Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
2013-04-21
2009-11-26
Dollar to Euro - My Economic Prediction on 22nd Oct 2008
I answered a question in linkedin on the 22nd October 2008, where I predicted that Dollar would loose value to Euro in the near future.
It's time to do the math.
22nd Oct 2008 - 1 Dollar = 0,7786 Euro
26th Nov 2009 - 1 Dollar = 0,6635 Euro
So, Dollar devaluated to Euro 15% in the last 13 months
Click here to see this question on linkedin forum.
So, in 2008, I recommended a "Great Deal" to India, as you can read bellow.
The question was:
Would it be a good strategy for India to borrow trillions(or whatever is available) of dollars?
And my answer was:
It could be a great move if:
- India borrow in Dollars
- Buy immediately another solid currency as “Euros” with those borrowed Dollars
- And by keeping the original debt in Dollars, is expected that Debt will have a value decrease automatically if India previously converted those financial assets to another currency as “Euro”.
Note that although European Central Bank also pumped some millions of Euros to the market, it wasn’t even close of the sum that American Federal Reserve pumped into the market, so it is expected that Dollar depreciate more to the Euro.
To all Americans that read this, Dollar depreciation also could bring good news for you.
Although the goods that America imports are going to be more expensive, your products made in America will look cheaper to the rest of the world, and so is expected a increase in your exports, boosting American Economy.
However there is a great risk that with dollar depreciation, America Demand worldwide will decrease even more and that could affect other economies that are dependant of their exports to the US, creating a “Domino effect” of recession worldwide.
In my opinion, with globalization, fewer countries are exclusively dependant of one country to export their goods, and so, with the actual economic scenario almost all countries will suffer a little with America demand decrease, but only a few countries will suffer a lot, and probably that will not generate a “Domino effect”.
It's time to do the math.
22nd Oct 2008 - 1 Dollar = 0,7786 Euro
26th Nov 2009 - 1 Dollar = 0,6635 Euro
So, Dollar devaluated to Euro 15% in the last 13 months
Click here to see this question on linkedin forum.
So, in 2008, I recommended a "Great Deal" to India, as you can read bellow.
The question was:
Would it be a good strategy for India to borrow trillions(or whatever is available) of dollars?
And my answer was:
It could be a great move if:
- India borrow in Dollars
- Buy immediately another solid currency as “Euros” with those borrowed Dollars
- And by keeping the original debt in Dollars, is expected that Debt will have a value decrease automatically if India previously converted those financial assets to another currency as “Euro”.
Note that although European Central Bank also pumped some millions of Euros to the market, it wasn’t even close of the sum that American Federal Reserve pumped into the market, so it is expected that Dollar depreciate more to the Euro.
To all Americans that read this, Dollar depreciation also could bring good news for you.
Although the goods that America imports are going to be more expensive, your products made in America will look cheaper to the rest of the world, and so is expected a increase in your exports, boosting American Economy.
However there is a great risk that with dollar depreciation, America Demand worldwide will decrease even more and that could affect other economies that are dependant of their exports to the US, creating a “Domino effect” of recession worldwide.
In my opinion, with globalization, fewer countries are exclusively dependant of one country to export their goods, and so, with the actual economic scenario almost all countries will suffer a little with America demand decrease, but only a few countries will suffer a lot, and probably that will not generate a “Domino effect”.
2009-11-07
Keynesian school of thought
The question on linkedin forum was:While solving the current Macroeconomic problems, Keynesian school of thought has gained relevance in recent times. Does this spell an end to the New Classical school of thought which essentially relies on inherent forces in Market to play themselves out?
My answer:
Keynesian school of though has gained relevance, especially with the plans to “rescue” the world economy by U.S. president and the others G20 leaders.
Keynesian policies (increasing the public sector in the market by government investment and monetary growth) were successful in the past – F.D. Roosevelt policies during the Great Depression (1930’s).
But, those policies have not been successful in the crisis of the 1973-75.
Therefore, some economists believe (including me) that F.D. Roosevelt policies were appropriate in the 30’s, but those policies alone aren’t enough to solve the 2008 economic crisis, because:
- The causes of the crisis of the 30’s are not the same of 2008 crisis.
