Saturday, November 24, 2007

Dollars, Euros and Junk Economics part deux

There are discussions raging on fleetbuzz and on on the subject we talked about below.

One of the folks over at posted this interesting information which sheds some light on the current dollar-euro contretmps, and it seems to suggest that inflating the euro was one way for Europe to pay down its foreign debt on the cheap.

It turns out that the writer of this post is a fellow named Perry Holzman, he's a nuclear engineer, and in all respects a thoughtful fellow. It wasn't too long ago that nuclear engineers were as scarce as passenger pigeons and in real danger of going the way of the dodo, but Perry survived, and it looks as if his field of expertise is undergoing a bit of a revival because of that dang climate change thing.

"I am short time this morning; but for those who are interested in how debt service relates to currency valuation I provide the following summarized information:

Due to the shortness of time I will not post links to the easiest to find information

First some comparisons between the US and the European Union (numbers are rounded):

GDP - Gross Domestic Production (Purchasing Power Parity):US $13.1 Trillion (2006)EU $13.1 Trillion (2006)Essentially the same

Population:US 300 MillionEU 490 MillionEU has 1.63 times the population

Oil Data: (Not sure of date - may be from a couple of years ago; but this site list all numbers for the same date: Consumption & import information buried in notes between charts.Oil ConsumptionUS 19.7 bbl/day (Billions of barrels per day)EU 14.5 bbl/day

Oil Imports: US 11.6 bbl/dayEU 11.2 bbl/dayEssentially the same

Natural Gas Imports: 118 bcm/year Billion Cubic Meters/yearEU 362 bcm/year EU imports more than twice the natural gas as the US

Land Area:EU is about 1/2 the size of the US.

Total Debt Service owed to outside of country (Government and Private debt):

The following chart is based on individual nations and really interesting:

I do not have time to add it up today (and have not found an equivalent chart for the entire EU at this time)

The US total external debt: $10 Trillion (GDP of $13.1 Trillion)

United Kingdom (England): $8.3 Trillion (GDP of $1.9 Trillion)

Germany: $3.9 Trillion (GDP of $2.6 Trillion)

France: $3.5 Trillion (GDP of $1.9 Trillion)

Italy: $2 Trillion (GDP of $1.8 Trillion)

Netherlands: $1.9 Trillion (GDP of $0.5 Trillion)

Spain: $1.6 Trillion (GDP of $1.1 Trillion)

Ireland: $1.4 Trillion (GDP of $0.2 Trillion)

Switzerland: $1.1 Trillion (GDP of $0.3 Trillion)

Belgium: $ 1.1 Trillion (GDP of $0.3 Trillion)

Total outside of country debt service for the world is about $44 Trillion: (So much for a gold standard if there is only several $Trillion of gold, or so, in the entire world).

Overall: The nations of the European Union are far more in debt (public and private) than the US. While I am sure that some of that will be debt between each other.

I suspect that a lot of it will not be due to the fact that the EU imports about the same amount of oil as the US - and has a smaller per capita income.

Each of the EU countries I listed data on above owes more debt outside their borders than their annual GDP (with an average of several times their GDP).

The US owes less than its GDP (about 76% of its GDP).

Might I suggest that one of the values of having a high Euro value is that EU countries could make substantial payments on their international debts (should any country decide to do so).

Long term the easiest way to pay off international debt is to have a highly valued currency. I suspect that this is one of the reasons their was a substantial effort to raise the value of the Euro.

While the current sub prime bank issues are affecting the value of the US currency. The argument that the primary cause of the lowered value of the US dollar is the US debt service does not hold up.

The EU has a far greater debt service compared to their economic activity level.

Values of currencies are due to many "intangibles." Despite their debt service the EU was able to raise the value of the Euro substantially with a multi-year effort on those intangibles.

The US has recently been working to lower its value. Are there other blips (such as the recent more sudden drop of the US currency due to the sub-prime mess; yes).

But there are many other issues at play.

I will also agree that while it is true that the economists have projected that the Euro would go higher compared to other currencies, and that the Dollar would go down somewhat - due to efforts of both governments.

No one can predict the blips and other intangibles involved. Thus the full extent of the shift in the Euro to Dollar ratio was not predictable."


At 11:41 AM, Blogger Aurora said...


Next time I hear some euro on tell me that the U.S. is living beyond it's means, I'll link my response to this!

At 2:01 PM, Blogger Robert Luedeman, attorney at law said...

I am quite sure that the person who dug out this data has disappeared and his name has been expunged. That's what the moderators do, y'know.

At 2:03 PM, Blogger Robert Luedeman, attorney at law said...

Lest I be accused of slagging the moderators consider this little nastygram I received.

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