Presentation is loading. Please wait.

Presentation is loading. Please wait.

The U. S. Dollar – Quo Vadis? Dr. Robert T. LeClair John Cabot University Rome, Italy.

Similar presentations


Presentation on theme: "The U. S. Dollar – Quo Vadis? Dr. Robert T. LeClair John Cabot University Rome, Italy."— Presentation transcript:

1 The U. S. Dollar – Quo Vadis? Dr. Robert T. LeClair John Cabot University Rome, Italy

2

3

4

5

6

7 Headlines “Dollar faltering after seven years as leading currency” -USA Today May 30, 2002 “Dollar’s Drop Shows Loss of Faith in U. S. Economy” -Wall Street Journal (Europe) June 3, 2002

8 Headlines “Dollar hits 14-month low versus Euro” -Financial Times May 28, 2002 “There are signs that the U. S. primacy as an investment location is now under threat” -Financial Times May 31, 2002

9 History of European Monetary Union Maastricht Treaty (2 Feb. 1992) Single Central Bank: (1 June 1998) –European Central Bank (ECB) –Frankfurt, Germany –www.ecb.int/home/www.ecb.int/home/ Single European currency (“Euro”)

10 History of European Monetary Union Qualification standards: – inflation – interest rates – fiscal deficit – national debt

11 EMU Convergence Criteria Inflation: no more than 1.5% above avg. of three members with lowest rate L-T interest rate: no more than 2% above avg. of three members with lowest rate Fiscal deficit: no more than 3% of GDP Govt. debt: no more than 60% of GDP

12 History of the Euro (€) Officially introduced: 1 Jan 1999 Currency and coins introduced: 1 Jan 2002 “Legacy” currencies (Franc, Mark, Lira, etc.) no longer legal tender after 28 Feb 2002

13 Euro vs. USA [Source: Wall Street Journal, 9/28/98] Euro-11USA Population290 million267 million GDP$8.2 trillion$8.6 trillion % World GDP19%20% % World Trade19%17% Stock Mkt Cap$3.6 trillion$9.5 trillion

14 $ Value of the Euro (€) Quick Quiz: What would you have paid to buy one Euro (€) on January 1, 1999? –A. more than $1.00 –B. exactly $1.00 –C. less than $1.00

15 $ Value of the Euro (€) 1 January 1999: $ October 2000: $ (low) 1 January 2002: $ April 2008: $ (high trade) 24 April 2008: $ (high close) 1 October 2009: $1.455

16 $ Value of the Euro (€) Date$ Value% Change 1 Jan 2002$ Jan 2003$ %

17 $ Value of the Euro (€) Date$ Value% Change 1 Jan 2002$ Jan 2003$ % 1 Jan 2004$ %

18 $ Value of the Euro (€) Date$ Value% Change 1 Jan 2002$ Jan 2003$ % 1 Jan 2004$ % 1 Jan 2005$ %

19 $ Value of the Euro (€) Date$ Value% Change 1 Jan 2002$ Jan 2003$ % 1 Jan 2004$ % 1 Jan 2005$ % 1 Jan 2006$ %

20 $ Value of the Euro (€) Date$ Value% Change 1 Jan 2002$ Jan 2003$ % 1 Jan 2004$ % 1 Jan 2005$ % 1 Jan 2006$ % 1 Jan 2007$ %

21 $ Value of the Euro (€) Date$ Value% Change 1 Jan 2002$ Jan 2003$ % 1 Jan 2004$ % 1 Jan 2005$ % 1 Jan 2006$ % 1 Jan 2007$ % 1 Jan 2008$ % 1 Jan 2009$ %

22 Euro (€) versus the U. S. $ [Interbank Rate – 1/1/99 to 10/1/09]

23 Comparative Statistics of the Euro Area (€), United States ($), and Japan (¥) Macroeconomic Statistics: 1999 – 2003, Period Avg. EuroU. S.Japan Real GDP Growth (%) Unemployment Rate (%) Inflation Rate (%) Area (thous. sq. km.)2,5099, Population (millions)

24 Who Needs Dollars? People who want to … –buy U. S. goods and services –invest in U. S. assets –travel to the U. S. Anyone who wants to buy oil!

25 Why the weak Euro (€)? Why the strong U. S. Dollar ($)? 1.Stronger U. S. economic growth 2.Shrinking U. S. Government deficit

26 Why the weak Euro (€)? Why the strong U. S. Dollar ($)? 1.Stronger U. S. economic growth 2.Shrinking U. S. Government deficit 3.Strong U. S. stock market performance; compound annual returns for ten years ended : %2005: % 2002: %2006: % 2003: %2007: % 2004: %2008: %

27 What’s Changed to Weaken the $? Slower U. S. growth

28 U. S. A. GDP Growth (%),

29 Recent Headlines [New York Times, ] “Slim Growth for Economy In 4 th Quarter –the economy eked out a meager growth rate of 0.7% in the fourth quarter of [2002] –the economy posted overall growth of 2.4% for 2002 –a sharp slowdown from the 4% rate during the third quarter.”

