The rise of the euro

Conclusion: the euro will for the foreseeable future be by far the most important alternative to the dollar.

So writes Deutsche Bank economist Werner Becker in a new paper, Euro riding high as an international reserve currency (PDF). The euro's share of global foreign exchange reserves rose from 18% at the start of 1999 to around 25% by the end of 2003. Becker cites four factors why DB expect the euro share of global foreign exchange reserves to rise to 30-40% by 2010.

The vulnerability of the US dollar given the huge current account imbalances, the changes in exchange rate regime (e.g. changeover from a dollar peg to a basket of currencies with the euro as a core element as in the case of China), the central banks’ growing investment requirements and the increasing focus on returns.

But after 2010 the outlook is more murky. We could see a dollar renaissance. As for the yuan, don't hold your breath: while it has the potential to become an international currency, this will not be "until well after 2010." 

Comments

[marketreflections]

1) This is a good read, and I have quoted a few interesting points here, with my comments at "2)".

“Asia’s unwillingness to allow
appreciation increases pressure on
euro to appreciate

According to unofficial sources,
however, some 80% of Chinese foreign exchange reserves are
invested in dollars.28 Compared with a global euro share of 25%
between 2003 and 2006 the euro therefore has growth potential in
China’s reserves.

Trend growth in the euro area at nearly 2%33 is
around one percentage point lower than in the US.

The euro area is,
however, clearly at a disadvantage in terms of population growth. As
the birth rate has been much lower than in the US in recent
decades, population growth will continue to slow in the EMU states.
In the next ten years the population will actually decline. Immigration
will do little to change this.

The primary attributes in the yuan’s favour are China’s huge
economic potential, the ongoing boom in the economy and the
country’s rapidly increasing integration into the global economy.
History tells us that it does, however, take time for a currency to
acquire an international profile and that must be predicated on a
number of features that the yuan still has to develop. In particular,
yuan financial markets are only just being established”

2) My comments. I had a post , “Pricing a world on board the global capitalism train co-captained by US & China” on marketreflections.com

I think, the two Captains, “Uncle Sam” and “CCP” would “consult” with each other very closely on matters of US trade deficit financing, USD, China’s holding of US bonds, etc. Their consultations would have a decisive impact on USD

042807 Pricing a world on board the global capitalism train co-captained by US & China

Briefly scanning through “A global history: from prehistory to the 21st century, by L.S. Stavianos”, I can’t find any period in human history where almost the entire population on earth of different counties, of different cultures, and of still very different political and social systems all synchronize and standardize on any one common economic system , not even remotely.

However, the whole world now is on board the train of global capitalism, with its passenger population is still growing in almost every language, with Capitan Uncle Sam working on getting nations in Arabian world on board via the Western entry of “freedom and democracy”, and with Comrade CCP trying pulling North Korea on board from an Eastern entry of “socialist market economy”.

Amazingly, Uncle Sam and CCP have been teaming up with each other very well as co-captains of the global capitalism train, not so much because they become friends now from being “foes” of each other in the past, but more likely out of choices.

For CCP, having led its 1.3 billion people, or 20 percent of the world's population, march on the road of market economy since 1978, it has long past “the point of no return”. “Growth is the hardcore of all truth” is legacy left by the architect of China’s socialist capitalism—Deng Xiaoping, and today it has become “the truth of all truth” for every citizen. You just got to have money. Otherwise, you can’t even “lease” a piece of land which is supposedly owned by you through the state, according to the newly passed “property rights law”. Similarly, you would have to pay state government property tax on the land you own in US.

“All crows are of the same black color” is the Chinese way of exposing the common nature of all “evils”. Capitalism is just not evil any more in China: everybody likes it and nobody wants to go back to Mao’s time.

So, Captain CCP has to work hard and drive the train forward.
For Captain Uncle Sam, “the mission is yet to be accomplished”, the mission being its historical mission to prevail capitalism, freedom and democracy globally.

The “division of labor” between the “odd couple” seems have worked out pretty well. CCP, with the 20% of passengers on board the train being Chinese, is obviously focusing its attention on “growth engine” related tasks. Uncle Sam is still enthusiastically carrying on his old job as a “politician and policeman”. Needless to say, Uncle Sam’s job is often costly and vulnerable to attacks of “gangsters”, if not “evils”.

Unwilling and/or unable to take over Uncle Sam’s job, CCP fully understands that if the train is sabotaged or overthrown in any way, such as energy crisis, military or political conflicts of significantly scales, the workfare and welfare of its 1.3 billion native passengers on board would be seriously threatened.

Knowing that and CCP’s needs in keeping its low-key profile in world political matters, the corporation between Uncle Sam and CCP has been very implicit, diplomatic and effective. The progress of corporation in those sensitive but important non-economic areas is even more rapid than expected, just like China’s GDP growth: US is less and less enthusiastic in criticizing China in the area of “human rights”, “freedom and democracy”, etc. And reportedly, China is even sending or already sent out a military delegation to Pentagon to improve its “report” on China’s military and defense.

What about Mr. Karl Rove? CCP would definitely need his talent in PR.

So, how to price such a world? After all said and done, that’s all what financial market participants would care about.
Seeing the growing “comradeship” between Uncle Sam and CCP, bond market, with its historical low yield on long end of the curve, and with the short-end of it being regulated by Fed, already give the answer to Mr. Gross, who has been complaining about “risk not being paid”: there is not much “term or uncertainty premium” left anymore, and what you are complaining about?

