Friday, November 23, 2007

Dollars, Euros and Junk Economics

There's a lot of talk these days about exchange rates, and da Festung is making a lot of noise about such things, but as always, this infernal palaver is more about soundbites and garnering the sympathy of fools than about facts.
I mean, it's ever so much easier to have Uncle to use as a punching bag than to lay the blame where it rightfully belongs, right? If it's German and French workers that have to lose their jobs, it's far better to blame the dollar and by inference the evil Americans than to look like one is biting the hand that feeds.
So. Is this an excuse to cut the fat and shuck the blame for it off on the yanquis? It has the potential to be sure, but labor in Europe is not the laydown, pussywhipped, watered down, thin blooded kind of thing that it's become here in the states.
So if that's the idea it'll probably fail.
And monetary policy is so dang is a branch of economics, which everyone knows is the dismal science.

Bloomberg has got a pretty well thought out article today that sheds a little light on the subject today.
It seems that Airbus is whinging that it may have to cut its $3 billion research budget because of the decline of the dollar as part of an effort to cut costs, according to Tom Enders. One of the other Talking Heads at Airbus (oh, where ARE you, Barbara Kracht, you were SO good at this) Rainer Ohler says that the dollar decline "poses a threat to the Airbus business model", so that they've got to think about measures to control spending, and that includes the research and development budget.
Talk about shifting the blame.
A few points come to mind. There are two or three distinct threats to the Airbus business model that I know about.
First there IS the declining value of the dollar, but that may well be a mirror reflection of the overvaluation of the euro, which is being driven by excessively conservative european monetary policy coming from the european banks that wear the pants in that marriage. None of this is to say that unsustainable U.S. trade imbalances and deficit spending are not heavily implicated in this calculus.
As we here in the States are painfully aware these days, monetary policy (and for that matter, trade and credit policy) has painful consequences for someone, right on the ground, and that someone can be you, or your neighbor who's out of a job.
But to put european monetary policy in perspective that even fools can understand, you can't price yourself above the market and then complain about the competition undercutting you.
Such a conclusion is the kind of thing that would leave a group of three year old toddlers shaking their little heads in dismay.
The threat to the Airbus business model (to use Herr Ohler's words) is Airbus, and its willingness to spend like a drunken sailor and toss the taxpayers' money down the chute like there was no tomorrow and the gravy train would never end.
Some say the development budget for the A380 has topped $20 billion, the A400M is turning into a money pit, and nobody knows what in heck it's going to cost to develop the A350 around Boeing's near monopoly of big airplane carbon fiber technology.
And there's that pesky problem of actually delivering the product. If one was to assume without deciding that developing the A350 and the A400M are going to cost, say, $10 billion each, Airbus has a $40 billion nut to crack before they ever get to profitability, and right now they don't have an order book that says they can do it.
As that great American sage Pogo once observed, "We have met the Enemy, and He is Us."
Mark it well, Mr. Enders.
By the by, there's an interesting thread on this very subject over at Fleetbuzz (bes' li'l ole blog in the U.K., doncha know, because it's got Soul Power, can'tcha see?) and it's well worth a peek.


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