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Author: goofyinMD Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 10561  
Subject: Devaluation qustion Date: 5/27/2003 6:24 PM
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I'm trying to imagine the economic effect of a devaluation war between US, Japan, and Europe. Anyone with any ideas of the possible outcome and ramifications?


Also, with the dollar devaluing, and other key currencies likely to follow suit, wouldn't commodities be a good play? Also, how would you play them?


Appreciate any insights.
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Author: jiml8 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6517 of 10561
Subject: Re: Devaluation qustion Date: 5/27/2003 7:13 PM
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I'm trying to imagine the economic effect of a devaluation war between US, Japan, and Europe. Anyone with any ideas of the possible outcome and ramifications?

Worldwide depression. Next question?

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Author: goofyinMD Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6518 of 10561
Subject: Re: Devaluation qustion Date: 5/27/2003 7:34 PM
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I'm trying to imagine the economic effect of a devaluation war between US, Japan, and Europe. Anyone with any ideas of the possible outcome and ramifications?

Worldwide depression. Next question?


Thanks for cheering me up. But, since the value of currency is onl7y relative to the value of other currency, wouldn't it all just net out?



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Author: PolymerMom Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6519 of 10561
Subject: Re: Devaluation qustion Date: 5/27/2003 8:15 PM
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Thanks for cheering me up. But, since the value of currency is onl7y relative to the value of other currency, wouldn't it all just net out?

In theory, yes. In actual practice all currencies won't devalue at once. Since there are existing contracts that specify dollar amounts, such as mortgages and business contracts, it could get pretty ugly until equilibrium is reached.

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Author: PolymerMom Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6520 of 10561
Subject: Re: Devaluation qustion Date: 5/27/2003 8:20 PM
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It'd be interesting to see how Steve Ballmer is diversifying after selling off $1.2 billions dollars worth of stock.

http://biz.yahoo.com/rc/030527/tech_microsoft_ballmer_1.html

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Author: JoBeare Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6522 of 10561
Subject: Re: Devaluation qustion Date: 5/27/2003 11:56 PM
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I don't think it is as much a problem with the dollar as much as it is a problem with the Euro. The threat to economic growth isn't going to be from a devalued dollar and inflation but rather the stifling of European companies' ability to compete with the rest of the world, because of their overvalued currency, and the subsequent European recession taking place and then spreading outside of Europe.

JoBeare
Short $$$$ :-(


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Author: jiml8 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6526 of 10561
Subject: Re: Devaluation qustion Date: 5/28/2003 6:08 AM
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Thanks for cheering me up. But, since the value of currency is onl7y relative to the value of other currency, wouldn't it all just net out?

Couldn't net out. After all, devaluation is a relative effect. If everyone devalues together, then literally nothing has happened. So, if a "devaluation war" gets started, as you suggested, the result inevitably would be turbulence.

Things around the world are rather fragile right now; turbulence could not be good. Would make for some great arbitrage plays for the properly positioned person, though.

I suspect that the effect of such a war would be to reduce the flow of capital, which implies reduction in trade. In a global economy, that couldn't possibly be good.

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Author: kentm401 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6527 of 10561
Subject: Re: Devaluation qustion Date: 5/28/2003 7:06 AM
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What Jim said...

Couldn't net out. After all, devaluation is a relative effect. If everyone devalues together, then literally nothing has happened. So, if a "devaluation war" gets started, as you suggested, the result inevitably would be turbulence.

Things around the world are rather fragile right now; turbulence could not be good. Would make for some great arbitrage plays for the properly positioned person, though.


A "trade war" though, isn't merely a function of a Deflationary scenario, or currency translations. You gotta have various "economic trade blocks" setting up competitive Trade Barriers to free movement of goods and services across boundaries, in order for that to begin and accelerate the devaluation of currencies.

Trade Barriers are the accelerator pedal to the Engine of "Devaluations". This combination of events occured in the early 30's, and of course we all understand what happened at that time in history.

Net Net, without the imposition of additional restrictions on "Trade", or currency (like the Chinese US$ Peg) for instance, the effect of "Devaluation" is minimal. That's the "tubulence effect", that Jim speaks of....(not putting words into Jim's post though....;o)

Add the "Barriers", and you got a "race to the bottom", that no Nation can win, and where everyone loses! Barriers "falsly control" exchange rates between currencies, which in turn "add to the friction costs" of trade activity and the movement of goods services between trade partners.

So I'm more concerned with things like NAFTA, WTO, World Bank, then I am simply the stated "exchange rates", which are in Asia, presently pegged to the Chinese Yuan. In Asia, only the Japanese Yen (among major trade partners) is floating in that part of the world. And sadly, that's where the greatest portion of the trade deficit is growing fastest.

The EU will "suffer" in this scenario as they become even less competive in world markets.

The US$ is the "Reserve Currency" of the world. Most "commdities" are priced in US$'s. Think Gold and "Energy" commodities. As the US$ shrinks in comparitive "value", those commodites become more "costly" in US$ terms, to the rest of the world. But what can world buyers do about it? Nothing, except erect "Barriers" internally to those trade activities that are "priced in the US$".

And therein, is the "threat" imho.

BWDIK?

KBM (watching a "De-stagflation" scenario unfold)



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Author: josepp One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6528 of 10561
Subject: Re: Devaluation qustion Date: 5/28/2003 8:54 AM
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"The EU will "suffer" in this scenario as they become even less competive in world markets."
Shouldn´t we forget in this equation that for the Euro-zone the price of raw-materials - especially oil - that are paid in dollars, is reduced buy about the same 25% that the Euro rose to the dollar?
Together with an overall lower price of crude this should balance the disadvantage of receiving less for sales in dollar-markets and increase profits for sales in the Euro-zone and other non-dollar markets.

just my two eurocents



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