# Still number One



## ksinc (May 30, 2005)

> Still number one
> Senior American officials console themselves with the thought that, whatever happens in Iraq, America will bounce back. Before long, perhaps after Mr Bush has left the White House, those complaining about America's overbearing power will come begging for its help.


https://www.economist.com/printedition/displayStory.cfm?Story_ID=9401945


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## Wayfarer (Mar 19, 2006)

An interesting read ksinc. I had let my subscription run out about a year and a half ago, I need to think about re-upping.

Some thoughts from the article:

1) We do need out of Iraq. In fact, we need to stand down world wide IMO and concentrate on intelligence and covert operations much more as a better bang for the buck. I am not saying reduce the armed forces, I am just saying we should stop spending so much abroad to support US bases.

2) The US needs to consider other countries to enter into a trading zone or economic zone together. I do believe the EU is now a larger economy than the US and there has been much talk of the Euro replacing the Greenback as the "world currency". 

Then there is China. The US needs tightly aligned economies to counterbalance the EU and China.


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## ksinc (May 30, 2005)

Wayfarer said:


> 2) The US needs to consider other countries to enter into a trading zone or economic zone together. I do believe the EU is now a larger economy than the US and there has been much talk of the Euro replacing the Greenback as the "world currency".


Well, yeah that's exactly the point 'trading zones'. It's sort of a false statistic to say EU>USA.

True, the EU Member country's economies add up to $13.8T vs. $13.2T by current projections (previously 13.11 vs 13.13), but that includes ~$2T for the UK which has it's own Central Bank and is the 2nd largest economy in the EU (behind Germany).

While mathematically true, at least philosophically I don't believe you can really add up enough Belgiums and Swedens to equal the US Economy. In spite of sharing those factors controlled by central banks (exchange, interest). There are enough inefficiencies and competing government self-interests in the EU that it cannot be considered one economic environment IMHO. Would anyone claim DFI in one EU member is exactly the same as any other, for example?

By the same logic, one would have to add Canada and Mexico to the USA (NAFTA) - another $1.1T and $1.0T respectively.

So, you're really looking at $11T vs $13T or $13T vs. $15T.

This is part of the reason for CAFTA, IMHO. Two can play the game. And; as free market competitions go ... we know who usually wins. So, in fact, do the Saudis and others that may consider re-pricing in Euros vs $USD. Still, who would be fool enough not to own some EuroBonds?


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## Wayfarer (Mar 19, 2006)

I agree with all you've said. The EU economy is a much more artificial construct than that of a single country. Also, I know the EU has had many struggles, many of them based around the currency. From my time in B-school, our resident FX expert explained Euroland is not an OCA or Optimum Currency Area, and went on to explain some problems caused by the Euro, such as the trouble with Germany not being able to float its own currency after the reunification. Over time, this guy thinks Euroland is doomed to fail as a currency area; those countries maintaining their own currency seem to be well positioned.


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## ksinc (May 30, 2005)

I think it depends on your perspective. If one thinks 'old money' is the 'smart money' then one might side with the UK and vice versa. 

FWIW, I'm with the 'old money'.

I'm about 60% cash and equivalents at the moment too. LOL

I recently saw one of the value guys interviewed and he said he was "fully invested". The interviewer looked shocked and said, "But, you're 30% C&E" and he said, "Yes. That's considered 'fully invested' for us." Oh well, I found it funny. Maybe you had to be there.


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## Karl89 (Feb 20, 2005)

Gents,

Dont forget that the EU had added 11 new countries and 90+ million people since 2004 with the addition of most of Central and Eastern Europe.

Karl


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## tabasco (Jul 17, 2006)

Yeah, well the whole idea of the US as the world's reserve currency is an artificial construct, too. All 'a these here "artificial constructs" inevitably collapse: Tongan stone currency, gold goins, British sterling, US gold standard. Still alive, Bretton Woods is looking like "old europe" to some people. Who knows what the Saudi's and the chicoms might decide to do? Some commoditiy-precious metal-eurodollar mongrel, no doubt. 

-gold buyer


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## ksinc (May 30, 2005)

tabasco said:


> Yeah, well the whole idea of the US as the world's reserve currency is an artificial construct, too. All 'a these here "artificial constructs" inevitably collapse: Tongan stone currency, gold goins, British sterling, US gold standard. Still alive, Bretton Woods is looking like "old europe" to some people. Who knows what the Saudi's and the chicoms might decide to do? Some commoditiy-precious metal-eurodollar mongrel, no doubt.
> 
> -gold buyer


Not gold, but lead-n-brass


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## ksinc (May 30, 2005)

Karl89 said:


> Gents,
> 
> Dont forget that the EU had added 11 new countries and 90+ million people since 2004 with the addition of most of Central and Eastern Europe.
> 
> Karl


And; what? Are you promoting acquisitive economic growth over organic economic growth?

