Oct 6, 2008
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Europe Creates an Opportunity for the US Dollar
Europe has been unable to put together a comprehensive, continent wide solution to their credit crisis. Each country is acting in their national interests and standing behind their own banks. This makes sense. That’s what those governments were elected to do. However, this could have several important, long ranging consequences -all of which should benefit the US Dollar and the US Economy.
1. Global flight to quality -people will move their money to the banks with the highest amount of credible quarantees on their deposits. These guarantees come from the government. People will be voting with their feet as to which country they believe is most capable of standing behind the quarantees and actually paying out if it becomes necessary.
2. Currency values will reflect people’s perceptions of a country’s ability to pay. Since this is ultimately a measure of the productivity of an economy this should benefit the US Economy. There is still no other country in the world that can match the US’s ability to innovate, create and produce. Nor one with the same track record of doing so over long periods of time and through the troughs and values of brutal economic cycles.
3. European unity and the viability of the Euro could suffer. A single currency makes commerce and travel convenient. But there are two facets to a currency. One is as method of exchange. The other is as a store of value. Not every country in the Union has the same resources to support its banks. This will create tangible differences in the value of a Euro in a German bank versus in a Dutch bank. This should further benefit the US dollar in the long term.
Here is my original post on why the collapse of Lehman is good for the US Economy http://www.vertabase.com/blog/lehmans-collapse-is-good-for-american-business/
Seems like things are heating up further on the Euro. Here is an interesting article from the Telegraph in England.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3260052/Europe-on-the-brink-of-currency-crisis-meltdown.html