What about the stock investors? If there is not much upside potential for long bond yields, then PE for stocks have to expand, so its “yield” would not be too far away from the “parity” between bond and stocks, as defined by Fed model. How much PE would have to expend? Look for the “next immediate resistance level”, which was established in 2000, chart wise.

[AA Breakdown]

With more Brittons and moving away from the UK and the inability to sell more UK made products to the europeans than they sell to us, its not surprising that the euro is becomming stronger. can't see the turn around until the property, holiday bubble bursts.

Mark

[Arthur Eckart]

Mark, if there's a global recession, the E.U. may suffer more than Britain (given E.U. exports). Adding more countries may not be the best way to prevent an economic decline. At least Britain is holding up well. China will still be a Third World country (although slave labor will continue to make the Communist government and foreign firms richer). I don't see evidence of a general property bubble. Below are some prior comments:

U.S. housing prices are substantially higher every 10 years, interest rates remain very low, and prices are a little lower. In 10 years, the average U.S. home may be $100,000 higher with much higher mortgage rates (e.g. 10%). So, it may be a buyer's market. Also, much refinancing was invested in home improvements, which of course adds value. It's important to look at both interest rates and inflation regarding home prices (some only take inflation into account), although there are other factors (e.g. income, investment, taxes, etc.). Thirty-year interest rates fell from over 15% in the early-'80s to below 5% in the mid-'00s. Also, inflation fell from over 13% in the early-'80s to slightly over 1% in the early-00s. The following are unadjusted percentage increases in U.S. median home prices every 10 years: 1940-50 150%; 1950-60 62%; 1960-70 43%; 1970-80 178%; 1980-90 68%; 1990-00 51%. Since 2000, the U.S. median home price has risen roughly 85%. Falling interest rates should accelerate home price increases, while disinflation should slow home price increases. If all the relevant variables are included, I doubt U.S. median home prices rose substantially more in the 2000s than other decades. It may be best to look at changes in monthly housing payments or housing costs to income.

[claudio mendes]

Dear sirs, The New Econonist is a excellent blog,but we need informations and texts in a daily edition. The frequency os this publication is not good. thanks and best regards claudio mendes sao paulo brasil

[brad setser]

hmmm -- if the euro's share of global reserves (now around $6 trillion, counting china's hidden reserves/ sama) rises by 15% (close to a $1 trillion) and the dollar's share falls by 15% (close to a trillion), I wonder who finances the united states large ongoing current account deficits (currently financed in large part by ongoing growth in $ reserves -- the frbny's custodial holdings are rising at a $500b annual pace in 07, and my own estimate puts annual $ reserve growth so far this year at $750-800b ... ).

[Lafayette]

bs: I wonder who finances the united states large ongoing current account deficits

The Americans do, through higher interest rates on their T-notes.

The real risk is that the Chinese no longer want to buy T-notes, at any price. Which means even further increases in the interest rates in order to attract buyers.

Increased interest rates reduce economic activity internal to the US, which reduces tax incomes which increases the difficulty of the Treasury to sustain the chronic deficit. Increased tax rates in the US become inevitable in order to maintain the debt.

This calamity has been in the making for far too long. It is time to pay the piper and Americans will learn the cost of having dithered in hubris over the past fifty years.

NB: Let's remember Chaney's stupidity at the beginning of this administration's tenure, when he said: "Reagan proved that deficits don't matter." When people vote that sort of idiot into power, they deserve the consequences.

[loneprimate]

Why are birthrates invariably thrown into the mix in discussions like these, as though they were some great advantage to the United States? The US faces the same onrushing Baby Bust as the rest of us. Furthermore, the people in the US with the highest birthrates are the very same people most economically disadvantaged, least educated, and with the highest rates of marginal employment or outright unemployment. That hardly sounds like an advantage to me; quite the contrary – it sounds to me like a drag on their tax base. Let’s face it: Africa has a staggering birthrate, but I wouldn’t say it’s made the place rich. Europe, on the other hand, faces a situation in which labour will be scarce and valued, fewer heads and hands in more demand, and more able to pry their fair share of the pie out of the hands of the elite. Yeah, if you’re a billionaire, the future of Europe must look pretty bleak and hopelessly egalitarian. If you’re an average person, I think you’d rather be in the EU than US… now, and a generation from now.

[Lafayette]

lp: the people in the US with the highest birthrates are the very same people most economically disadvantaged, least educated, and with the highest rates of marginal employment or outright unemployment. That hardly sounds like an advantage to me; quite the contrary – it sounds to me like a drag on their tax base. Let’s face it: Africa has a staggering birthrate, but I wouldn’t say it’s made the place rich.

You've understood completely. Birth rate in and of itself doesn't really matter. It must be accompanied by culture.

The newborns in the US and Europe, in just about a two decades, will begin to add value-added to the economy, whereas in Africa, like today, they are going to be hoping to scrape together the money to take a boat that will get them to Europe without killing them.

And that is fact not fantasy.

[Arthur Eckart]

Loneprimate, right, if the U.S. had a lower fertility rate, U.S. per capita income would be even higher (currently, it's over $10,000 a year higher than the E.U.). There may be more "free" benefits in the E.U. However, the trade-off is fewer opportunities, more meaningless jobs, along with higher unemployment, higher prices, etc. It's uncertain if E.U. labor will be scarce and valued, because of low fertility rates. Other factors, e.g. higher costs, can lower supply. An average American has a much higher living standard than an average European and the disparity will likely increase.