I think that's been tried before by Europe. 

On a serious note, doesn't growing the EU by adding countries, amount to the same tactic used by private equity that is currently being debated in the USA (Blackstone) and has already been eliminated in Europe; except without the preferential tax treatment?


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## Wayfarer (Mar 19, 2006)

I am of the firm belief that if my investments become hugely devalued, lead and brass will be the only metals worth owning. I do not foresee that though. I am just not a big believer in the likely possibility of some dystopia in my life time.


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## ksinc (May 30, 2005)

Wayfarer said:


> I am of the firm belief that if my investments become hugely devalued, lead and brass will be the only metals worth owning. I do not foresee that though. I am just not a big believer in the likely possibility of some dystopia in my life time.


Proven US crude reserves are what? 10 years? Exactly how old are you and how long do you plan to live?


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## Karl89 (Feb 20, 2005)

ksinc,

Well the highest growth in Europe has been in Central and Eastern Europe (Slovakia and Estonia both have flat tax rates in the teens) and those countries were not acquired by the EU, they all desperately wanted to join. It is beyond silly to compare EU enlargement to Nazi or Soviet imperialsim.

Your worldview only has to be parochial if you want it to be, ksinc.

Karl


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## Wayfarer (Mar 19, 2006)

ksinc said:


> Proven US crude reserves are what? 10 years? Exactly how old are and how long do you plan to live?


Two words: oil sands.


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## Albert (Feb 15, 2006)

Karl89 said:


> Dont forget that the EU had added 11 new countries and 90+ million people since 2004 with the addition of most of Central and Eastern Europe.


...which made it an artificial construct indeed.

Bloody hell, they should have never admitted some of the blighters in the East - it's going to ruin the whole project.


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## Wayfarer (Mar 19, 2006)

Albert said:


> ...which made it an artificial construct indeed.
> 
> Bloody hell, they should have never admitted some of the blighters in the East - it's going to ruin the whole project.


Ah Albert, welcome to the talk. You seem to be a very well versed person in this area. Talk to us about the long term hopes of Euroland as a currency area.


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## Karl89 (Feb 20, 2005)

Tabasco,

There is a good article on national monetary policy and its very abitrary nature in this month's Foreign Affairs. The USD will likely remain the most important world currency for a long time but it won't be as dominant as it has been in the past. We are starting to see this now as foreign central banks diversify their foreign reserve holdings and I suspect that in the near future commodity prices will be based on a basket of currencies (USD, Euro, Yen, etc.) rather than solely on the dollar.

In the long run no one has made money betting against the USD but in the future it won't be the only game in town.

Karl


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## Albert (Feb 15, 2006)

Wayfarer said:


> Ah Albert, welcome to the talk. You seem to be a very well versed person in this area. Talk to us about the long term hopes of Euroland as a currency area.


I don't see any problems. The free movement of capital, labour and goods should compensate for the lack of flexible foreign exchange between the member states. I think a common currency is a great thing because it entrenches the economic integration of Europe.

Furthermore, the ECB is truly independent from governments. That's a great improvement as compared to Europe how it was before.

Downside is that member states sometimes may happen to be punished for the policy mistakes of other member states. However, that's what the rules of the monetary union and regulatory competition is about...


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## Karl89 (Feb 20, 2005)

Albert,

Blighters in the East? To which countries are you refering to? Estonia with a flat tax and a cutting edge internet infrastructure? Slovakia, also with a flat tax and the new leader (proportionally) in world auto production? The Czech Republic and Poland, who have both been consistent champions of human rights and are playing leading roles in European defense? More blight in some parts of the former DDR than in those countries I'd say.

Its not as if the EU you has let Albania in, but truth be told Albania's public finances are in better shape then say in Italy, Greece or Portugal.

Karl


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## Albert (Feb 15, 2006)

Karl89 said:


> Blighters in the East? To which countries are you refering to?


How about a Polish government that grossly and obscenely obstructs the political unification process of Europe since years? Making the whole thing completely ungovernable?

