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distanthorizon
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When Will The Industry Drop The Dollar?

Sat Nov 24, 2007 11:45 pm

Much has been said lately about the dollar decline against all major currencies, and the "beyond the pain barrier" problems felt by Airbus.
But that is only a small part of the bigger picture, and as far as I can tell, very little has been said about the effects of the currency issue on the industry.

The dollar eclipse is not desirable by anyone in the industry -- Boeing included.

Yes, Airbus pays for the costs of the manufacturing process in euros, and receive the birds price in dollars.
BUT the dollar decline IS worrying the airliners too. And it should indeed. It seems they are getting great deals -- but they are essentially gambling: what if dollar inverts, in the next few years, its trajectory? What if it appreciates 20 or 30% in a 3 to 4 years time (a very reasonable and realistic scenario)?

You see, the real problem about the dollar is NOT his devaluation -- it's about its instability. Should the next American administration opt for another monetary policy, and the dollar could (in fact should) suddenly invert course.
And an airplane being paid for the airliners in 3 to 5 years from now will be something quite different from what they anticipated!

In the mean time, many companies outsourced from Boeing will want to renegotiate their "dollar contracts" -- and Boeing will have to reach some kind of a deal, since losing subcontractors could mean serious problems for many programs -- mainly the 787.
(by the way, the dollar decline being "life-threatening" for Airbus -- as said by Airbus chief - executive is nonsense; it was a declaration for internal consumption, preparing the employees for some tough measures. That is why the workers council immediately denied it!).

The dollar has served well the global trading for many years.
It is not anymore.
Many industries are changing for the euro, since it might give more stability for years to come. Even the oil one is considering it.
The European Central Bank is an institution has predictable has the Federal Reserve, and the fact that the "euroland" holds 13 european countries (15 from 1 January 2008) makes the currency less dependable of one administration or one single government policy.
That is why I believe the industry will drop the dollar for the euro. Not a matter of "if", but "when".
I predict it will happen in a few years time, when the dollar inverts course (not before). It will be (again) a pain affecting too many companies.

What do you guys think about this matter?

Regards
DH
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Stitch
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RE: When Will The Industry Drop The Dollar?

Sat Nov 24, 2007 11:51 pm

I believe most airlines put in place some type of hedge or price guarantee to protect them when it comes to the price paid since it's often a period of years before they take delivery, yet they make progress payments throughout that time.
 
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RE: When Will The Industry Drop The Dollar?

Sat Nov 24, 2007 11:55 pm

Currencies have always risen and fallen. The Euro will be no exception.
 
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Stitch
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RE: When Will The Industry Drop The Dollar?

Sat Nov 24, 2007 11:58 pm



Quoting Mham001 (Reply 2):
Currencies have always risen and fallen. The Euro will be no exception.

 yes 

I remember in the 1980's when Japan Inc. was ascendant. "Common consensus" at the time was that the Yen would replace the Dollar as the world's "default currency", yet it never happened.

It is unlikely the Dollar will reign forever, but I am not sure it is yet ready to be relieved of it's post.
 
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distanthorizon
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RE: When Will The Industry Drop The Dollar?

Sat Nov 24, 2007 11:59 pm



Quoting Stitch (Reply 1):
I believe most airlines put in place some type of hedge or price guarantee to protect them when it comes to the price paid since it's often a period of years before they take delivery, yet they make progress payments throughout that time.

True. But those guaranties do not completely cover the currency risk - just a relatively small part. Until recently, that has been enough.
But even if the airliners do get some major guaranties, than are the manufactures who might be seriously hurt. The risk just moves from one part to the other. It does not disappear!

DH
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:05 am



Quoting DistantHorizon (Thread starter):
You see, the real problem about the dollar is NOT his devaluation -- it's about its instability.

You seem to be missing something obvious. You claim the instability is in the dollar when it goes up and down versus the euro. Well the euro is just as unstable in that case. Instability is a fact of life. Companies will have to deal with regardless of what currency they deal with. But as long as other foreign governments try an peg their currency to the dollar, the dollar will appear less unstable than the Euro, which will fluctuate against more currencies.

Quote:
Should the next American administration opt for another monetary policy, and the dollar could (in fact should) suddenly invert course.
And an airplane being paid for the airliners in 3 to 5 years from now will be something quite different from what they anticipated!

No it won't. They knew how many dollars they were going to be paying. They can hedge to lock in that price and limit risk in their operating currency.
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Stitch
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:05 am



Quoting DistantHorizon (Reply 4):
But even if the airliners do get some major guaranties, than are the manufactures who might be seriously hurt. The risk just moves from one part to the other. It does not disappear!

Okay. But if they all choose the Euro, what happens when he Dollar or the Yuan or the Yen become ascendant again and the Euro starts to fall? They're in the same boat they are in now with a weak Dollar.

Push comes to shove, the government least likely to disappear from the face of the Earth at this time is that of the United States of America. Europe is still more of a confederation then a federation, to say nothing of a true republic. So for stability - which is what you want in a global currency - I don't see the Euro being as attractive.

The main problem with the USD right now is the economic and political policies of the current US administration, and yet that administration is only a year away from leaving office to be replaced by something much different (and that will be true even if another Republican administration takes office).
 
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distanthorizon
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:06 am



Quoting Mham001 (Reply 2):
Currencies have always risen and fallen. The Euro will be no exception.

Of course not! And I would never implied such nonsense!