[Arthur Eckart]

Also, I may add, the U.S. economy is more flexible (since there are fewer wage rigidies, labor immobility, unnecessary costs, etc.). Consequently, older industries can easily shift into "core" products (e.g. the most profitable goods or goods with market power) and outsource or discontinue other products. Shifting into core products frees-up domestic resources for emerging industries. So, the quality of U.S. output is high in older and newer industries. The U.S. is the world's only superpower not only because it leads the rest of the world combined in the Information and Biotech Revolutions, it's also most productive and profitable in the Agricultural and Industrial Revolutions. One reason the E.U. and China cannot become superpowers or leading engines of global growth (e.g. being able to expand with huge negative net exports) is their true costs are understated (e.g. E.U. government intervention and China's negative externalities).

[thomas]

The E.U. merchandise and service exports amount to 2.5 trillion annually(US dollars) with a 7-8% Growth rate.
That's not Competitive?
That almost double the US export totals!
The EU is the world's largest recipient of Foreign Direct Investment(50% of world total) and the world's largest investor! Why?
The US does not even come close!
Name a country that comes close!

The E.U. Per Capita income is around 30,000 Euros Yearly with some states richer and some states poorer but in Exchange rate parity that equates to 42,000 in U.S. dollars.
Why?
Healthcare is Univeral, Higher Education is much cheaper then US tuition costs ,much stronger welfare safety nets and here is one of the most important figures-Inflation rates in Germany and Japan(for example) have been lower since 1982 compared to the U.S.
Why?
For every dollar of GDP Growth the US is adding 6 dollars in new debts and that's why the US is a Debtor Nation!

We have 2% of the world's currency reserves, 3% of the world's oil reserves,and a Current account deficit approaching 1 trillion yearly(meaning we have lost our manufacturing base).

The Eurozone is a Credititor with much less debts throughout it's economy.Why?

The European Union has 40 million manufacturing jobs compared to 14 million in the US. Why?

The Median income for a US Male is 30,000 yearly(before taxes)
The Median per capita income for females in the US is 20,000(Before taxes)
Converted to Euro Dollars the median US male would make $18,000 Euros yearly.
Female per Capita median income would be $12,000 Euros(before taxes)
We have the most expensive healthcare in the world.

Most Expensive College tuition in the world.

Very few welfare safety nets.

My car insurance is twice what I would pay in Germany? Why?

Why is my Grocerices in Florida more expensive then in Germany.
Milk costs $4.00 a gallon for example!

Why is our house insurance more in Florida then Germany?
Hurricanes? Greed? Many people are spending 5,000 or 6,000 dollars yearly for modest homes!

Why is our land taxes in Florida more then Germany?
Land taxes are sometime $4,000/yearly for a modest home and that does not include Water, Garbage and local taxes such as drainage!

Why does the average Floridian pay 200.00/monthly for electricity?

Why does Germany have State sponsered Daycare for it's children?

Why does Germany have lower crime rates versus the US

Why does the US have 8 times the Prison population per capita versus Germany?
Why is the average wages in Germany higher then American Wages?

Why does the Average German receive more benefits versus the Average American?
The Mercer Survey in 2006 ranked the US 20th in wages and 37th in healthcare!

Why does the average German receive 50 days off yearly while many American recieve 6 days and many more do not take any days off?

Why does the Average European Live longer then the average American?
The average Americans life expectancy was ranked 47th in 2006(CIA webpage)

Why did America not sign the Kyoto treaty?

Why are we behind in the Renewable Energy Revolution?

Why does the average American not have the right to protest without being put inside of a cage like in Boston during the presidential election(2004)?
They put US citizen Protesters in a pit, surrounded by fences and barb-wire if they wanted to protest the president and those where the lucky ones. Many were just arrested, most non-violent protestors. Why?

Why is America's Gini-index 50?

Those are a few question you could all answer for me!

[Arthur Eckart]

Thomas, if you're paying $4 a gallon for milk, you must be living in a remote island in Florida or shop at the most expensive stores. Even in San Francisco, where almost everything is more expensive than the rest of the country, milk is still less than $3 a gallon, although it has risen recently. There was an article on this site that showed the global share of U.S. manufacturing has remained roughly constant, even though millions of U.S. manufacturing jobs were lost and U.S. trade deficits increased (which increased manufacturing offshore). So, obviously, U.S. manufacturing is productive. The Gini coefficient measures relative inequality. Would you rather be relatively richer, although absolutely poorer, or absolutely richer? Quality is more expensive, e.g. in education and health care. The U.S. may have a higher infant mortality rate. However, cancer rates are lower, etc. (see link below). Anyway, much of your data are questionable (and skewed) and they aren't in any economic context. Perhaps, you can explain why U.S. living standards (on both the production and consumption sides) are much higher than in the E.U. and why you're living in Florida instead of Germany? Also, I may add, perhaps, criminals prefer the U.S. :)

http://rex.nci.nih.gov/NCI_Pub_Interface/raterisk/rates39.html

[Arthur Eckart]