Have you any idea what the same fellows are scooping in terms of agricultural subsidies and what inflation of EU subsidies that has caused? It's disgusting.


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## tabasco (Jul 17, 2006)

Karl89 said:


> Tabasco,
> 
> There is a good article on national monetary policy and its very abitrary nature in this month's Foreign Affairs. The USD will likely remain the most important world currency for a long time but it won't be as dominant as it has been in the past. We are starting to see this now as foreign central banks diversify their foreign reserve holdings and I suspect that in the near future commodity prices will be based on a basket of currencies (USD, Euro, Yen, etc.) rather than solely on the dollar.
> 
> ...


Foreign Affairs, huh ? gotta link? thanks.

like Yogi says, "if something can't go on anymore,it won't"


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## Karl89 (Feb 20, 2005)

Albert,

First agricultural subsidies have been an EU problem long before 2004 and it French resitance (Etienne, I am not French bashing, promise! We have the same problem here in the US) that is the real problem.

And while you may object to the Polish position, it is a procedure that is allowed with in the EU. Blame EU rules that allow for such a situation rather then the plucky Poles, in other words don't hate the playa, hate the game as the kids today might say.

Just don't adopt Adenauer's view that Europe ends at the Oder-Neisse.

Karl


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## Karl89 (Feb 20, 2005)

Tabasco,

Ask and you shall receive:

https://www.foreignaffairs.org/20070501faessay86308/benn-steil/the-end-of-national-currency.html

Summary: Global financial instability has sparked a surge in "monetary nationalism" -- the idea that countries must make and control their own currencies. But globalization and monetary nationalism are a dangerous combination, a cause of financial crises and geopolitical tension. The world needs to abandon unwanted currencies, replacing them with dollars, euros, and multinational currencies as yet unborn.

Benn Steil is Director of International Economics at the Council on Foreign Relations and a co-author of Financial Statecraft.


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## ksinc (May 30, 2005)

Karl89 said:


> ksinc,
> 
> Well the highest growth in Europe has been in Central and Eastern Europe (Slovakia and Estonia both have flat tax rates in the teens) and those countries were not acquired by the EU, they all desperately wanted to join. It is beyond silly to compare EU enlargement to Nazi or Soviet imperialsim.
> 
> ...


Ok, Stupid. Listen closely -

#1 I was clearly comparing it to Europe in the 15th & 16th Centuries. We all realize your worldview starts with 1900. Thanks for sharing.

#2 That's about the 3rd or 4th time you have called me "parochial" or made some other seemingly arrogant yet frightfully ignorant attempt to be condescending or insulting to me. Trust me, you don't rate that highly.

#3 I count at least two times after I told you to "back off" the first time and then received *your un-solicited and clearly disingenous apology via PM*. Which I will point out to one and all, I very gratiously accepted although I had no reason to do so besides being a good member of the board. I'm not sure what your mental issues are exactly, but my advice is that you get off the Internet and seek professional help.

#4 I'm not sure if English is your first language or not. It appears not to be, so I will be redundant and I think I'm being far more than generous here.

"Back Off!", "Turn Away and Go!"

Hopefully, one of those should get through - even to you.


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## Karl89 (Feb 20, 2005)

Ksinc,

How parochial.

Your comparisons don't wash nor are they clear. But given the muddled logic you apply to other issues this should come as no surprise. When you refer to me as a Stalinist,as you did in a earlier thread, it clearly shows you have no understanding of the word and little regard for the truth. I wonder what other big words are beyond your comprehension.

I think your worldview is narrow and rather limited. Based on your postings I think you have little understanding of some complex issues. Perhaps I am wrong but I doubt it. And not to worry, I don't rate myself all that highly either though apparently you are bothered by my opinion of you - perhaps it rings a bit close to the truth?

I did send you a private message where I apologized. In a previous thread you took my points as questioning your patriotism. That was not my intention, I have no doubt you are a patriot - whether the country can survive patriots like yourself is another issue all entirely.

English is my native language but thanks for asking!

Now relax and take a deep breath and try again, surely your next post will make one or two salient points.

Karl


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## Albert (Feb 15, 2006)

Karl89 said:


> And while you may object to the Polish position, it is a procedure that is allowed with in the EU. Blame EU rules that allow for such a situation rather then the plucky Poles, in other words don't hate the playa, hate the game as the kids today might say.


What???