Every currency does naturally flutuate.
The problem is that the major one should not do it in this amplitude, this fast!

What I said is: the euro has better conditions to give business better assurances.

DH
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distanthorizon
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:12 am

Quoting Atmx2000 (Reply 5):
You seem to be missing something obvious. You claim the instability is in the dollar when it goes up and down versus the euro. Well the euro is just as unstable in that case.

I am sorry, I did not make my self clear.
The problem is NOT the dollar going up and down against the euro.
The problem is the dollar going up and down against ALL major currencies: the euro, the yen, the British pound...

The euro is NOT going up. Not the yen or British pound. It is the dollar that is going down.

DH

[Edited 2007-11-24 16:15:51]
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Someone83
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:14 am

In the "very" long term it doesn't matter as inflation will adjust the real value of a currency

And it's impossible to know which currency that will be stable (or unstable) in the future

[Edited 2007-11-24 16:16:38]

[Edited 2007-11-24 16:17:20]
 
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distanthorizon
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:19 am



Quoting Someone83 (Reply 9):
In the "very" long term it doesn't matter as inflation will adjust the real value of the currency

Yes, in the VERY long term (at least in theory). But between now and then the industry should want to play a little safer!

DH
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:22 am



Quoting DistantHorizon (Reply 8):
I am sorry, I did not make my self clear.
The problem is NOT the dollar going up and down against the euro.
The problem is the dollar going up and down against ALL major currencies: the euro, the yen, the British pound...

So what? Two years from now, the dollar and euro might be on par, or they might not. The euro might fall, or maybe the dollar will get even weaker. Nobody knows.

If they switch to another currency it will face the same exact uncertainties.
a.
 
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:24 am

I read in an article once that the the left-wing activists in Italy, Germany and the Netherlands were lobbying to have their governments withdraw from the Euro and return to their national currency. That doesn't sound too stable to me.
 
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:25 am

Quoting DistantHorizon (Reply 8):
I am sorry, I did not make my self clear.
The problem is NOT the dollar going up and down against the euro.
The problem is the dollar going up and down against ALL major currencies: the euro, the yen, the British pound...

DH

Which graph looks more stable to you?

To me, the pound seems to be more stable against the euro, and the yen against the dollar. But a lot of other currencies are targeted against the dollar. As long as these pegs exist I see no change.

Currencies versus euro
Currencies relative to dollar


[Edited 2007-11-24 16:30:18]
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:27 am



Quoting AA7295 (Reply 12):
I read in an article once that the the left-wing activists in Italy, Germany and the Netherlands were lobbying to have their governments withdraw from the Euro and return to their national currency.

The only achievement European left-wing activists have managed is to create a few riots and some occasionally killings.....wouldn't be to worried about them.
 
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:28 am



Quoting MAH4546 (Reply 11):
So what? Two years from now, the dollar and euro might be on par, or they might not. The euro might fall, or maybe the dollar will get even weaker. Nobody knows.

If they switch to another currency it will face the same exact uncertainties.

So you think those "uncertainties" are not measurable?
There is nothing anyone can do?!

Did you read my entire post?

(...) "Many industries are changing for the euro, since it might give more stability for years to come. Even the oil one is considering it.
The European Central Bank is an institution has predictable has the Federal Reserve, and the fact that the "euroland" holds 13 european countries (15 from 1 January 2008) makes the currency less dependable of one administration or one single government policy." (...)

You might, naturally, not agree with it. But please give elaborate!

Because the trading market is NOT a gambling market. Believe it!

DH
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:33 am

Many countries that is currently connecting their currency to the dollar start to move to a basket of currencies including Euro, US Dollar, yen etc. This is now discussed by for example OPEC.

When this happens we can expect something similar for the airline industry. One day the Euro will be weak and the USD dollar strong and therefore it helps all countries to use a basket instead...
 
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:33 am



Quoting DistantHorizon (Reply 15):

(...) "Many industries are changing for the euro,

Define "many industries". Please provide sources.
 
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:37 am



Quoting AA7295 (Reply 12):
I read in an article once that the the left-wing activists in Italy, Germany and the Netherlands were lobbying to have their governments withdraw from the Euro and return to their national currency. That doesn't sound too stable to me.

Come on...
I don't know where you read that, but those "left-wing activists" are just part of the european political diversity.

I call them a joke.
Everyone else call them harmless. Big grin

Believe me, the euro is here to stay...

As I said, the problem does not lay on the euro, but on the the dollar decline!

DH
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atmx2000
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:40 am



Quoting DistantHorizon (Reply 15):
(...) "Many industries are changing for the euro, since it might give more stability for years to come. Even the oil one is considering it.
The European Central Bank is an institution has predictable has the Federal Reserve, and the fact that the "euroland" holds 13 european countries (15 from 1 January 2008) makes the currency less dependable of one administration or one single government policy." (...)

Which industries? The oil industry isn't really considering it.

Quoting DistantHorizon (Thread starter):
In the mean time, many companies outsourced from Boeing will want to renegotiate their "dollar contracts" -- and Boeing will have to reach some kind of a deal, since losing subcontractors could mean serious problems for many programs -- mainly the 787.

But you were talking about a sudden upturn in the dollar value... which would benefit contractors paid in dollars? Why would they want contracts in Euros at that point?

Your mishmash of arguments is nonsense. Look at the graphs above. Long term currency instability is rather high for all currencies that are not firmly pegged.

