Euro holding up well versus dollar in current crisis

The graphic displayed on this post is old — March 2, 2011, in the Wall Street Journal.  But I’ve held on to it because (1) the report that week on the dollar was excellent, and (2) well… That’s a great graphic!

And it fits the news item today in the Wall Street Journal: “In 2011, Whither Skeptics of Euro?”  (No paywall!) When the Greece crisis was churning last year, many bet that the euro’s strength would fall against the dollar. The dollar may be in bad shape, went the thinking, but it’s still a safer bet in this climate.  While looking promising at first, those bets have proven wrong, and the euro is up 20% over its relative value versus the dollar compared to this time last year.  However, it isn’t necessarily the euro’s inherent strength that is providing such growth, as a comparison to the Swiss franc demonstrates: the euro is down 13% versus the Swiss franc compared to last year.  Why up so high against the dollar and so low compared to the franc?  As reported in the WSJ article, comparing the euro to the Swiss franc means comparing it to a healthy, stable currency, demonstrating that the euro is having some difficulty due to fears about Greece.

Which, in turn, sheds a harsh light on the dollar.  Not only is it not a healthy, stable currency, but the fact that it makes the euro look so good means it is even worse than it appears.  The fundamentals of the euro are shaky.  The fundamentals of the dollar are horrible.  As the article points out, those who were bullish on the dollar versus the euro had no idea that the Fed would act so irrationally over the last year (or, perhaps, that the underlying market realities would make such irrational, desperate behavior seem so convincingly necessary).

The Bible describes a sinful Israel in a state of debt to foreign nations that it will regret: “The alien who is among you shall rise higher and higher above you, and you shall come down lower and lower. He shall lend to you, but you shall not lend to him; he shall be the head, and you shall be the tail” (Deut. 28:43-44).  [Recent stories of foreign nations & individuals gobbling up real estate deals and businesses adds another element to this.]  And Proverbs makes clear the relationship of those who owe to those who hold the IOU: “The rich rules over the poor, and the borrower is servant to the lender” (Prov. 22:7).  Habakkuk’s poetic warning to the ancient Chaldeans about “creditors” rising suddenly (Hab. 2:6-7) might come to the minds of America’s policymakers — if any of them read their Bibles, of course.

[Obligatory note: Undeniably, Habakkuk’s warning is not to America, which would defy all principles of biblically correct prophetic understanding, nor was he speaking of literal debt. But if the fundamental relationship between debtor and creditor were not true, Habakkuk’s metaphorical warning about Babylon would have rung false.]

Let the speculators speculate, let the currency traders trade, and let the gold and silver buyers buy.  Ultimately, the only thing that will truly make a difference is repentance and turning to God.  It would be wonderful of a wave of national repentance swept over the United States, and, for my part, I will continue in that hope as low as the probability may be.  But whether the nation as a whole does or doesn’t, as an individual I don’t think I would wait…

8 thoughts on “Euro holding up well versus dollar in current crisis

  1. When I saw that graphic from the WSJ, I thought, “What an amazing illustration of the fulfillment of prophecy”, and saved a copy myself. [And thank you for the exposition and accompanying obligatory note as well – for reasons I need not go into.]

  2. Pingback: Euro holding up well versus dollar in current crisis (via Thoughts En Route) | The Chronicles of Johanan Rakkav

  3. Steve

    Prepare to reduce your standard of living! The Fed has been flooding the economy with cheap cash to break the credit log jam. At the same time, the government has been spending like a drunken sailor to stimulate the economy. One European economist called this dual approach “the road to hell.”

    Basically, there are only two ways for the United States to get out of it. The Fed can deliberately induce inflation to reduce the relative value of the national debt. Or the government could enact draconian austerity measures – reduction in services, large tax increases, and sky high credit rates. Either way, the average Joe is going to pay for it.

    (Just my personal opinion, but don’t believe that the government honchos took a stupid pill, one morning. They know that the United States has big trouble on its hands, so they’re scrambling, and playing a very dangerous game, almost to the point of gambling.. Just my opinion).

  4. Michael O'Byrne

    Weimar Republic economics from the US government and it seems that President Obama and his administration haven’t understood the lessons of history arising out of German’s economic disintegration from that time and the repercussions consequent to that disaster – the rise of Adolf Hitler and National Socialism which was Nazism. The graphic is most appropraite!

  5. @Steve (& Mr. Smith): If Hanlon’s Razor is useful (“Never ascribe to malice what can be adequately explained by stupidity” – with apologies to William of Occam), then so is someone’s riposte that Mr. Smith handed me a while back (“Any sufficiently advanced stupidity is indistinguishable from malice” – with apologies to Arthur C. Clarke).

    Offhand, I’d say they took a stupid pill…as it were…just as does any group or individual that gets off-center with regard to the principles of God’s government. The farther off-center one gets, the more “stupid” one gets and yet (so it seems) the harder it is to make a course correction in one’s thinking. I’d maintain that as an axiom except that in this world, even the centrists seem hard to persuade that only God is righteous and their own right hands can’t save them (cf. Job 40).

  6. I read shortly after you published this that the Swiss franc was the last currency in the world to cut its ties to gold (in 1999, thanks to a change in its constitution). I wonder what the situation would be now if the Swiss franc had retained its ties to the gold standard, which standard naturally is derided in some quarters. There’s a financial law being broken right there: a currency needs to be fixed to real value. Back in the day they manipulated currency by changing the weights of the scales, then by shaving or adulterating the coinage. Now…

    Factoid: in ancient Mesopotamia the exchange rate between gold and silver was 1:12 (in ancient Greece it was 1:13), according to an old Bible dictionary contained in my RSV.

  7. Interesting commentary and comments. It makes me more thankful the older I get that God called me to understanding things that others in the world are living in panic over. No the world will not be easy in the future. God’s predictions of mankind’s future from mankind’s behavior as left us knowing that none of this is illogical or unexpected. It is sad however for all we were given, to have fallen so far from grace. I began years ago to not have any more than I can afford to lose. I have been living a different way of life than I once did. The adjustments were initially hard to accept, but I came to realize that all I need is right here and whatever happens to that? Well God will watch over and protect me. Good article.

  8. Steve

    My bracketed comment and Rakkav’s reply: The government honchos did not take a stupid pill in the sense of economics. They know a whole more about finance than we do. Their use of dangerous levers to correct the US economy is symptomatic of the gigantic hole the US has dug for itself.

    Yes, they took a stupid pill in the sense of obedience to God’s law. Just like the rest of humanity. That’s a given.

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