30 What’s Changed to Weaken the $? Slower U. S. growth Large U. S. government deficits

31 U. S. Budget Deficit/Surplus [ , $ Billions]

32 What’s Changed to Weaken the $? Slower U. S. Growth Large U. S. Government deficits Weaker U. S. market returns (S&P 500): 2000: - 9.1%2005: + 4.9% 2001: %2006: +15.8% 2002: %2007: + 5.5% 2003: +28.7%2008: -37.0% 2004: +10.9%2009: +18.0%

33

34 Compound Annual Returns, S & P 500 [Ten-Year periods Ending ]

35 P/E Ratio, S & P 500 Index (TTM) [Monthly, 1/1/02 – 10/1/09]

36 Political Effect? U. S. Treasury Secretaries: Robert E. Rubin ( ) – “strong dollar” Lawrence H. Summers ( ) – “strong dollar” Paul H. O’Neill ( ) – “market decides the value of the dollar” John W. Snow ( ) – “A strong dollar is in the national interest.”

37 Political Effect? John W. Snow – in testimony ( ) before the Senate Committee on Banking, Housing, and Urban Affairs: “Let me state at the outset: A strong dollar is in our nation’s interest, and currency values should be determined in open and competitive markets in response to underlying economic fundamentals.”

38 Political Effect? [U. S. Treasury Secretaries] Henry Paulson ( ) – “As I think you know, I believe very strongly that a strong dollar is in our nation’s interest, and I’m a big believer in currencies being set in a competitive, open marketplace.”

39 Achilles Heel? [Financial Times, May 31, 2002] “The Achilles heel of the US dollar has been the bulging current account deficit, which is expected to reach $465bn (€516bn) this year.”

40 U. S. Current Account Deficit [ , Quarterly, ($ Billions)]

41 Achilles Heel? [Financial Times, May 31, 2002] This means the US needs to attract $1.3bn in overseas funds every day to prevent the dollar from falling.”

42

43 Foreign Trade (-) and Capital Flows (+) [ ; $ Billions]

44

45 Foreign Holdings of U. S. Treasury Securities Source: U. S. Treasury International Capital (TIC) Reports, monthly [www.treas.gov/tic/mfh.txt]

46 Total Foreign Holdings of U. S. Treasury Securities, $Bils.,

47 Chinese Holdings of U. S. Treasury Securities, $Bils.,

48 Japanese Holdings of U. S. Treasury Securities, $Bils

49 U. K. Holdings of U. S. Treasury Securities, $Bils.,

50 “Oil Exporters” Holdings of U. S. Treasury Securities, $Bils.,

51 Major Foreign Holders of U. S. Treasury Securities, $Bils., - July 2009

52 Recent Headlines “Dollar Falls a Record Ninth Day Against the Euro on War Concern” –Bloomberg.com January 24, 2003 “Snow Endorses Strong Dollar, Disappointing Manufacturers” –Wall Street Journal January 31, 2003

53 Concerns About the US Economy? 1.Corporate governance and accounting standards (Enron; WorldCom; Xerox) 2.Productivity gains have not translated into higher corporate profitability 3.Surge in government spending …could depress economic growth

54 Impact of a Weaker U. S. Dollar [Disadvantages] 1.Foreign goods more expensive 2.Foreign investment more expensive 3.Foreign travel more expensive 4.U. S. interest rates – higher; less foreign capital

55 Impact of a Weaker U. S. Dollar [Advantages] 1.American products are more competitive abroad; increased exports; lower U. S. trade deficit 2.U. S. A. manufacturing sector more competitive 3.Increased return on U. S. overseas investments

56 Return on Overseas Investments $ Value of the Euro (€) Euros Earned Dollar Equivalent $0.95 ($1/ €1.053) € 1,000,000$950,000

57 Return on Overseas Investments $ Value of the Euro (€) Euros Earned Dollar Equivalent $0.95 ($1/ €1.053) € 1,000,000$950,000 $1.00 ($1 / €1.000) € 1,000,000$1,000,000

58 Return on Overseas Investments $ Value of the Euro (€) Euros Earned Dollar Equivalent $0.95 ($1/ €1.053) € 1,000,000$950,000 $1.00 ($1 / €1.000) € 1,000,000$1,000,000 $1.55 ($1 / €0.645) € 1,000,000$1,550,000

59 Where Do We Go From Here? “Dollar sinks to a 4-year low against euro” –International Herald Tribune March 6, 2003 “Dollar slumps to record lows vs. euro” –Reuters December 15, 2003

60 Where Do We Go From Here? “Euro continues climb, hits new high against dollar” –Associated Press –December 18, 2003 “It Won’t be Easy to Rein in the Euro” –Business Week February 9, 2004

61 Where Do We Go From Here? “Dollar slips to all-time low ($1.3667) vs. Euro” –Associated Press –December 31, 2004 “Bears are betting on a decline in the dollar.” –Barron’s –August 21, 2006

62 Where Do We Go From Here? “OFF THE CHARTS; Dollar Sinks the Lowest Since It Started to Float” –The New York Times –September 22, 2007 “Fear of European Slump As Currency Sets Record” –The New York Times –September 22, 2007

63 Where Do We Go From Here? “Intervention, Other Tools on Table for Dollar” –The Wall Street Journal –June 10, 2008 “Paulson Gives Dollar a Boost” –The Wall Street Journal –June 10, 2008

64 Where Do We Go From Here? “As Dollars Pile Up, Uneasy Traders Lower the Currency’s Value” –The New York Times –May 23, 2009


Download ppt "The U. S. Dollar – Quo Vadis? Dr. Robert T. LeClair John Cabot University Rome, Italy."

Similar presentations


Ads by Google