Also, I may add, the stronger Euro and weaker Dollar does not change living standards within the E.U. and U.S. The E.U. is overproducing and underconsuming, while the U.S. is underproducing and overconsuming. The trade imbalance should narrow and Europeans are more likely to vacation in the U.S. (perhaps, more Germans will visit the U.S., since they also have 50 days off a year). It costs less than $200 a month in electricity for most six bedroom houses in the U.S. Of course, you failed to mention the following (in first link below): "Florida is one of only seven states that does not tax individual wage income. It does, however, assess a state corporate income tax. The state's intangible personal property tax was eliminated in 2007." Also, Florida median property tax is $1,500 (second link). It seems, finding the truth about crime is as difficult as finding the truth about health care and causes of climate change. Unfortunately, there's a lot of political hype. The third link below suggests crime rates in the U.S. are not much different than other developed countries, e.g. taking into account differences in conviction and custody rates. Also, the study states: "There are enormous problems of comparability over time and between countries, in laws, measurement methods, recording practices, and macrosocial cultural and political factors."

http://www.bankrate.com/yho/itax/edit/state/profiles/state_tax_Fla.asp

http://articles.moneycentral.msn.com/Taxes/Advice/PropertyTaxesWhereDoesYourStateRank.aspx

http://www.ojp.usdoj.gov/bjs/abstract/cnscj.htm

[Arthur Eckart]

Brad, you stated: "I wonder who finances the united states large ongoing current account deficits..." Export-led countries finance them, which need the U.S. (e.g. to keep their employment levels high) more than the U.S. needs them. So, the U.S. share of gains is larger (e.g. the gains in consumption and investment exceed the losses in production). U.S. budget deficits are also financed by export-led countries (e.g. directly through purchasing U.S. Treasury bonds and indirectly through increasing the U.S. tax base). The U.S. benefits in many ways, e.g. international trade increases the total economic pie (e.g. through the Law of Comparative Advantage), U.S. multinational firms outsource to foreign economies with lower input costs to increase revenues (rather than discontinue lower profitable goods), and increase profits, U.S. consumers pay absolutely (i.e. domestically) and relatively (compared to export-led countries) lower prices, based on income, U.S. interest rates are absolutely and relatively lower, because of foreign capital inflows, U.S. competition is heightened (e.g. through cheap imports), which also lowers prices for many domestic goods, The U.S. has a low household saving rate and a high debt level, since lower prices and interest rates induced demand. However, low saving and high debt will keep future U.S. employment high (to pay-down debt and build-up saving), to increase future GDP. Also, eventually, U.S. exports will increase faster than U.S. imports, to narrow trade deficits, which will also add to future GDP (particularly, given improved U.S. "terms of trade"). Large foreign capital inflows have added to higher U.S. GDP. However, large U.S. negative net exports have subtracted from U.S. GDP. Export-led countries will also gain less, than the U.S., e.g. through low returns on U.S. Treasury bonds and premiums for U.S. stocks and physical assets. Foreign capital will stay in the U.S., although inflows will slow. So, export-led economies can maintain some level of growth. Consequently, U.S. long-run GDP growth will continue to be substantially higher than the E.U., while the U.S. will continue to benefit much more on the consumption side. The U.S. dollar will remain the most demanded hard currency, because of U.S. economic fundamentals.

[Arthur Eckart]

Lafayette, you stated: "The real risk is that the Chinese no longer want to buy T-notes, at any price." China's economy reminds me of Amazon.com's business plan, i.e. to increase revenue at any cost and then cut cost or raise prices to increase profit through economies of scale and market power. China has been successful at increasing output at any cost, because it provided cheap inputs for foreign firms and Chinese firms exported at low prices. So, foreign firms made large profits, while Chinese firms made little or no real profits (taking social costs into account and perhaps selling below real costs). Obviously, this plan cannot continue, because China's economy will eventually collapse. So, China will have to cut costs or raise prices. However, it will be difficult for China to cut costs, because that may raise some costs, e.g. to offset low wages and negative externalities. It will also be difficult for China to raise prices, because China has many competitors, i.e. other low cost countries. China may need to scale back and focus on industries where real costs are low and improve quality to raise prices.

[Lafayette]

AE: Chinese firms made little or no real profits (taking social costs into account and perhaps selling below real costs). Obviously, this plan cannot continue, because China's economy will eventually collapse.

I don't see this happening at all. The real estate boom around the large industrial cities suggest that corporate profits are alive and well.

Various reports -- that I have seen -- show an emerging middle class. This class lives about as well as anyone in the Far East, certainly as well as - for instance - in the Philippines. It buys cars. It goes on vacation to foreign countries. (I see them all over the monuments in France.) They are having children and moving into modern apartments.

By its own momentum, the economy will turn from export to internal-demand driven. It is simply a question of time. And some external competition. It's up for grabs ... there is much talk about some manufacturing having already dislocated from China to Vietnam.

The Chinese are handling their economy in a particularly good fashion. (Doing exactly what the Japanese did to reconstruct post-WW2. Who can blame them for doing so?)

What they must contend with is an old Chinese problem -- direction from a central authority, which is culturally inculcated. If they can adapt to a reasonably democratic society - like that of Japan or South Korea - then there is no reason whatsoever to believe China cannot become a major world power in its own right.

Will China be a first-level global player? That's not easy to forecast. The level of innovation shows no great creativity, at least technologically. They are pretty good a copycat work. But, launching new products on the world market, like a Sony or a Panasonic ... that remains to be seen.