Quote:
(by the way, the dollar decline being "life-threatening" for Airbus -- as said by Airbus chief - executive is nonsense; it was a declaration for internal consumption, preparing the employees for some tough measures. That is why the workers council immediately denied it!).

No, the denial by the workers council is nonsense. Airbus management is being perfectly honest here. Airbus knows how much of an advantage they gain against Boeing when the dollar went up proportionally more versus the long term average exchange rate than the Euro has against that average. The workers think that Airbus can increase pricing and maintain the same sales volume. That is fiction. They can do no such thing when Boeing has no cost pressure. Boeing's commercial business is extremely profitable now that sales volume has returned to decent levels and Airbus has no pricing power.
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:42 am

20 to 25 years ago the pound was near equal to the dollar. The issue is how to deal with the fluctuations. Right now those with expenses in Euros and revenues in US Dollars are feeling the pain. However, most companies probably hedged their current year budgets so the real hit will not take place until 2008.

The driver in the current exchange rate issue is the difference between interest rates. The US economy is fundamentally stronger than Europe's, so as soon as the interest rate differential between the US and the European community begins to narrow the exchange rates will begin to close.
 
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distanthorizon
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:46 am



Quoting Mham001 (Reply 17):
Define "many industries". Please provide sources.

Already did: the oil industry - probably the most impostant one.

It has already been discussed by OPEP in the past, and the issue in again on the table. You can see news about it in every news agency (and please, it does go far beyond some politicall games).

Another example: the tourism industry. Many agencies do not accept payments in dollars anymore.
Many countries no not accept tourist dollars anymore (the last emblematic case was Taj Mahal, in India).

DH
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:53 am



Quoting DistantHorizon (Reply 7):
What I said is: the euro has better conditions to give business better assurances.

What is it about the phrase "The Euro is artificially overvalued and has been held there by the German and French banks that make monetary policy" do you not understand, my friend? You've simply got to stop with the Yahoo news stuff and start thinking for yourself.
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distanthorizon
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 12:57 am



Quoting Atmx2000 (Reply 19):
Your mishmash of arguments is nonsense. Look at the graphs above. Long term currency instability is rather high for all currencies that are not firmly pegged.

You do realize the euro did not exist in 92 or 93, don't you? Wink

Quoting Atmx2000 (Reply 19):
No, the denial by the workers council is nonsense. Airbus management is being perfectly honest here. Airbus knows how much of an advantage they gain against Boeing when the dollar went up proportionally more versus the long term average exchange rate than the Euro has against that average. The workers think that Airbus can increase pricing and maintain the same sales volume. That is fiction. They can do no such thing when Boeing has no cost pressure. Boeing's commercial business is extremely profitable now that sales volume has returned to decent levels and Airbus has no pricing power.

I am sorry, but do you also realize that the issue is the dollar eclipse being (or not) Airbus "life-threatening"?!

And it is not. Agree?

DH
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 1:00 am



Quoting Dougloid (Reply 22):
What is it about the phrase "The Euro is artificially overvalued and has been held there by the German and French banks that make monetary policy" do you not understand, my friend? You've simply got to stop with the Yahoo news stuff and start thinking for yourself.

Are you serious? Or just being sarcastic?
I am not sure, but hopping it is the latter one..

DH
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 1:18 am



Quoting Atmx2000 (Reply 13):
Which graph looks more stable to you?

To me, the pound seems to be more stable against the euro, and the yen against the dollar. But a lot of other currencies are targeted against the dollar. As long as these pegs exist I see no change.



Currencies versus euro

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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 1:19 am



Quoting Gsosbee (Reply 20):
20 to 25 years ago the pound was near equal to the dollar.

Gsosbee, you are roughly my age and, as an Economist, I must correct you: the US dollar was mightiest between Feb - Dec 1985 during the Reagan years and the lowest the Pound was against the dollar was 1 GBP = USD 1.48. Never ever has the US dollar been on a par with the British Pound at any time in history.

What seems to be forgotten in this thread is that the apparent and real current weakness of the US dollar is a seasonal variation in a way much needed to correct imbalances (namely, the huge US trade deficit vs. the huge Chinese, Asian and European trading surpluses with the US). There are political and other "red-herring" factors involved too, like the sub-prime mortgage lending business that has taken a huge toll.

I would like to remind many here in this forum that, at the beginning of this century, like no more than 4 years ago, a US dollar was buying up to 1.40 Euros at one time and this was obviously unsustainable. When the Euro was launched it was set at a parity of 1 to 1 versus the US dollar.. yet it weakened incredibly and here we are, a few years later, with a rebound which is already worrying European governments (Angela Merkel being the most vocal along with Mr. Sarkozy who even went before Capitol Hill about 3 weeks ago to plead for a strong dollar).

Many in this forum were not around when, in 1971, a similar crisis faced the US dollar when Nixon abruptly and unilaterally cut the dollar link to the so-called gold standard and a system of floating exchange rates thus began. Until then, every currency was pegged to the dollar. Worse mayhem ensued (I used to live in London then and recall vividly exchange bureaux in Oxford Street with signs: "NO US dollars" !!) and we survived.
A basket of currencies called the Special Drawing Rights was created by the International Monetary Fund there and then and is still used as a denominator at the IMF.

In a nutshell, the US dollar may have a bit to fall yet before it starts to recover or find its own real true level. The US is still the biggest economy in the world and it is facing a messy situation at the moment not helped by politics. Neither China, India or South East Asia are ever going to give up their dollar holdings and assets and have their exports denominated in another currency which threatens their competitiveness in their main export market. Besides, I have yet to see the European Central Bank accept the challenge of having the Euro take over the responsibility of being a common trading currency like the US dollar.