Firstly, they should have never joined if the only thing they do is to start bashing around almost everybody while claiming half of the EU's subsidies. The only thing Poland has contributed so far is utter obstruction, whose verbal formulation is a mixture of the irritating and the laughable. It should be a reason to kick them out and tell them to come back in 50 years time. (or not at all, even better)

Secondly, if the EU expansion had been done slightly less hastily and with more consideration for local political factors and, in particular, the integration process of the then EU-14, the complete political mess we are now in would have not been created the in first place.


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## Wayfarer (Mar 19, 2006)

Albert said:


> I don't see any problems. The free movement of capital, labour and goods should compensate for the lack of flexible foreign exchange between the member states. I think a common currency is a great thing because it entrenches the economic integration of Europe.
> 
> Furthermore, the ECB is truly independent from governments. That's a great improvement as compared to Europe how it was before.
> 
> Downside is that member states sometimes may happen to be punished for the policy mistakes of other member states. However, that's what the rules of the monetary union and regulatory competition is about...


Interesting. Your view is at directs odds with the gentleman I had as a prof for my FX class. He made his millions as a very young man in the 1970's, working currency desks just as the USD went off the gold standard. His take (and the text book he taught out of) was that regional/country disparities will make it more difficult for said region/country to bounce back due to not having a currency that floats to their current condition. He citied the difficulty Germany was having in meeting its EU debt vs. GDP convenants after reunification. His argument was that if Germany had had a floating currency, it could have been somewhat devalued (along with interest rate adjustments) to help in bringing the former Soviet portion back up to snuff. For this, and other reasons which escape me several years post-graduation (FX not my stuff!), Euroland was deemed not to be an OCA, most likely dooming the Euro to ultimate failure.


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## ksinc (May 30, 2005)

Karl89 said:


> Ksinc,
> 
> How parochial.
> 
> ...


Excellent! That's three and Thank You, my conscience is now clear.

I would direct objective readers to the one issuance of the word "stalinist" that appears with my name:

https://askandyaboutclothes.com/community/showthread.php?t=70339&highlight=stalinist

It's an interesting and telling look into Karl's mind and irrational statements.


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## Karl89 (Feb 20, 2005)

Ksinc,

Are you lazy or incompetent? And one hallmark of mental instability is an inability to distinguish between fact and fiction.

But don't take my word for it:

https://askandyaboutclothes.com/community/showthread.php?t=70339



ksinc said:


> Why would I trust someone who makes such an ignorant and arrogant comparative statement without any factual knowledge?
> 
> Frankly, you sound like a Stalinist. We are just supposed to trust you?
> 
> ...


No need to apologize _____, as it seems you have larger issues than just offending me.

Karl


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## ksinc (May 30, 2005)

Karl89 said:


> Ksinc,
> 
> Are you lazy or incompetent? And one hallmark of mental instability is an inability to distinguish between fact and fiction.
> 
> ...


You're absolutely sure English is your first language? The post(s) above confused you somehow?


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## Karl89 (Feb 20, 2005)

Ksinc,

The fact is that you edited your post. The post in question itially had the word Stalin and not Stalinist. You quickly caught your error and tried to correct it undetected. Secondly it proves that you did call me a Stalinist, though perhaps you are playing semantics and will retort that you only said I sound like a Stalinist. The point is, that you have no understanding of what the word is or means. But again, no surprise.

So in addition to be parochial, being unable to distinguish fact from fiction and lacking intregity are there any other issues you have when we evaluate your posts?

Karl


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## ksinc (May 30, 2005)

Karl89 said:


> Ksinc,
> 
> The fact is that you edited your post. The post in question itially had the word Stalin and not Stalinist. You quickly caught your error and tried to correct it undetected. Secondly it proves that you did call me a Stalinist, though perhaps you are playing semantics and will retort that you only said I sound like a Stalinist. The point is, that you have no understanding of what the word is or means. But again, no surprise.
> 
> ...


I think the context speaks for itself.

If you read your own quotation it does not call you a Stalinist, but again English doesn't seem to work for you. It says and you remark, you sound like a Stalinist when you imply we are just supposed to trust you.

I do appreciate that you do not want readers to read the post in context. It certainly shows you to be the lunatic you are.

However, if it makes you feel vindicated, fine I will here and now call you a "Stalinist" instead of saying you "sound like a Stalinist". Happy?

Why and for what would I apologize? For calling you Stupid? Please! You are Stupid!

You're also so far way beyond the ass kicking you should get. LOL So, please keep pushing if it suits you. You are afterall hiding behind a computer 

I very much look forward to discussing these issues with you in person.


