Tuesday, November 28, 2006

Dollar/Euro Race To The Bottom

The Financial Times focuses in on the French reaction to the US dollar's recent weakness.

It scares them, you see, because dollar weakness means less exports to the US in the short term, which in turn affects GDP and hence people's optimism or lack of same regarding their economy.

I did some calculations last night, and for the first time I realized that today's exchange rate is about the same as it was back in the 1970's. That surprised me, because at that time I was living in France and getting about five French francs per dollar. Today, at $1 = Euro 0.76, that makes the dollar worth about FF5 again. I was expecting to see something more like FF3 on my calculator, but I momentarily forgot that the Europeans are inflating their currency just as fast as we are.

Yeah, I guess it's indeed a race to the bottom.

downhill_domination_race_online
[Thanks to ridefree.fi for the photo.]

Everyone's doing it, even the Swiss, albeit less quickly. I used to buy Sw.F.4 for one dollar, and now it's Sw.1.20 per dollar -- which I guess makes the Swiss franc the tallest midget, in fact, and not the dollar, as is widely believed; but because Switzerland is so small in geopolitical importance, and probably because they are so discrete, no one is taking notice. Doesn't seem like there'd be enough of those feisty little francs to go around, does it?

Just for info, here's the gold situation, so you can get a more precise idea of how fast these currencies are being devalued by their keepers, i.e. the central banks. Let's take an ounce of gold, for example.

One ounce of gold in 1971 versus 2006:

US dollars: $35 vs. $640

Euro: E.85 vs. E500 (figures based on the use of German mark for 1971 value)
(Source: gold.org)

Sw.F.130? (just a guess) vs. Sw.F.700

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