As to the OPEC "noise" on switching to other currencies, this came mostly from Venezuela and Iran, whose current governments are US arch-enemies and are ready for sniper-fire at the first opportunity. Saudi Arabia quietly shelved and deleted the item from their recent agenda in Riyadh and no doubt will to the same at their forthcoming Geneva meeting next month.

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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 1:19 am



Quoting DistantHorizon (Reply 23):
You do realize the euro did not exist in 92 or 93, don't you? 

You do realize that the value of the Euro/EMU was determined by the value of the ECU, a basket of european currencies which has existed since 1978.

Quoting DistantHorizon (Reply 23):
I am sorry, but do you also realize that the issue is the dollar eclipse being (or not) Airbus "life-threatening"?!

And it is not. Agree?

No, it is a disaster for Airbus as an aircraft manufacturer with plants primarily in Europe.

Quoting DistantHorizon (Reply 21):
Another example: the tourism industry. Many agencies do not accept payments in dollars anymore.
Many countries no not accept tourist dollars anymore (the last emblematic case was Taj Mahal, in India).

So, they are only accepting payment in rupees.

Quoting Dougloid (Reply 22):
What is it about the phrase "The Euro is artificially overvalued and has been held there by the German and French banks that make monetary policy" do you not understand, my friend? You've simply got to stop with the Yahoo news stuff and start thinking for yourself.

I actually don't know if the Euro is overvalued. I do know it was previously extremely undervalued and gave European manufacturers an advantage over US manufactuers. The Euro should be somewhere between $1.15 and $1.50, depending on how productive you think workers in Europe's big economies actually are. Anywhere under !$1.50-$1.60, US per capita GDP is still higher than the big three of Europe.
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 1:27 am



Quoting DistantHorizon (Reply 10):
But between now and then the industry should want to play a little safer!

Which is why companies also hedge currencies. If you look at the annual reports for major corporations especially in the US where hedging has been a popular instrument for many decades many made significant investment returns result of currency hedging.

So yes, you can be carefull and minimize your exposure to valuation changes in various global markets and currencies.
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 1:28 am



Quoting DistantHorizon (Reply 24):

You want to hear that the US dollar is out and the Euro is in.......but its not happening. And, as pointed out by others, currency valuations fluctuate over time and simply because the dollar is weak at the moment certainly does not mean that it will not recover over time as economic conditions change and adjust. Many economists and analysts believe that the Euro is overvalued against the US dollar, and the dollar weakness now being experienced is a result of many factors that have no solid economic basis.

Quoting Civilav (Reply 26):

Interesting response and analysis...thanks.

Quoting Atmx2000 (Reply 27):
No, it is a disaster for Airbus as an aircraft manufacturer with plants primarily in Europe

And, this is the real issue.....Airbus does have a big problem and the weak US dollar could mean that Airbus will record losses due to their record sales of airplanes. Rather ironic, isnt it?
 
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 1:32 am

I hate thinly-veiled threads like this. The original poster makes a statement they want to come true (i.e. the Euro replacing the Dollar as the favored currency in the world) and then asks a "Do you think?" question regarding it - when in actuality, they meant to say, "This is what I want to happen, so I'm looking for people to agree with me and reinforce my belief system."
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 1:36 am



Quoting DistantHorizon (Reply 7):
What I said is: the euro has better conditions to give business better assurances.

= Hahahahahahahaha. Are you really serious? What kind of "better assurances" does the Euro signal? Look at the macroeconomic fundamentals of some countries in Europe and only the flag waving fools will believe their country is not in decline. I LOVE Europeans who think a strong Euro is some kind of might and that the Dollar vs. Euro battle is some kind of proxy war. The weak dollar HURTS many industries in Europe.

Of course, the overall weak American economy will ensure even further decline of the Greenback. However, the doomsday prophecies are stuff that Iranian Presidents scream out. What will happen probably is a move towards a more multi-national basket of currencies for trade and pegs, but I dont think the Euro will become the next currency of choice. Its not in the best interest of a major basket of countries .. including Europe.

Cheers,
A.
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atmx2000
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 1:36 am



Quoting Civilav (Reply 26):
When the Euro was launched it was set at a parity of 1 to 1 versus the US dollar..

When the Euro was launched in 1999 it took the value of the ECU which was around $1.17 to $1.18. People have this misguided notion that parity should be $1. At those levels European per capita GDP in Germany and France would be something like 60-70% of US per capita GDP. European labor would be severely underpriced giving European manufacturing a huge advantage. And that is what happened when the Euro fell.

I can't find any reasoning for how valuation of the ECU was initially determined, but it seems likely the idea was to keep it in roughly the same order of magnitude as the dollar.

Quoting Civilav (Reply 26):
yet it weakened incredibly and here we are, a few years later, with a rebound which is already worrying European governments (Angela Merkel being the most vocal along with Mr. Sarkozy who even went before Capitol Hill about 3 weeks ago to plead for a strong dollar

Yeah, when the Euro started to drop after the exchange rates were locked, the European politicians were whining. When it goes up they whine. No pleasing them.

Quoting Bramble (Reply 25):
The rouble has been pretty 'stable; since '98/'99. Why not go for that as standard!!!!!!!!!!!!!!!!!!!!!!!!

