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The Euro may still appreciate somewhat against the dollar, but this is one horse
who has pretty much left the barn. The time to buy Euros was back when W took
office, before the deficits started piling up just as they always do when Republicans
are in office, and before the resource-draining Iraq invasion. The Euro started out
(as sole currency, anyway) at $1.19 and quickly sank to 82¢. That didn't last long.
Today the euro costs over $1.56, and my take-home pay has lost about 60% of its
purchasing power since Cheneybush has been wrecking (running?) things. Good thing
I paid off the house and the cars in anticipation beforehand. My wife is German,
is paid in euros, so she is immune. She is a social worker, so she gets paid crap,
but at least it's not 40% of the crap it was in 2001.
Buying euros now is an expensive proposition. If you want to become a trader/speculator,
and frazzle your nerves by sitting in front of a computer screen all day, watching and
covering your position, fine. There are people who do that with stocks, commodities,
and foreign currencies. When something starts to go wrong, they cover their positions
and get out in seconds. But just to buy a couple of thousand euros and put them in
your safety-deposit box seems like too little, too late. Gold shot through $1000 an
ounce just two weeks ago. Then, some of the big position-holders started to have some
fun, and the price dropped 10% by the end of that week. As of this writing, it just crept
back over the $900 mark. The time to buy gold was back in January, 2001, before Clinton
left office. It touched $252 an ounce then. Gold is only an indication of how secure
people feel about things, the dollar included. It's not like oil or food. You can't eat it,
you can't heat your home with it, you can't live in it, and it pays no interest. It just
sits there, and you had better hope that in the future, someone wants it more than you
do, or all you have is a lump of metal. Of course, it has been used as money for thousands
of years, so it can't be ignored altogether, but when its price rises dramatically, it's
not because someone suddenly found out it can cure cancer. It's because people lose
confidence in the currency it is quoted in. Gold has risen recently in euros as well, but
nowhere nearly as dramatically.
For the moment, gold appears to have peaked at $1000, and has been trading between $880
and $940, currently at $901. From $252 to $900 is nearly quardupling. For that to happen
again, the gold price would have to go over $3000. Not likely. The euro, going from 82¢
to $1.56 represents a 90% increase in 7 years. For that to happen again, the euro would
have to go to nearly $3. The Central banks won't let it happen, as this would mean that
no country in the world outside of the dollar zone could sell their goods in the USA,
and that practically no Americans could afford to travel abroad. Taxi drivers in Paris
could afford to stay at the Hyatt-Regency anywhere in America, and a mid-level executive
from Düsseldorf could buy his kid Rhode Island for Christmas (OK, not quite, but you get
my drift). What I'm saying is that things have already gotten out of hand on the currency
end, and the time to act was when we all speculated about this happening before it did.
As I practically live here, I actually did do this (not enough), and the $100,000 I changed
into DM in 2001 (and then into Euros when the changeover came in January 2002) is long gone.
You can't think of it as a $100,000 investment that is now worth $190,000. It bought me so
many euros, and I spent them over the years as euros. They didn't appreciate one bit, as I
never took a profit converting them back into dollars. The euros I needed to live on just
ended up not costing me MORE, that's all.
Now I just suffer along with everyone else, and hope the nightmare has an end. If McCain
gets in, and the insanity of Bush economics is continued, then I may throw in the towel and
buy a few more euros than I need at these insane levels, but I still don't feel it is
justified. The difference in purchasing power is significant, and I'll be returning home
at some point, whether because they get me a desk job (ugh) Stateside, or because I get
too old to do what I do any more (I sometimes wonder if I didn't reach that point ten
years ago!). My wife is dead set against moving to America, and as long as I can manage
to do what I'm doing, I will. But buying something as an investment AFTER it has gone up
exponentially is risky business. It could still be the right decision, but the chances
your investment will do well AFTER such a run-up are far smaller than your chances were
before it happened.
As for currency controls, they won't work. A black market will appear immediately, and
the true market price of anything will prevail. People will always find a way to get
around them. As it is, there is a requirement to report any transaction or movement
of currency over $10,000. It's legal to do ANY amount in cash, you just have to report
it. There have been Russians traveling to America to buy Russian collectibles to bring
home. They sometimes fly to American with briefcases full of cash, declare them at U.S.
Customs (who stare bug-eyed at the sight of a $1.2 million in a briefcase), and meet
their armed guards at the airport. They then drive off to the auction, or whatever it
is, pay with their cash, giving their passports, and doing everything by the book. They
don't care. These guys are usually Russian oil oligarchs, and to them $1.2 million is
about ten minutes' worth of net earnings. In France, after 1968, when currency controls
were imposed, they caught the occasional smuggler taking money out to Belgium or Switzerland,
but 99% of the cash that was intended to leave did indeed leave. In 1981, when the Socialists
took over France, they knew people would lose confidence. Indeed, they did, and the price
of gold within France rose to far beyond the international level. Strict currency controls
were imposed, and it was illegal to carry more than $200 (!!) in cash out of France unless,
as a foreigner entering, you had delcared it coming in. Anything over that (if you were
French) had to be paid by credit card. The predictable happened. Grandmothers were caught
at Paris train stations heading for Brussels or Frankfurt with knitting bags full of cash,
and French customs made sure that it hit the papers, but 99% of what people wanted to get
out of the country still got out. They soon abandoned that ridiculous limit--not because
they got more lenient, but because they realized it wasn't working.
Rather than impose currency controls, repairing confidence in your economy is the better
solution. Free movement of capital means that people from other countries will have no fear
investing in your country. No one in their right mind will invest in a country where they
fear that they will never be able to get their investment out.
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