[Arthur Eckart]

Lafayette, Chinese firms earn high profits, because they don't take social costs into account, e.g. low wages, poor working conditions (or human rights in general), pollution, etc. If those costs were taken into account, Chinese profits would be much lower and perhaps negative. China's middle class, of over 200 million people, would be considered impoverished by developed countries standards, except for a few million political bureaucrats. It's uncertain if post-war Japan can be compared to China, e.g. heavily polluting the country with low wages. Anyway, Japan specialized in few industries globally, e.g. in electronics and automotive. Unfortunately, it may be necessary for poor countries to work basically for free to gain global market share. Consequently, minimal universal standards may be needed to avoid excessive social costs, and stop a true race to the bottom.

[Arthur Eckart]

Also, I may add, real wages in the U.S. were high in the 19th century, because labor was scarce. However, China's social costs are high, because of its large population, along with its "growth at any cost" policy, after lagging for centuries.

[Lafayette]

Thomas: "How many students leave college with $100,000 or more in debts?"

The averagae debt for an American student graduating is $17,000. The terms of repayment are very easy. But, this is not the bone of contention I would have with your comment. (I think, personally, that tuition should be free, gratis and for nothing for all Americans who want either skills training or a university degree. Whichever suits them naturally.)

My bone of contention is this: Which percentage of German students find a job right out of university? How many go from part-time job to part-time job? How many, in fact, wait years for a decent, durable job?

I don't know what the answer is, in fact. I know fairly well, however, what is happening in France. And, if what you spew above is almost identical for France, so isn't the present job situation for graduates. It is PITIFULLY inadequate!

In America, this is not the situation. Recruiters are on campus in many or most universities. Despite the sub-prime mess presently, America created jobs in the past month. Graduates are being hired at decent salaries and many leave within three months to find better employment. Their employment is upwardly mobile.

How many jobs did Germany create this past month? This past year?

[thomas riccardo]

Germany has created about 800,000 jobs over the past year.

They have severe shortages in Skilled workers because of the export boom and also the Renewable Energy Boom which now employs 300,000 workers in Germany,growing 25% yearly!

German Manufacturing is Growing and The EU Manufacturing sector is growing having close to 40 million manufcturing jobs?

The EU is the largest Exporter both in services and merchandise.

The average Tuition in a Private USA University is $35,000 yearly, for a Public University it is $17,000 yearly not including other expenses.
A Medical Student in Many Cases over the course of their studies spend over $300,000.
You do the Math if in Germany it is Free or $1000 Yearly!

And they also Grant up to $600 Euros Monthly for living expenses while studying up to the age of 30.
Doctors in Germany may make on average $70,000-$80,000 per year(more if specialized)but they have very low malpractice insurance costs compared to America and very, very cheap Education if not Free along with much shorter working hours!
The average starting wage for a Teacher in Germany is $45,000 Euros+Retirement,Vacation Money,Health insurance,etc.
And they have a shortage of Teachers!

My Girlfriends Son Graduated from a German University this year and had 5 job offers, currently he works in Hamburg with an Advertising Firm.
Germany has a Huge Current Account Surplus, now the Government also has a balanced budget along with much lower Consumer and Corporate Debt levels compared to America.
Explain why in 2006 the US Economy added $6.30 of new debt for every $1.00 in GDP Growth. (Government, State, Corporate, Consumers and Trade debts for example)
Germany has been the largest Creditor Nation on the planet for the last 6 years.
The European Union has Created over 18 million since 1999.
IN 2006 Europe Created 3.5 Million new Jobs.
Germany and America do not use the same Measuring Sticks when comparing GDP Growth and inflation.

The USA uses Deflaters, Computer power and software purchases along with other measures Hedeonic Inflaters which Europe does not use.

IF Europe used the same Measuring Methods as the USA, their Growth Rate would increase from 3% to 9%.
Why don't we start using the same stats when comparing the countries?
And since 2000 America is 7-8 million jobs short of Keeping up with Population Growth.
Most of the Jobs created were in Healthcare or low wage services, I guess this is Success???

The Mercer Survey states in 2006 that the average pay in the USA was ranked 20th worldwide.

Switerland and Germany are the top countries in pay along with Hong Kong, Japan, Spain, the Netherlands, Canada,etc.

The World's best benefits are located in Denmark, Norway, Finland, Sweden, Germany and Switerland on average.

America has the highest poverty rate in the modern world with a Gini-index approaching 50.
Germany is 28 and Denmark is 24.

25% of Americans take no Vacation and the average Vacation time per year is 1 week.

Welfare reform in America has basically shredded our safety nets.

50 Million with no Health Insurance

150 million more with partial coverage or weak coverage.

Per Capita income for a Female is $20,000 and for a Male it is $30,000-before taxes.

Take the Median of the 2 per capita income, ($25,000) take the taxes and other health insurance costs out- 25% to 30% of income.

Take home pay for many Americans would be $18,000 or $19,000 yearly with little or no social benefits!

The Eurodollar is $1.45 to the US Dollar so convert the $19,000 to Eurodollars- $10,500 Euros!

The Healthcare is ranked 37th

The average lifespan for Americans is ranked 47th compared to other countries.

[Arthur Eckart]

Thomas, I've shown you before in detail how many of your statements and the implications of your statements are false. The E.U. economy, in general, continues to lag the U.S. economy, because of too many anti-growth/business policies, inefficient allocation of resources, suboptimal improvements in living standards, etc.

[Lafayette]

All very good tr. Just hunky-dory.

Then, pray tell, why has Germany had an historic unemployment rate of over 6% since the early 1980s - that is, for more than a quarter of a century. Why has it had an unemployment rate closer to 9% for almost a decade?