The ruble has been pegged against the dollar.
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 2:08 am

Aviation go away from the dollar? Unlikely. Most of this would stabilize if China would move their currency to a floating currency. Too much of aerospace technology either comes from the US or goes through it (e.g., Italian barrels in the 787).

Quoting AA7295 (Reply 12):
I read in an article once that the the left-wing activists in Italy, Germany and the Netherlands were lobbying to have their governments withdraw from the Euro and return to their national currency. That doesn't sound too stable to me.

The only one of concern is Italy. Their competitiveness is being hurt by not being able to devalue down to being Europe's lowest cost labor pool. The others? They'll stick out the euro.

Quoting Olle (Reply 16):
including Euro, US Dollar, yen etc. This is now discussed by for example OPEC.

When this happens we can expect something similar for the airline industry. One day the Euro will be weak and the USD dollar strong and therefore it helps all countries to use a basket instead...

Very likely. Right now, the Euro and dollar will be the two strong currencies. China could be... but to be a reserve currency, they have to lift the restrictions on trading the currency.

Lightsaber
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atmx2000
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 2:15 am



Quoting Abrelosojos (Reply 31):
Of course, the overall weak American economy will ensure even further decline of the Greenback. However, the doomsday prophecies are stuff that Iranian Presidents scream out. What will happen probably is a move towards a more multi-national basket of currencies for trade and pegs, but I dont think the Euro will become the next currency of choice. Its not in the best interest of a major basket of countries .. including Europe.

There is no overall weak economy, there is disruption in certain sectors. The problem for the dollar is simply the trade deficit and the lack of adjustment against the currencies responsible for the trade deficit. I mentioned above that European per capita GDP was significantly lower previously than US per capita GDP. Why is Japan's per capita GDP still only 85% of the US's despite a high tech economy, high employment and long work hours? It's because the yen is being prevented from appreciating to maintain competitiveness of Japanese exporters. For every 1 yen decrease in the yen/dollar exchange from 115, Toyota will take a $318 million hit in profitability.
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abrelosojos
Posts: 4323
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 2:23 am



Quoting Atmx2000 (Reply 34):
There is no overall weak economy, there is disruption in certain sectors.

= I will have to disagree with you. I think there are some structural changes that need to happen in the U.S. economy. But, this is not the scope of civil-av, so if you'd like, we can continue in non-av.

Quoting Atmx2000 (Reply 34):
Why is Japan's per capita GDP still only 85% of the US's despite a high tech economy, high employment and long work hours?

= Income is also more equitably distributed in Japan. A slowing economy is felt different in various parts of the world. But again, see my response to 1.

Cheers,
A.
Live, and let live.
 
atmx2000
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 2:33 am



Quoting Abrelosojos (Reply 35):
= Income is also more equitably distributed in Japan. A slowing economy is felt different in various parts of the world. But again, see my response to 1.

I'm not sure this is true. As far as I know Japan is a country considered to have wide variance in income levels. Looking at Japanese social structure and corporate structure it shouldn't be a surprise. Anyway I'm not sure what this has to do with my point that per capita GDP is low in Japan. In theory nominal per capita GDP should converge in economies with similar levels of productivity and worker participation and work hours. It won't if a currency is being kept down by currency manipulation.
ConcordeBoy is a twin supremacist!! He supports quadicide!!
 
MKENut
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 2:42 am

The Federal Reserve had no business increasing interest rates.... thus causing the current subprime credit crisis we see today. Now the Feds have no choice but to lower interest rates to help out the subprime mess... that action will further weaken the dollar. The Feds are going to have to tighten the money supply soon, which means higher interest rates and a risk of stagflation. It will be the 70's all over again. I was only a kid back then but who wants to live that all over again?
 
jfk787nyc
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 2:45 am



Quoting DistantHorizon (Thread starter):
USER PROFILE SEND INSTANT MSG ADD TO RESP MEMBERS SUGGEST DELETION QUOTE SELECTED TEXT
User currently offlineDistantHorizon From Portugal, joined Oct 2005, 204 posts, RR: 0
Posted Sat Nov 24 2007 18:45:40 your local time (2 hours 26 minutes 27 secs ago) and read 537 times:

Much has been said lately about the dollar decline against all major currencies, and the "beyond the pain barrier" problems felt by Airbus.
But that is only a small part of the bigger picture, and as far as I can tell, very little has been said about the effects of the currency issue on the industry.

The dollar eclipse is not desirable by anyone in the industry -- Boeing included.

Yes, Airbus pays for the costs of the manufacturing process in euros, and receive the birds price in dollars.
BUT the dollar decline IS worrying the airliners too. And it should indeed. It seems they are getting great deals -- but they are essentially gambling: what if dollar inverts, in the next few years, its trajectory? What if it appreciates 20 or 30% in a 3 to 4 years time (a very reasonable and realistic scenario)?

You see, the real problem about the dollar is NOT his devaluation -- it's about its instability. Should the next American administration opt for another monetary policy, and the dollar could (in fact should) suddenly invert course.
And an airplane being paid for the airliners in 3 to 5 years from now will be something quite different from what they anticipated!

In the mean time, many companies outsourced from Boeing will want to renegotiate their "dollar contracts" -- and Boeing will have to reach some kind of a deal, since losing subcontractors could mean serious problems for many programs -- mainly the 787.
(by the way, the dollar decline being "life-threatening" for Airbus -- as said by Airbus chief - executive is nonsense; it was a declaration for internal consumption, preparing the employees for some tough measures. That is why the workers council immediately denied it!).