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## Karl89 (Feb 20, 2005)

Ksinc,

Again you totally misunderstand the issue. But again, not surprising, one hopes you are more competent in other areas of your life. Dubious, but hope dies last, no?

And interesting that upon losing an argument you make the threat of physical violence. Certainly the sign of someone with rather limited faculties.

Karl


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## ksinc (May 30, 2005)

Karl89 said:


> Ksinc,
> 
> Again you totally misunderstand the issue. But again, not surprising, one hopes you are more competent in other areas of your life. Dubious, but hope dies last, no?
> 
> ...


Misunderstanding the issue? Losing an argument? The threat of physical violence? Limited faculties? LOL

The issue that was misunderstood was misunderstood by you, Stupid. You routinely try to pretend the world started with Hitler and Stalin. And then; you accuse others of having a narrow and limited worldview.

Have you never heard of the British Empire nor the Spanish Empire?


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## whnay. (Dec 30, 2004)

Get a room you two.


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## Karl89 (Feb 20, 2005)

Ksinc,

It is pointless to engage you. Now get back to work lest your employer discover that you spend company time threatening people on the internet.

Also your habit of editing and re-editing posts after someone has already replied is a bit ingenuous as it allows you to seemingly counter arguments not yet made in the thread flow. By all means reply to new posts and issues but do it in a new post rather then by editing older ones. 

Karl


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## ksinc (May 30, 2005)

Karl89 said:


> Ksinc,
> 
> It is pointless to engage you. Now get back to work lest your employer discover that you spend company time threatening people on the internet.
> 
> ...


I own the company, *****.

I did not edit substantial items after you responded or do anything else disingenous. And; you can look at the timestamps and see I don't after someone has replied. Thanks. Like you would be the Policeman for that.

I'm not sure where you learned that you may insult others with impunity, but I really would enjoy expanding your worldview! 

I don't think anyone has a real problem with that. If you do; well, I don't care. If you're that big of pussy perhaps you should not only remove Reagan as your avatar, but remove "Texas" as well. Your association is an insult to both.


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## Karl89 (Feb 20, 2005)

ksinc,

So your company endorses threatening people over the internet? And if so do you disclose this to potential clients? Would love to see your company's mission statement!

Second, you do make substantial edits, sometimes adding whole paragraphs! I am not policing your intellectual dishonesty just asking that you not be disingenuous with your edits. But perhaps that was too much to expect from your ilk.

Lets see - you have called me a Stalinist, stupid, cursed at me multiple times and threatened physical violence and you are steamed bc I point out that you are parochial and have a limited worldview? Your actions certainly don't aid your objections to the contrary.

karl


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## ksinc (May 30, 2005)

Karl89 said:


> ksinc,
> 
> So your company endorses threatening people over the internet? And if so do you disclose this to potential clients? Would love to see your company's mission statement!
> 
> ...


blah blah blah blah blah, Karl.

Yes, I called you a lot of things after you insulted me for the 4th time and two times after your private apology for public insults. Speaking of intellectual dishonesty.

Is that unclear? You have a problem with that? TOO BAD!


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## Karl89 (Feb 20, 2005)

Ksinc,

My apology was bc you felt I was questioning your patriotism and that was not my intent - either you misunderstood me or I was unclear in that thread. You wave the around the fact that I was gracious and you were not as some sort of moral victory. Well have at it then! And let me predict that _______ now will begin to try and rehash that issue.

But I do not question your relative lack of sophistication, inability to comprehend many complex issues and the insecurity complex you have consistently displayed in this thread. No, those things are quite evident and need no further commentary.

And I don't have a problem with you - you don't merit that kind of consideration. I do however find your ignorance and volatility a great source of amusement.

Now do you wish to continue to make our spat an endurance test for other members or should we just move on. Go ahead and have the last word, we could all use one last laugh.

Karl


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## Karl89 (Feb 20, 2005)

Albert,

I believe direct payments made to Polish agriculture from the EU amount to about 5-6% of the total EU agricultural budget. So as in France with menacing Polish plumbers, Polish farmers are being made into a phantom menace.

https://www.fas.usda.gov/gainfiles/200704/146280882.pdf

There is no doubt that Common Agricultural Policy needs reform but to blame the Poles for this mess seems a bit harsh. And again I think your issue is with EU procedure rather than Polish policy. It silly to have a system that requires unanimous consent for every major decision.