Why has it been unable to reduce unemployment in former East Germany below double-digits, since the Berlin Wall came tumbling down?

Why is German youth unemployment rate stagnating at 14%, up from 5% in 1990?

Why was German long-term unemployment at 54%! (of total, 2005) versus 10% in Canada, or 20% in Australia?

Why, in terms of Happiness, do German polls show the country below these:
16 Germany 7.2
17 United Kingdom 7.1
18 Spain 7.0
19 Italy 6.9
19 Mexico 6.9
21 France 6.6
22 Czech Republic 6.4
23 Greece 6.3
24 Japan 6.2
25 Portugal 6.1
26 Poland 5.9
27 South Korea 5.8
28 Hungary 5.7
29 Slovakia 5.4
30 Turkey 5.3

You aren't looking at Germany through rosy glasses?

[thomas riccardo]

Europe has Created more jobs then America since 1999.

Newsweek,Businessweek and the Economist have already stated this over the past several years.

Europe's job Growth is over 1% annually.

Germany's Engineering and Science Sectors are second to no Nation!

The Proof- They won the Chemistry and Physics Nobel Prizes this year!

Europe Publishes more Scientific Research Papers then the USA since 1995!

Germany Exports 1.4 Trillion dollars yearly in Merchandies and services.

The EU is well over 2 trillion in annual exports, dwarfing the USA!

Do you think Americans are happy?

Half of the population takes prescription drugs for mental illness including depression.

With 8 million citizens in the US Correctional system(probation, Prison, Parole,etc) we may not be a very free country either.

That number was about 1 million in the 1970's.

And Why does the Mercer Survey indicate Americans pay are ranked 20th while their Healthcare is 37th?

Why is our average Life Expectency 47th?

And the Happy Planet Index, Americans and Russians were almost at the bottom of the chart!

Why has American Genuine Progress Indicator been in Decline since 1979?

Europe Dominates the Top Positions along with a few other countries around the world.

And since the only thing you understand is GDP why did America add $6.30 of debt for every dollar of GDP Growth in 2006? (Government, Company, Trade, Consumer debts,etc).

That does not look very good and could be a reason for the Dollars Free Fall!!!!!

[Lafayette]

Doubting Thomas: "Germany's Engineering and Science Sectors are second to no Nation!"

Right, that's why Germany has soooo many Noble Prize winners and scores soooo high in technology patents.

The best German engineers are working in America, because any technology they develop will find it quicker to the market and, when/if it makes a market, their stock-options won't be taxed to nothingness.

No company in their right mind would open up a manufacturing plant in Germany. Engineering design, yes. But, not manufacturing. Which is why German design engineers have their products manufactured in either the Czech Republic or Slovakia or Poland or ...

I saw a report recently (ARTE) about a German company that pulled back its production from Slovenia because the products "were not up to German quality standards". It made me laugh. Instead of tightening the standards with better QC procedures, they prefer to manufacture a product that is too expensive for any market other than in Germany. Smart, that. Real smart.

DT: "And Why does the Mercer Survey indicate Americans pay are ranked 20th while their Healthcare is 37th?"

And what is Mercer's rank for pay in Germany? It'll give you a hint why German companies are dislocating production to Eastern Europe?

You are right about Health Care -- I'll grant you that. (But, you are wrong to think German engineers are inventing the technology at the core of the best Health Care systems today.)

DT: "And since the only thing you understand is GDP why did America add $6.30 of debt for every dollar of GDP Growth in 2006?"

Because the Chinese like to hold dollar debt? Next idiot question, please?

Frankly, in the EU and US comparison, I do think that the EU comes out best. Especially in quality of life. The Mercer study places 13 European capitals above New York City in that ranking.

But, the one area where it is decidedly worse is innovation (time to market of innovative products) and venture capital (ready access to start-up capital for new product/services ideas). Both are key to a dynamic industrial/commercial base.

PS: I can't imagine why you go on with this silly contest of factoids. Do you think it's like playing football, the one with the most points wins the game? Or, are you on a propaganda contract for the German government? (Probably the only work you are good at.) Germany cannot be measured against the US. The EU can. Try comparing Germany against California and add a dash of New York or Washington state. Then you might have socio-demographic entities that are comparable -- and a debate worth continuing.

[Arthur Eckart]

Not only does the E.U. economy, in general, continue to lag the U.S. economy, because of too many anti-growth/business policies, inefficient allocation of resources, and suboptimal improvements in living standards, there are also too many disincentives and unnecessary costs. Furthermore, when evaluating income redistribution, it's also important to look at the consumption side to determine inequality. When some of that income is spent on "sin-goods," then income redistribution, in an attempt to decrease inequality (of living standards), can increase inequality instead.

[Montelatici]

Given that the GINI index in the US is more akin to a developing country and the EU states have a more equal distribution of income, it appears that the previous poster does not know what he is talking about. I think you will find that the current GDP per capita of the EU, particularly that of the Eurozone, when measured in euro is roughly equivalent or higher than that of the US.

[Lafayette]

AE: "Not only does the E.U. economy ... continue to lag the U.S. economy (in) ... suboptimal improvements in living standards"

Perhaps on economic growth, but you make the mistake of thinking, like many Americans, that growth is the raison d'être of economic development.

