The Stronger Euro Doesn’t Make Cents

Posted: December 3, 2009 in Technology and Business
The U.S. dollar has been getting hammered against the euro this year.
Some people say this has to do with rising oil prices… which I don’t get, since oil isn’t moving on any kind of demand fundamentals.
Smarter people say it has to be with the growth story… which I don’t get, either, since the real growth story is in emerging markets, not in the U.S. or Europe.
Even smarter people say this has to do with America’s out-of-control debt… which I also don’t get… at least measuring external debt as a percentage of GDP… here’s the pertinent Top 20 rankings in the world:
External Debt As A Percentage of GDP:
#20:    U.S.              at       94%
#14:    Germany      at      178%
#10:    Hong Kong  at      206% (Not a euro country but a lot of Chinese business gets transacted there)
  #8:    France         at      236%
  #3:    U.K.             at      408% (Not a euro country but in the thick of Europe nonetheless)
  #1:    Ireland        at    1,267%
So… why should the euro be stronger than the dollar?
It shouldn’t be.
  1. Mark says:

    Well argued. But one factor that\’s driving sentiment is the velocity. As I recall, it wasn\’t so long ago that US external debt was a relatively small 40-50%. So, the market might be projecting further into the future.Having said that, just returning from Italy, I can attest to the fact that goods and services seem about 30% overvalued!

  2. Royal Farros says:

    I think that\’s what makes our situation scary (!). But, I\’m not sure it applies to the value of the dollar vs. the euro: I believe the euro countries\’ velocity has increased as well… i.e., things are still relative… and relatively (and generally) speaking, we\’re running a more responsible country vs. the euro nations.

  3. […] Back in December, 2009, I published a post entitled, “The Stronger Euro Doesn’t Makes Cents.“ […]