I think Poland has been a very constructive member of the EU and played an important role in Ukraine during the Orange Revolution in late 2004 and is the leading advocate for democratic reform in Belarus. Agriculture subsidies are small beer compared to the Polish commitment to human rights and security issues.

Karl


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## Wayfarer (Mar 19, 2006)

Okay you two, do not make me post things about torturing guys 'nads...oh wait...that was a movie I never saw...


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## ksinc (May 30, 2005)

Wayfarer said:


> Okay you two, do not make me post things about torturing guys 'nads...oh wait...that was a movie I never saw...


LOL ok, good point.

I would like to publicly apologize to Andy, the moderators, the members, and others who may read the forum for my language and other questionable behavior in this thread. Although I felt justified, it clearly never is and; I'm truly sorry.

I will not be further addressing user KARL89 or this dispute in the public forum.

KSINC


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## Albert (Feb 15, 2006)

Karl,



Karl89 said:


> And again I think your issue is with EU procedure rather than Polish policy. It silly to have a system that requires unanimous consent for every major decision.


That's exactly what the Polish have succeeded to preserve until 2017. With questionable means. This is the final, ultimate stroke to European integration as it has been pursued to this day. Fortunately, it might very well happen that a "Core Europe" (i.e. an inner circle of countries willing to proceed) emerges from it. And then there will be no more fuss and no more messing about.



> I think Poland has been a very constructive member of the EU and played an important role in Ukraine during the Orange Revolution in late 2004 and is the leading advocate for democratic reform in Belarus. Agriculture subsidies are small beer compared to the Polish commitment to human rights and security issues.


The insults they have thrown at Germany and other European nations have brought a style into European politics that is inacceptable and makes me wonder how such a country might have been contributing to the Orange Revolution and other political achievements in CEE. Frankly, from an inner-European perspective, there wasn't much Polish effort visible at all.

Albert


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## Karl89 (Feb 20, 2005)

Albert,

Well the twins have to appeal to certain domestic constituency and as you know there still exists a great level of mistrust between the Poles and Germany. Poles still vividly recall the war and Germans feel threatened by the influx of cheap Polish labor.

But I can assure you that Poland made a major contribution in Ukraine. Actually in was Ukraine where the EU and the US were able to cooperate convincingly and effectively. And Poland is almost alone in its crusade for reform in Belarus. Its not even on the radar in Brussels.

And yes you can call Poland obstructionist but it gives the big boys cover, bc I doubt very much if France and Germany want to give up their veto, so while they publically call for reform and chastize the Poles they secretly hope Warsaw keeps their sacred veto intact. Also don't underestimate the damage Chirac did in 2003 when he hinted that EU candidates that supported the war in Iraq should be punished. This event fostered an atmosphere of distrust from Warsaw to Sofia that has not yet totally dissipated. Warsaw and until recently Prague saw their veto as their last guarantee of independence.

Karl


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## gregp (Aug 11, 2005)

Wayfarer said:


> Interesting. Your view is at directs odds with the gentleman I had as a prof for my FX class. He made his millions as a very young man in the 1970's, working currency desks just as the USD went off the gold standard. His take (and the text book he taught out of) was that regional/country disparities will make it more difficult for said region/country to bounce back due to not having a currency that floats to their current condition. He citied the difficulty Germany was having in meeting its EU debt vs. GDP convenants after reunification. His argument was that if Germany had had a floating currency, it could have been somewhat devalued (along with interest rate adjustments) to help in bringing the former Soviet portion back up to snuff. For this, and other reasons which escape me several years post-graduation (FX not my stuff!), Euroland was deemed not to be an OCA, most likely dooming the Euro to ultimate failure.


Essentially Krugman's view as well. You may enjoy the book Return of Depression Economics. In any case, I don't think the Euro will fail.


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## Karl89 (Feb 20, 2005)

gregp,

The Euro won't fail, it will likely become the world's second reserve currency. However its strength is a problem as it has hurt European exports and has been particularly damaging to marginally competitive states like Italy.

There exists the unlikely possibility that if the Euro became too high a state like Italy might withdraw which would throw the whole system for a loop. Also it will be interesting to see in the new EU members join the Euro in the next few years as it may reduce the labor cost advantages they enjoy now. If I am correct I think only Slovenia and Estonia currently meet Euro ascension criteria.

The biggest Euro related issue I see in Central and Eastern Europe is that if those states don't meet Euro criteria or elect not to join the Euro, most of the Euro denominated loans in those countries will be unservicable and a severe liquidity crisis would grip the region.