The dollar has served well the global trading for many years.
It is not anymore.
Many industries are changing for the euro, since it might give more stability for years to come. Even the oil one is considering it.
The European Central Bank is an institution has predictable has the Federal Reserve, and the fact that the "euroland" holds 13 european countries (15 from 1 January 2008) makes the currency less dependable of one administration or one single government policy.
That is why I believe the industry will drop the dollar for the euro. Not a matter of "if", but "when".
I predict it will happen in a few years time, when the dollar inverts course (not before). It will be (again) a pain affecting too many companies.

What do you guys think about this matter?

Regards
DH

I am sorry but you have no idea what your talking about, All pricing on raw materials that go into production of planes are pegged in US Dollars not EURO's. In this industry their are two players, BOEING & AIRBUS. Today Boeing is very lucky with what is going on because for carriers throughout the world it gets cheaper for them to buy Boeing's than Airbus. European carriers are happy as hell that the dollar is falling because they blackmail Airbus and claim that they are getting 50% discounts from Boeing just from paying in Euro's.

This whole dollar devaluation is the Federal Reserves baby. Ben Bernanke is running around the world claiming that he wants a strong dollar but he really doesn't as of today we are in a crisis with all these mortgages. Most of the country got locked in to mortgages in the past 2-3 years. If inflation picks up in the United States that dollars that they are crying about will not seem that much three years from now. $3'000 per month seems like a big amount of money today but in three years salaries will go up because of inflation this $3'000 per month that people have to pay for 30 years will be worth the same as $1'500 today, Because of this the economy will start to boom again within two years time. All the debt that the United States owes today will be worth much less in three years, Little by little the whole world will start to purchase United States goods again. Look at China, Five years ago average salary was $30 per month today it is $600 per month. Do you see the difference? Back then in China you could survive on $30 monthly today you cant.
United States industry will go up big business is coming back to the United States and finally making a profit.

Boeing and all the other REAL industries are going to be raking in tremendous amount's of money within the next 5-10 Years.

Everyone is starting to feel it in the States, Let's take the German Mercedes Benz I have people from Germany telling me they are going to purchase a 2008 Mercedes Benz in the states and ship the car to Germany. WHY? because a Mercedes Benz in Germany costs 60'000 EURO in the States it is $60'000 USD. Did you get the difference? Germany prices there car here and still makes a profit because they produce the cars in the states.

AIRBUS for the past 30 years had this advantage and on top of that was still selling in United States Dollars obviously making tremendous money on the currency exchange as well as on the planes production.
They paid employees either German Marks or French Francs.

Did Boeing ever complain about the currency of the United States? Claiming that Airbus can sell their planes for cheaper than they can? NO!

German Mark- $1 US DOLLAR (December 2001)
2001-12-01 2.1946

French Franc- $1 US DOLLAR (December 2001)
2001-12-01 7.3604

I am personally very happy with what is going on the United States is finally starting to make money and little by little our trade deificit is going to shrink.

The European carriers are very happy that there fares and bills are in EUROs they charge Europeans exactly the same amount of money in Euro's as they would charge in Dollars. They are making BILLIONS because of the EURO look at Lufthansa and AF-KLM

Take alook at Lufthansa search engine
If you try to book a flight from
TEGEL-JFK on December 10 until December 17
They are charging 634 Euro

Meanwhile if you turn the flight around and change the page from Germany to the United States
JFK-TEGEL on December 10 until December 17
Lufthansa is charging $605 USD
There is a big difference between the two fares no wonder they are making Billions.
 
jfk787nyc
Posts: 479
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 2:57 am



Quoting Lightsaber (Reply 33):
Lightsaber From United States, joined Jan 2005, 2894 posts, RR: 56
Reply 33, posted Sat Nov 24 2007 21:08:06 your local time (37 minutes 47 secs ago) and read 129 times: Support Airliners.net - become a First Class Member!

Aviation go away from the dollar? Unlikely. Most of this would stabilize if China would move their currency to a floating currency. Too much of aerospace technology either comes from the US or goes through it (e.g., Italian barrels in the 787).

This industry would never go away from the Dollar the United States holds a 48% role in this international sector and they don't want to and don't need to charge in EURO's, It could very well be possible that the reason why AIRBUS is so big today because in the 70s, 80s & 90s they were charging for there planes in German Marks or French Francs.

I am sure that AIRBUS was still charging during this period in Dollars but they actually made money on the price difference, Boeing does not have an advantage with the dollar the only advantage is the 787 will be much cheaper to produce now than a A350 or any other plane AIRBUS currently produces. Look at the 747 in the 70s this brand new plane was worth 25 Million dollars in the 80s the plane was worth brand new probably 75 Million in the 90s over 115 Million and today the asking price for a brand new 747-8i is 225 Million. If you calculate the fact that because of inflation the 747 might of been the most profitable plane ever produced because inflation was increasing by the minute in the past 30 years. Does anyone have any idea how much Boeing originally spent on R&D for the original 747?
 
bringiton
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 3:48 am

Nice posts fellows , can someone please guide me to a nice place on the web to really study about how the financial system works , and how currency values are defined etc. Thanks in advance.
 
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DocLightning
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 4:09 am



Quoting Stitch (Reply 3):
It is unlikely the Dollar will reign forever, but I am not sure it is yet ready to be relieved of it's post.

I see the Euro being used more and more. But I think that there are many political factors driving down the dollar right now.

