless you want to tie in Hanstet bacon prices with the fluctuation of the Euro in currency trading. Go ahead.

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@kuvasz,

kuvasz, saab only provided an analogy that applies pretty clearly to Germany's current situation. They've lent monies to countries that do not have the ability to pay back their loans. That leaves Germany holding worthless paper. How long will Germany (the pig farmer) survive while the potential use of that money could have been used to prop up their own economy?

It's true that Germany is "rich" compared to other countries, but their well is not bottomless.

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@kuvasz,

PIIGS happens to be the shortening for Portugal, Ireland, Italy, Greece and Spain. I have seen it used very often in British papers.

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CI, you are comparing the Euro to other currencies, and you miss that when the global economic system melts down there is no safety in any of the currencies. If America had a good economy and was sheltered from the global problems the Euro would be worth about 10 cents. You need to look at gold, silver and diamond prices over the last few years....the alternatives to currency. They are all extremely high by historical standards.

http://www.idexonline.com/Diamond_Index_Drivers.asp
http://www.goldprice.org/

And you generally see that speculators would rather own commodities than currency, which is bad bad news for the global economy. We were going to kill off the current economic system in any case, but this rush out of currency speeds up the process, as the global masses by the day become less able to buy things, and thus economic activity shrinks.

http://www.indexmundi.com/commodities/

1 Reply

@hawkeye10,

Try spending those gold, silver, and diamonds. How do you expect to get any ?change from trying to trade those commodities in any retail outlet? Do you really believe they will honor the current gold trade price of $1,400 per oz?

When do you expect gold to be king over currency? When that happens, what will happen to the gold market? Do you know? A flood of gold will ...(fill in the blanks).....

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@cicerone imposter,

Quote:

Try spending those gold, silver, and diamonds. How do you expect to get any

I did not say that it was going to work, I said only that those who hold the wealth increasingly dont want to hold currency, they want something that they can hold that will retain some value after the crash..

Also, notice that the luxury home market is doing just fine...sure it might be worth a fraction of the dollars that it cost to buy, but then the dollar might be worth practically nothing by then... a mansion at least can be enjoyed no matter what happens.

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@hawkeye10,

Is that so? What does the richest people in the world have as assets? It's called stocks in businesses. They trade on the open market almost every day - worldwide. If they want cash, all they need to do is sell some shares.

Do you have that flexibility on gold, silver, and diamonds? At what cost? Don't forget commissions, and capital gains taxes, when you trade.

So, when the total gold market begins to sell, how much will gold be worth?
Have you ever studied supply and demand of any commodity?

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@cicerone imposter,

as we see here

http://www.ritholtz.com/blog/wp-content/uploads/2010/07/7-16-10-Total-Market-Capitalization.gif

But how does this negate my point? Wealth would rather own cogs in the economic machine than hold currency, what is being bought changes but just as with commodities currency is being converted to something else...

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@hawkeye10,

Rather, how does that chart support your position? It seems to me it totally supports my position - more than yours.

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April 7, 2011: the US dollar continues to falter against the Euro. It's at $1.4295 = 1 Euro.

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What's propping up the Euro?

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