Karl


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## Wayfarer (Mar 19, 2006)

I have had the math explained to me as to why some FX guys feel the Euro will fail. Can some of you that think the Euro will be a long term success cogently summarize what makes you think this?


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## Alexander Kabbaz (Jan 9, 2003)

Don't use members real names unless they are the same as their membernames. If you do so and they ask you to remove it, do so. If you use their name and they demand you remove it, do so. If you use their name and they threaten you if you don't remove it, remove their name.

No, it is not in the AAAC rules. I just made it up from a doctrine known as the "Doctrine of Common Courtesy".

Henceforth this shall be known as the "Rule with No Name".

I can be *much* clearer if this is not understood.


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## Karl89 (Feb 20, 2005)

W,

The biggest reason would be the old adage about GM, its too big to fail (well perhaps thats not a great analogy anymore!)

But the EU currently has a strong account balance, most national deficits are under control and the Euro is being increasingly held by foreign central banks like China, Korea, Japan and the oil rich Arab states.

There are some issues with the new member states and the economic laggards in the EU-15 like Italy but overall the biggest challenges may be the demographic trend that sees the EU's long term population shrinking (the conventional wisdom on this is being challenged)

I think the Euro is a tad overvalued (its true value lies in the $1.20-1.23 USD range which is where it began trading in 1999.) But an overavalued currency doesnt always have to have negative implications, just look at Canada today, as its almost at par with the USD.

Karl


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## Wayfarer (Mar 19, 2006)

Karl89 said:


> But the EU currently has a strong account balance, most national deficits are under control and the Euro is being increasingly held by foreign central banks like China, Korea, Japan and the oil rich Arab states.
> 
> There are some issues with the new member states and the economic laggards in the EU-15 like Italy but overall the biggest challenges may be the demographic trend that sees the EU's long term population shrinking (the conventional wisdom on this is being challenged)
> 
> ...


I had written a reply last night, but think it might have become a victim of the ongoing maintenance.

Karl, I had been looking for a more econometric/mathematical answer. For instance, how does the Euro overcome purchasing price parity and the law of one price across many countries?

As far as the Euro having a "true value", that assertion is one I do not understand either. Any floating currency will have a spot rate and a forward rate, nothing else. To my knowledge, the thought of stating there is a three cent range that is the "true value" of a floating currency rather shows a lack of understanding on that topic. A currency's value will be determined by a number of things, such as local current account, local inflation, local political stability, etc. All these things contribue to what the spot and forward markets value a currency at. This is also a problem with the Euro. How does the volatile political situation of one country affect the value of the Euro in regards to an extremely politically stable country? There can be no adjustment of the Euro *per country* based on these things.

The Canadian dollar overvalued vs. the USD? I am also going to raise issue with this. Canada has a huge surplus in its current account last time I checked, ( ) and an extra huge one, per capita, with the US. Its federal budget is much better than the US's (it is currently the only G7 country with a budgetary surplus). It is relatively politically stable. I think, as usual, the markets have set a rational spot rate.


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## Karl89 (Feb 20, 2005)

W,

I don't believe the Euro has a "true" value but I do believe the it is overvalued in the current enviroment - obviously the value of a floating currency will fluctuate. If you understood that I meant that the value of the Euro to the USD should be "fixed" by the market in the 1.20-1.23 range then I was unclear.

As to your other points I have no satifactory answer and it is certainly an issue for for the Euro, at least in the medium term. The Dutch for one felt that the guilder was undervalued and that when the Euro was introduced it had an inflationary effect in Holland. And some have argued that currencies like the Greek drachma and Italian lira were overvalued when the Euro was introduced.

The ECB should alleviate the concern you have over individual national economic performance and there are restrictions on budget deficits though somtimes the numbers are fudged a little and there is so no real enforcement mechanism for countries that habitually exceed the 3% target.

And the rapid rise in the Canadian dollar has been due primarily to the rapid increase in commodity prices and although the Canadian economy is robust such a strong currency will likely hurt other exports and if commodity prices decline there will an equally rapid fall in the Canadian dollar. One would prefer not see anymore appreciation in the Canadian dollar and any further rise or decline in the currency at a much more gradual rate. Markets are always rational in the long run but in the short term....... But suffice to say I don't think the Canadian dollar is terribly overvalued like the USD was in say October of 2000 but it is trending that way.