It isn't -- quality of life is. And, as regards that attribute, here are the top 10 cities worldwide from a study (Mercer Resources Consulting and based on detailed assessments and evaluations of 39 key quality of living determinants):

1 ZURICH --108.1
2 GENEVA -- 108.0
3 VANCOUVER -- 107.7
4 VIENNA -- 107.7
5 AUCKLAND -- 107.3
6 DUSSELDORF -- 107.3
7 FRANKFURT -- 107.1
8 MUNICH -- 106.9
9 BERN -- 106.5
9 SYDNEY -- 106.5
11 COPENHAGEN -- 106.2

Honolulu finally comes in at 27th with a nonetheless respectable score of 103.1. When America learns how to transform growth into acceptable, uniform living standards, I'll let you know.

It has a way to go, being a plutocracy.

[Arthur Eckart]

Lafayette, most studies based on subjective criteria are meaningless. For example, San Jose California, the big city in Silicon Valley, is not even in the top 10. Some can't have it both ways, i.e. believe there are too many rich people in the U.S., while there are no top rich cities, or U.S. living standards are too high for some and too low for others without the cities to support that claim. Also, if you look at the 10-year U.S. housing boom, almost all the construction, i.e. expansion, took place in middle and upper class neighborhoods. So, there's been substantial upward mobility. Poor U.S. cities would have become ghost towns, except millions of Third World immigrants moved into them, because living standards are better in poor U.S. neighborhoods than in their foreign countries.

Monte, the Gini coefficient only reflects the production side of the economy. When the consumption side is included, you may find E.U. inequalities in living standards are worse than the U.S. Also, U.S. per capita income was over $10,000 a year higher than E.U. per capita income in 2006, after the dollar already depreciated substantially from the initial $1.18 per Euro parity (see link below). The dollar has not depreciated enough since then to change that difference much. Moreover, changes in currency exchange rates basically don't correct E.U. deficiencies, e.g. listed above. Europeans can increase their living standards by selling their assets, exchanging their Euros for dollars, and moving to the U.S.

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29_per_capita

[Lafayette]

AE: " .. most studies based on subjective criteria are meaningless."

And most generalization such as this are balderdash. Such studies are indicative of a present state, if conducted correctly.

In this case, for that matter, the study was not made by first year economics students but by a reputable company, that sells this information to other reputable companies.

It always disappoints when people use this lame argument in rebuttal.

[Arthur Eckart]

Lafayette, it seems, the Mercer study was done by accountants, not economists. Below is a study by economists. The Nobel Prize economist who created the index stated: "It's a vulgar measure because of its limitations." These type of studies implicitly place more weight on relative living standards within countries than absolute living standards. Obviously, U.S. absolute living standards are higher, given the U.S. leads the E.U. by far on both the production and consumption sides, while there's greater U.S. upward mobility.

http://en.wikipedia.org/wiki/Human_Development_Index

[thomasriccardo]

The USA has much higher inflation then Germany since the 1970's when we went off the Gold Standard in 1971.

And the USA Dollar has lost termendous amounts of value against most Major Currencies since that time.

Car Insurance is Higher.

House Insurance is Higher.

Food Inflation is Higher.

House Inflation has been Higher.

College Tuition is much Higher in the USA versus Germany.

Germany uses 50% less energy per GDP output versus the USA- the reason is their homes are built better on average and use less energy, most of the new Car purchases in Germany are Diesal which is 40% more efficient then Gasoline Engines and throughout their economy they are efficient in their energy usuage in their factories or elsewhere.

Now they are also the World Leaders in Renewable Energy usuage and also Manufacturing/development.
Etc,etc

Germany spends 11% of GDP on Healthcare, the USA spends 17%, about 50% higher and 50 million are not covered with Insurance along with many Millions more who only have partial coverage.

This is why the Euro is Higher, the inflation is lower meaning less Corruption so far.

The more money one prints out of thin air in excess of real economic Growth the more the Country will lose it's standard of living.

Most people I speak to have indicated to me that of course our standard has declined since the 1970's.

It is the propaganda from the Media Outlets which try to cover the tracks of the Whores who have been stealing the country blind.

On most studies I've read lately, the USA mobility has stalled.

The Gini Index has risen to almost 50.

And you don't want to compare exchange rate values?

I remember when the US Dollar was high in the 1990's that was the main indicator the Media used to compare the USA to other countries.

The most expensive place I've seen in Europe on average was the UK.

The UK really does not have a very strong economy compared to some other modern countries around the world.

[Arthur Eckart]

Thomas, obviously, you didn't understand the other comments above. U.S. prices are much lower than Germany. The $800 billion a year U.S. trade deficits lowered U.S. prices and increased domestic competition, which lowered U.S. prices even more. U.S. houses are 50% larger than Germany's houses. Germany has labor immobility and wage rigidies, to go along with its deficient anti-growth/business policies, inefficient allocation of resources, suboptimal improvements in living standards, disincentives, unnecessary costs, greater consumption of "sin-goods," etc. When Germany's consumption side is included, there's greater inequality in Germany. A lot of money is wasted on Germany's equal and inferior health care system, etc. Germans can increase their living standards substantially by selling their assets, exchanging their Euros for dollars, and moving to the U.S.

[Lafayette]

TR: "The UK really does not have a very strong economy compared to some other modern countries around the world."

Strong enough to have maintained half the unemployment of Germany over the past decade.

And, that is ALL that matters.