I have a feeling that sometime in late 2008, the dollar may see a bit of a lift. The ultimate outcome may be that they are used 50:50 as a gold standard, since the economies of Europe and North America tend to orbit each-other.
-Doc Lightning-

"The sky calls to us. If we do not destroy ourselves, we will one day venture to the stars."
-Carl Sagan
 
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Stitch
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 4:14 am

This thread really should be in Non-Av. PanAm_DC10 already closed the Airbus/Euro thread because most of the posts were about macro-economic theory and this thread is quickly following. Not that I don't find it interesting, mind you. And some of you folks have a solid grasp of it. But this is CivAv.  Smile
 
JoeCanuck
Posts: 4704
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RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 4:19 am

Quoting JFK787NYC (Reply 38):
This whole dollar devaluation is the Federal Reserves baby.

Amen. So few people seem to put together the fact that the US has the strongest economy in the world with the falling dollar. If they US didn't want it to happen, it wouldn't be happening. The falling dollar makes US goods cheaper, (thus more desirable), both for export and internal consumption when compared with good manufactured in the EU.

The focus seems to be on the falling dollar but the US economy as a whole looks, in many ways, stronger than the EU economy. For instance, US unemployment is about half of that in the EU.

It also reduced the value of the foreign debt, which is in dollars. The only fly in the ointment, really, is China. The trade deficit with them isn't likely to change until the exchange rate improves significantly for the buck...which will happen eventually. Even then, it's not a deal breaker for the US. The traded deficit between china and the EU is almost equal to the deficit between China and the US and it will be bigger soon.

I agree with moving the thread ton Non-Av. It's interesting but not directly aviation related.

[Edited 2007-11-24 20:44:10]
What the...?
 
gffgold
Posts: 184
Joined: Fri Feb 23, 2007 9:23 pm

RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 6:51 am



Quoting JFK787NYC (Reply 38):
Take alook at Lufthansa search engine
If you try to book a flight from
TEGEL-JFK on December 10 until December 17
They are charging 634 Euro

Meanwhile if you turn the flight around and change the page from Germany to the United States
JFK-TEGEL on December 10 until December 17
Lufthansa is charging $605 USD
There is a big difference between the two fares no wonder they are making Billions.

Now THAT is the real world of aviation economics. So long as there is such a massive disparity between retail prices for the same commodity, a few percentage points on the exchange rate counts for very little. Of course those people who are paying Euros and banking dollars are whining vociferously right now - in contrast to their silence a few years ago.

We have the USD as a general international currency largely because of the twists and turns of history and frankly it does the job. The same could be said for English as the international language. More people speak Chinese at home than English - so what? Why change when the tool you already have is doing the job.
 
2175301
Posts: 1940
Joined: Wed May 16, 2007 11:19 am

RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 7:46 am



Quoting DistantHorizon (Thread starter):
The dollar has served well the global trading for many years.
It is not anymore.
Many industries are changing for the euro, since it might give more stability for years to come. Even the oil one is considering it.
The European Central Bank is an institution has predictable has the Federal Reserve, and the fact that the "euroland" holds 13 european countries (15 from 1 January 2008) makes the currency less dependable of one administration or one single government policy.
That is why I believe the industry will drop the dollar for the euro. Not a matter of "if", but "when".
I predict it will happen in a few years time, when the dollar inverts course (not before). It will be (again) a pain affecting too many companies.

What do you guys think about this matter?

Here is what I think about this matter: your arguments, and line of thinking, are full of more holes than a sieve...

It is true that within Europe - countries and companies are now using the Euro for trade between themselves where they often used to use the Dollar. Thus, you can say that there is a shift to the Euro. Is that not what the Euro was created for - so no surprise.

Outside of Europe.... The Dollar is the international currency of choice, and I am not aware of any real indication of even a potential shift (other than fluff talk for local political gain).

Currently, the Dollar is used for about 60% of international transactions - down slightly due to the inter-European use of the Euro from historical levels. There has always been a fair amount of trade based on the exchange of other currencies. The British Pound, The old German Mark, the Japanese Yen, etc.

The US economy - while currently having a short term hick-up is the worlds most robust currency, is the nation with the most productive workers (and I can find a chart to indicate that if needed), is a country that has one of the lowest amount of debt compared to Gross domestic product of all of the major industrialized countries (see my, and several other, post in the now locked thread on how Airbus plans radical measures due for more details - one my later post had a lot of detail on debt and gross domestic production). Note: while admitting that the US debt load is too high for my personal comfort - most people in the US do not understand that most of the European countries have 3 to 5 (or more) times the debt based on gross domestic production (cash flow) than the US has.

www.airliners.net/discussions/general_aviation/read.main/3716577/

Anyone who even looks at the amount of debt and stability of the European Countries would not think that the Euro will be more stable - or safer - than the Dollar. Now perhaps that will change in the next decade or so. But then again perhaps not.

Now I know that people who live in Europe - and specifically the European Nations would like the Euro to become a major world currency - and the world to shift to using it. But, that is not going to happen until the European Union can demonstrate several decades of stability.

It is more likely than not that the Euro will never become the major world currency in the next several decades.

What we are currently seeing is nothing more than the usual currency changes that occur from time to time. The fact is that it affects (both positively and negatively) a number of companies and countries in the world. That is the nature of how floating currencies work.

If Airbus is not capable of withstanding such a currency fluctuation - then they should get out of the international aviation market. All other companies (such as Boeing) have had to deal with the same kind of issues in the past - and will have to deal with them again in the future.

