What’s An Amero?
Stocks fell 411 points today, and is now close to the recent minimum level reached during the last stock market meltdown a couple of weeks ago. Some stock market pundits are saying that if the market rallies from this level, a bottom has been reached in the market. The opposite of this philosophy is that if stocks continue declining, the bottom is somewhere else lower down. Stocks were driven down with poor earnings, and the Henry Paulson press discussion today where he continued to say we are not out of the financial woods yet.
Bonds continued their rally with interest rates declining.
The Dollar gains a little, and gold lost $15 today, and still is a spectacular buy.
Oil and gasoline continued their decline – much to the surprise of the oil producing world. Reducing supply has no impact on the price of oil. At $56/barrel, oil is starting to get cheap – but could get much, much cheaper. The recession has NOT started to bite as much as it will bite, and continue to push oil prices down.
In the news today…..
The major discussion point in the news yesterday and today is whether or not the government should be bailing out the automobile sector – GM, Ford, and Chrysler. Why would the government do this? Jobs – plain and simple. What are the alternatives? One alternative is to let GM go into bankruptcy – be restructured – and emerge as a new company – smaller and with better products. But smaller means less jobs, and that could be politically unacceptable.
What’s wrong with the auto companies? Their overheads are just too much. They are unionized – and this is causing the companies to pay $40 to $45/hour to its workers – even trash collectors. So why is this so bad? They can’t compete, that’s what’s wrong. The “other” auto companies – located in the South – like Datsun, BMW and Toyota are NOT unionized. They are paying workers MUCH less – somewhere in the $20 to $30/hour pay level. How can GM or Ford or Chrysler ever think they can compete with the “other” auto companies?
One interesting point is that President Bush is against bailing out the Detroit auto companies. Henry Paulson, when asked today whether the TARP ($700B) money could or should be used to bailout the Detroit auto companies, said that he didn’t think so. Perhaps he is just reflecting his boss’ attitude, but he did also go on to say that giving money to those auto companies without any conditions is a big mistake because those companies would be coming back in a few months for a lot more money. In other words, a massive restructuring plan needs to be part of any bailout. That way the taxpayer will have at some hope of getting some of its money back. Without it, the bailout is just a gift and will be squandered.
Oh, by the way, GM is just about to announce a new Hummer model. Does that sound like the place where GM should be placing its design money?
The AMERO – What is it????
I want to thank Dana for asking about the AMERO, and whether or not it is real. Here is what I know:
The AMERO is a proposed currency to replace the US Dollar, the Canadian Dollar and the Mexican Peso – and would be an extension of NAFTA. In other words, it would be like combining those 3 N. American countries and giving them a new currency.
- The AMERO is not “official”.
- The AMERO is based on the Euro model, and the Euro model is so new that it has not proven itself yet. The current recession that will hit Europe should “test” the Euro theory. We’ll see if it sticks. The alternative is to go back to national currencies – unlikely to predict a return today, unless the Euro fails due to different rates of national spending patterns.
- AMERO coins have been minted, but are NOT official. They were created as a PR stunt to highlight the topic of the AMERO.
- What about the US Constitution? The concept of the AMERO is completely against the US Constitution, and a court case would immediately go to the Supreme Court to challenge the AMERO if anyone officially created it by law.
Why would anyone be talking about the AMERO?
The US Dollar is the world’s “reserve currency” and is failing in its job as a reserve currency. Nations are already holding Euros in addition to Dollars as reserve currencies – in contravention to the Bretton Woods Agreement.
The current financial and economic mess in the world today is caused (as its root cause) the US Dollar being the reserve currency. Henry Paulson skirted around this subject during his talk today, but was very clear that if the “imbalance of payments between countries” were not corrected – we would have another economic mess just like the one we are in. That’s pretty clear in my mind.
So, what should you – as an economyguy reader – and an intelligent investor – be looking for in the future regarding the AMERO, or any other currency? (The IMF has suggested a “world currency”.) Keep your ears and eyes open to any talks going on in the world that address “the reserve currency” issue. One such meeting, the G20 meeting this week, will be taking one such step in its discussions. That’s got my attention, and it should get your attention too.
The direction future decision take on the “reserve currency” issue will allow us to make intelligent investment decision – and we won’t know what they are until we get there. The US Dollar – having failed as the world’s “reserve currency” - will NOT be the world’s future “reserve currency.” That’s what I believe – however, I am continually surprised by decision made by the powers.
It’s impossible to predict where all the discussions will end up. However, I assure you that wherever it ends up – it will have a DIRECT EFFECT on you. The current bailout is child’s play compared to any changes in the “reserve currency” agreement.
Here are Yesterday’s numbers:
Dow Jones 30 Industrial - 8283 (down 411 points)
10 Year Treasury Bond – 3.67% (down 0.09%)
Euro - $1.2487
Gold - $718 (down $15)
Oil - $56.16 (down $3.17)
Gasoline - $1.25 (down $0.06)
