s e l e ct e d
topic
Chris Kuehl, Ph.D.
Europe’s Debt Situation Relieves
Some Pressure on U.S. Dollar
T
he weak U.S. dollar gained a little in December, but
this was not due to anything the Fed or the U.S.
government did to bolster the value of the greenback.
On the contrary, the policies that have been pursued by
the U.S. would ordinarily have meant a further drop in
the currency, but this time the U.S. is getting some help
from the Europeans, although it is assistance that is
hardly provided with enthusiasm.
The Europeans are starting to become intensely concerned over the debt crisis that has gripped Greece and
that threatens to engulf other nations in the Eurozone:
Portugal, Ireland, Italy, Spain and perhaps more if the
problem continues to spread. These states have been
collectively dubbed the PIIGS by traders who are deeply
concerned that there will be a general debt rout that will
force radical actions by the more stable economies to
avoid a general economic breakdown in these states
saddled with very slow growing economies on top of
these high deficits. The sense is that somebody in the
EU is going to have to bail these nations out at some
point, and that somebody is likely to be Germany—an
economy that is stronger than most in Europe, but certainly in no position to drag half the Eurozone out of
crisis. The fears that surround the debt situation have
dragged the euro down to levels not seen since early
October and there are many analysts who think the euro
could sink dramatically in the weeks to come.
With the euro sinking, the dollar gets to be
the net beneficiary and this may allow the
Fed to keep rates lower than they would have
otherwise as they no longer have to be as
concerned about the position of the dollar.
There have been some attempts by the debt-laden states
to figure out their budget, but the efforts have been
deemed too little and too late. Greece has pledged to
address its rampant government spending and corruption, but nobody is under the impression that this will
happen quickly—even under the best of circumstances.
The reality is that the current Socialist government is
heavily dependent on patronage and handouts to maintain its popularity and they will not be committing
political suicide any time in the immediate future.
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B u s i n e s s C r e d i t feb r ua r y 2 0 1 0
Catch Chris In sessions:
18026. Agriculture, Steel and Other Commodities
18069 &18089. n Economic Update: Is This
A
the Recovery We Heard So
Much About?
Analysis: The U.S. is benefiting from this chaos for the
moment. The U.S. dollar has been weak enough that
there have been some hints of inflation. The latest data
on wholesale prices suggested a pretty sharp hike,
enough to get some people talking about the threat of
inflation. Thus far this is phantom inflation caused by
hikes in the prices of energy, a situation that is worsened
by the fact that the dollar is weak. The U.S. has seen
some rise in exports due to the dollar’s value, but the
bigger problem has been that investment in the U.S. has
been hampered by the state of the currency and imports
that have been much more costly. With the euro sinking, the dollar gets to be the net beneficiary and this
may allow the Fed to keep rates lower than they would
have otherwise as they no longer have to be as concerned about the position of the dollar. The downside
of Europe’s trouble is that the U.S. loses a vital export
target as long as this region stays in turmoil. If the
Greeks can be an isolated case, the challenge will be
containable, but if this contagion spreads to the other
PIIGS, the outlook in Europe is pretty bleak. ●
Chris Kuehl, Ph.D., director and co-founder of Armada
Corporate Intelligence and NACM economist, writes the
Strategic Global Intelligence Briefs, which are disseminated to
members of FCIB, and prepares the monthly Credit Managers’
Index survey results.