If the European Union is not capable of adequately handling such currency fluctuations - then that would be a clear demonstration on why the Euro would not be a suitable major world currency.
 
abrelosojos
Posts: 4323
Joined: Sun May 29, 2005 6:48 am

RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 8:06 am



Quoting Atmx2000 (Reply 36):
I'm not sure this is true. As far as I know Japan is a country considered to have wide variance in income levels. Looking at Japanese social structure and corporate structure it shouldn't be a surprise. Anyway I'm not sure what this has to do with my point that per capita GDP is low in Japan. In theory nominal per capita GDP should converge in economies with similar levels of productivity and worker participation and work hours. It won't if a currency is being kept down by currency manipulation.

=

1/ Various estimates of gini coefficient (probably, the "best" measure to measure income inequality) all point to Japan having a far more egalitarian distribution of income:

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

2/ I think the world is far more complex than short term exchange rate fluctuations being explained by your long term convergence theory. This and ideas on why your 85% makes little sense to me can be pursued in non-av as I mentioned earlier.

Cheers,
A.
Live, and let live.
 
abrelosojos
Posts: 4323
Joined: Sun May 29, 2005 6:48 am

RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 8:09 am



Quoting 2175301 (Reply 45):
Here is what I think about this matter: your arguments, and line of thinking, are full of more holes than a sieve...

It is true that within Europe - countries and companies are now using the Euro for trade between themselves where they often used to use the Dollar. Thus, you can say that there is a shift to the Euro. Is that not what the Euro was created for - so no surprise.

Outside of Europe.... The Dollar is the international currency of choice, and I am not aware of any real indication of even a potential shift (other than fluff talk for local political gain).

Currently, the Dollar is used for about 60% of international transactions - down slightly due to the inter-European use of the Euro from historical levels. There has always been a fair amount of trade based on the exchange of other currencies. The British Pound, The old German Mark, the Japanese Yen, etc.

The US economy - while currently having a short term hick-up is the worlds most robust currency, is the nation with the most productive workers (and I can find a chart to indicate that if needed), is a country that has one of the lowest amount of debt compared to Gross domestic product of all of the major industrialized countries (see my, and several other, post in the now locked thread on how Airbus plans radical measures due for more details - one my later post had a lot of detail on debt and gross domestic production). Note: while admitting that the US debt load is too high for my personal comfort - most people in the US do not understand that most of the European countries have 3 to 5 (or more) times the debt based on gross domestic production (cash flow) than the US has.

www.airliners.net/discussions/general_aviation/read.main/3716577/

Anyone who even looks at the amount of debt and stability of the European Countries would not think that the Euro will be more stable - or safer - than the Dollar. Now perhaps that will change in the next decade or so. But then again perhaps not.

Now I know that people who live in Europe - and specifically the European Nations would like the Euro to become a major world currency - and the world to shift to using it. But, that is not going to happen until the European Union can demonstrate several decades of stability.

It is more likely than not that the Euro will never become the major world currency in the next several decades.

What we are currently seeing is nothing more than the usual currency changes that occur from time to time. The fact is that it affects (both positively and negatively) a number of companies and countries in the world. That is the nature of how floating currencies work.

If Airbus is not capable of withstanding such a currency fluctuation - then they should get out of the international aviation market. All other companies (such as Boeing) have had to deal with the same kind of issues in the past - and will have to deal with them again in the future.

If the European Union is not capable of adequately handling such currency fluctuations - then that would be a clear demonstration on why the Euro would not be a suitable major world currency.

= I do agree with most of your points. However, I do think that the current position of the Dollar reflects a level of uncertainty that is fundamentally connected to a weaker U.S. economy. Of course, that will change at some point and I do believe the Dollar would climb back in mid-2008. For now, I can still see the Dollar heading south to 1 Euro = 1.6 USD before it starts climbing back up.

Cheers,
A.
Live, and let live.
 
Mike89406
Posts: 1425
Joined: Sat Mar 31, 2007 12:05 pm

RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 8:15 am

OMG  banghead   rotfl  One thing I learned in college is if you get a bunch of economists in one room they wont agree. It's comedy at it's best.

Mike
 
Leskova
Posts: 5547
Joined: Wed Oct 08, 2003 3:39 pm

RE: When Will The Industry Drop The Dollar?

Sun Nov 25, 2007 11:37 am

Quoting Civilav (Reply 26):
When the Euro was launched it was set at a parity of 1 to 1 versus the US dollar..

No, it was not - as Atmx2000 has already pointed out.

Quoting GFFgold (Reply 44):
Quoting JFK787NYC (Reply 38):
Take alook at Lufthansa search engine
If you try to book a flight from
TEGEL-JFK on December 10 until December 17
They are charging 634 Euro

Meanwhile if you turn the flight around and change the page from Germany to the United States
JFK-TEGEL on December 10 until December 17
Lufthansa is charging $605 USD
There is a big difference between the two fares no wonder they are making Billions.

Now THAT is the real world of aviation economics. So long as there is such a massive disparity between retail prices for the same commodity, a few percentage points on the exchange rate counts for very little. Of course those people who are paying Euros and banking dollars are whining vociferously right now - in contrast to their silence a few years ago.

LH has ALWAYS been comparatively expensive when selling in Germany than in other countries, especially outside of Europe; that's not new since the Dollar's slide, that's always been the case.

[Edited 2007-11-25 03:58:57]
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