Karl


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## Wayfarer (Mar 19, 2006)

Karl89 said:


> W,
> 
> I don't believe the Euro has a "true" value but I do believe the it is overvalued in the current enviroment - obviously the value of a floating currency will fluctuate. If you understood that I meant that the value of the Euro to the USD should be "fixed" by the market in the 1.20-1.23 range then I was unclear.


Sorry if I misunderstood, but that is certainly how it came across.



Karl89 said:


> The ECB should alleviate the concern you have over individual national economic performance and there are restrictions on budget deficits though somtimes the numbers are fudged a little and there is so no real enforcement mechanism for countries that habitually exceed the 3% target.


There is one of my exact areas of interest. Apparently the largest economies in the EU are having problems with that 3% debt vs. GDP. Back to the reunification of Germany, the inability to have the local currency devalue some is what I was told the major problem was a few years ago in meeting its debt target. Wiser minds than mine might have an answer.



Karl89 said:


> And the rapid rise in the Canadian dollar has been due primarily to the rapid increase in commodity prices and although the Canadian economy is robust such a strong currency will likely hurt other exports and if commodity prices decline there will an equally rapid fall in the Canadian dollar. One would prefer not see anymore appreciation in the Canadian dollar and any further rise or decline in the currency at a much more gradual rate. Markets are always rational in the long run but in the short term....... But suffice to say I don't think the Canadian dollar is terribly overvalued like the USD was in say October of 2000 but it is trending that way.


It's a complex situation, obviously more complex than I can comment on to any great depth. But yes, the increase in energy costs worldwide has done nothing but benefit Canada and the value of its currency. I recently read the tar sands equal all combined known global reserves. Couple that with Canada's other natural resources, a fairly well educated (read: employable) population, and other factors already mentioned, and Canada is positioned fairly well. It is about to feel the pain of the Big 3 however.


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## Karl89 (Feb 20, 2005)

W,

I'd rather have our energy supplies dependent on the whims of Ottawa then Moscow, Caracas, Riyadh, etc.

Perhaps we should borrow in yen and buy the Canadian dollar!

Karl


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## Étienne (Sep 3, 2005)

ksinc said:


> Well, yeah that's exactly the point 'trading zones'. It's sort of a false statistic to say EU>USA.
> (snip)
> This is part of the reason for CAFTA, IMHO. Two can play the game.


Quite frankly, if you really think EU enlargement is done to add enough countries to have an economy statistically bigger than the US, you are severly mistaken.



Albert said:


> Fortunately, it might very well happen that a "Core Europe" (i.e. an inner circle of countries willing to proceed) emerges from it. And then there will be no more fuss and no more messing about.


Actually, I pray for that every night. Or rather, I would if I were religious.

In France, Laurent Fabius has tried to popularize that old "inner circle" idea. I think originally it comes from the CDU/CSU in Germany in the 1990's. He describes that as having "3 circles" : an inner circle of really integrated countries, a second circle sharing essentially what constitues the EU today and a third that would be some sort of looser trade and economic agreement rather like NAFTA or perhaps Mercosur.

Of course, to some extent you can argue that it's already what we have given that there is some degree of "inner cooperation" (Shengen, Euro, Eurobrigade), but we lack a formalized group of countries for that, those initiatives don't overlap. And we have some prefiguration of what the third circle could be in the EFTA.


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## Wayfarer (Mar 19, 2006)

Étienne said:


> Quite frankly, if you really think EU enlargement is done to add enough countries to have an economy statistically bigger than the US, you are severly mistaken.


Probably true. Look how the EU keeps rejecting Turkey, a GDP of well over $630 billion USD. Just having a large GDP and vast pool of cheap labour is not enough to get a country into the EU!


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## ksinc (May 30, 2005)

Étienne said:


> Quite frankly, if you really think EU enlargement is done to add enough countries to have an economy statistically bigger than the US, you are severly mistaken.
> 
> Actually, I pray for that every night. Or rather, I would if I were religious.
> 
> ...


Etienne, you actually make my own argument. If you contrast trading zones like NAFTA and the advantages realized to actually joining the EU there is only reason to cajole a bunch of smaller countries into joining the superstate where it is harder for them to have comparative advantages and economic liberty. The EU acquisitive growth is an anomaly. It is both quick and cheap. In standard capital markets acquisition is quicker, but costs more. Eventually, the IFx-piper must be paid and the EU arrangement is sub-optimal, as you went on to elaborate. But, thanks for correcting me 

I will add that issues like migration are not being solved by NAFTA. So, I agree it depends on whether you want to make the cakes or eat the cakes.


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