[Arthur Eckart]

Moreover, I may add, there are many factors that explain why prices in Germany are substantially higher than the U.S., which slow improvements in German living standards, e.g. additional risks by German firms to invest, because of anti-business policies, labor laws that create inflexibilities, trade policies that limit imports and spur exports for smaller gains of trade, etc. Furthermore, I may add, what may be considered luxury goods in Germany, e.g. a quality college education, is a normal good in the U.S. The WHO ranked U.S. health care below Cuba. However, 60% of the WHO's criteria are based on inequality. The WHO admitted the U.S. is #1 in two areas; labor and capital, e.g. doctors, nurses, equipment, technology, etc. 85% of Americans have health insurance and the other 15% qualify for subsidized or free health care. In the U.S., no one is turned away from medical care. The $2 trillion a year U.S. health care industry is an important component of the U.S. economy, that partially reflects U.S. progress in the Information and Biotech Revolutions.

[Lafayette]

AE: "... 85% of Americans have health insurance and the other 15% qualify for subsidized or free health care."

Bollocks ... amazing how much one can lie to save a forlorn argument. Fifteen percent of the workforce (not the population) at any moment (since it changes depending upon a number of factors, but namely unemployment) have none whatsoever, and of the 85%, as much as 30% is minimal and does not cover totally.

As a propaganda wind-mill, you're the TOP, AE.

You remind us of lead-head-in-chief and his inane notion that ER is Health Care for the everyone "who just goes there".

[Arthur Eckart]

Lafayette, my statements are based on orthodox economics, mathematics, and real data, which seem to elude you to a large extent. It's important to note, the U.S., which is a country of immigrants, is a much more diverse and fragmented society than Scandinavian and Western European countries. U.S. economic policies reflect that upward mobility and absolute living standards are more important than relative living standards.

Government managed social programs have proven to reduce inequality at the expense of upward mobility and absolute living standards, while the free market tends to promote upward mobility and raise absolute living standards for almost everyone at the expense of equality.

[Lafayette]

AE: "Government managed social programs have proven to reduce inequality at the expense of upward mobility and absolute living standards, while the free market tends to promote upward mobility and raise absolute living standards for almost everyone at the expense of equality."

Yes, and so? What are you promoting today? A bit of inequality is good for everyone?

Explain.

[Arthur Eckart]

Lafayette, hopefully, I'm consistant promoting fundamentally sound or solid economics. For example, I disagreed with your statement there are free lunches. I was technically wrong, because productivity can create free lunches, e.g. producing 11 instead of 10 at the same cost. However, the aggregate quantity and quality of lunches are important. Everything in economics is interrelated. The best economists may change their beliefs when proven wrong, rather than change the truth. :)

[Lafayette]

AE: I was technically wrong, because productivity can create free lunches, e.g. producing 11 instead of 10 at the same cost.

Productivity is no "free lunch". And, if you think so, it is because you don't understand how it is provoked.

It is not some silly statistic that shows we got more bang for the buck or the man-hours worked. I have said, in this forum, that there is no way in hell that I will ever believe that French hourly productivity is 1% better than its American counterpart. I am therefore VERY suspicious of productivity statistics. (I have worked/managed in both environments and I feel I know the difference well.)

I will grant nonetheless that throwing Information Technology at production processes does enhance productivity. I believe this because I have managed many such an IT project in both manufacturing and processing.

I will grant also that Business Re-engineering (that hack expression to contain all and sundry) does allow corporations to seek more effective solutions in the manner in which they manage business processes. But, this, often, has very little to do with I.T. -- companies just come to grips with antiquated ways of doing things, because they ask the doers and not some high-flying "consultant". Doers, when asked how they can make their jobs more efficient, have often a boundless supply of suggestions and the will to change methods.

Such organic Business Engineering is commonplace and far more successful than an SAP / Oracle "consultant" coming in and selling a company a multi-million dollar IT-based solution. (Though that is precisely how such companies have made billions of dollars in profit. So, neither do I dismiss their usefulness.)

Productivity just doesn't "happen". It must be provoked and provoked again. Companies should have a Productivity Tsar, but they don't. Country taxation should allow higher amortization rates for business processes that can prevent the dislocation totally of an industrial sector, but it doesn't. We are not, really, making any effort to prevent industrial dislocation -- but letting it happen under our noses.

America is hooked in narcosis to the productivity of cheap Chinese labor (for some base goods). Good luck, and it deserves highly the consequences to its standard of living of this misjudgement. The effects are evident already.

[Arthur Eckart]

It's possible the E.U. has higher productivity than the U.S., in part, because of relatively higher E.U. unemployment and underemployment. Firms tend to hire the best workers first. The U.S. is closer to full employment and there seems to be more U.S. overtime, which both lower productivity (many unskilled U.S. workers without a high school diploma and/or barely speak english earn over $30,000 a year). I suggested above the quantity and quality of output are also important, which help explain why U.S. per capita income is over $10,000 a year higher, and U.S. living standards are substantially higher, than the E.U. Moreover, the U.S. offshores many productive jobs, e.g. because of declining prices (although quantities produced are high) or higher costs (e.g. energy costs), etc. U.S. productivity doesn't include the gains in U.S. imports, profits, investment, etc. from offshoring those productive jobs. Furthermore, emerging industries are much less productive than older industries. The U.S. leads the rest of the world combined in emerging industries. Also, the U.S. may have a younger workforce, or more diverse in age, which may lower productivity. The U.S. has benefited greatly from its trading relationship with China. Whatever consequences there are fall well short of the benefits.