- The economic context is different. When F.D. Roosevelt invested in new highways or new railway tracks in the 30’s, that investment boosted the U.S. economy, because almost all jobs generated by those investments were absorbed by U.S. residents, and almost all industrial production and technological development was absorbed by U.S. companies with factories in the U.S. soil. Similar policies nowadays will result that generated jobs will be partially absorbed by labor from emigration, and a big stake of the industrial production will be imported from other countries, therefore, the current unemployment rate will not decrease as much as expected, and the national industrial production will not increase as much as predicted. So, U.S. investment in transports infrastructures like highways and railway tracks will boost U.S. economy, but not as much as in the 30’s (not even close), and this happens in the same way with other public investments in the other sectors, like energy for example.
I think that some Government intervention (inspired in Keynesian policies) is necessary to guarantee the market stabilization and restoring confidence, but, the guidelines to get back on sustained economic growth are:
- Regulate the markets to avoid speculation bubbles that resulted in the 2008 crisis. - Policies that attract more private investment in the economy.
- Policies to attract foreign investment in national soil.
- Policies that enable national companies to export more.
Market regulation can be defined by the G20, but the other policies mentioned will vary and will depend on each country economic characteristics.
My answer:
Keynesian school of though has gained relevance, especially with the plans to “rescue” the world economy by U.S. president and the others G20 leaders.
Keynesian policies (increasing the public sector in the market by government investment and monetary growth) were successful in the past – F.D. Roosevelt policies during the Great Depression (1930’s).
But, those policies have not been successful in the crisis of the 1973-75.
Therefore, some economists believe (including me) that F.D. Roosevelt policies were appropriate in the 30’s, but those policies alone aren’t enough to solve the 2008 economic crisis, because:
- The causes of the crisis of the 30’s are not the same of 2008 crisis.
- The economic context is different. When F.D. Roosevelt invested in new highways or new railway tracks in the 30’s, that investment boosted the U.S. economy, because almost all jobs generated by those investments were absorbed by U.S. residents, and almost all industrial production and technological development was absorbed by U.S. companies with factories in the U.S. soil. Similar policies nowadays will result that generated jobs will be partially absorbed by labor from emigration, and a big stake of the industrial production will be imported from other countries, therefore, the current unemployment rate will not decrease as much as expected, and the national industrial production will not increase as much as predicted. So, U.S. investment in transports infrastructures like highways and railway tracks will boost U.S. economy, but not as much as in the 30’s (not even close), and this happens in the same way with other public investments in the other sectors, like energy for example.
I think that some Government intervention (inspired in Keynesian policies) is necessary to guarantee the market stabilization and restoring confidence, but, the guidelines to get back on sustained economic growth are:
- Regulate the markets to avoid speculation bubbles that resulted in the 2008 crisis. - Policies that attract more private investment in the economy.
- Policies to attract foreign investment in national soil.
- Policies that enable national companies to export more.
Market regulation can be defined by the G20, but the other policies mentioned will vary and will depend on each country economic characteristics.
2008-09-28
What measures should small businesses take to weather this economic downturn?
I believe that the answer for small and also to bigger businesses is:
1) Increase their Market Orientation skills
2) Review their Costs Structure
1)Increase their Market Orientation skills
Many businesses fail to acknowledge of where the market is heading, and also don’t realize that economy is not frozen in time, and the value bubbles through the Production->Market Chain are constantly changing result of macro and micro factors.
So, before investing, Managers should analyze better if their expectations meets the market trend.
2) Review their Costs Structure
Considering two types of costs:
Variable costs – Which increase or decrease, according to the increase or decrease of business volume (or in another word, of “sales”)
Fixed costs – Which remain the same, even if the business volume decrease.
Companies usually increase their fixed costs, when the “economic weather” is good, and forget that all economies evolve in cycles, and economic storms will happen.
Like Romans use to say, “In time of peace, we prepare for war”, in economics, the sentence is also applied as “in time of good economic periods, we should prepare for harsh economic periods.”
So, all businesses should invest more in solutions (human, technological, infrastructure) that will allow accomplishing two goals:
a) Increase their performance and efficiency.
b) Decrease the weight of fixed costs, on the company cost structure. By doing that, companies will perform better with “good economic weather” and will cruise through “economic storms”.
1) Increase their Market Orientation skills
2) Review their Costs Structure
1)Increase their Market Orientation skills
Many businesses fail to acknowledge of where the market is heading, and also don’t realize that economy is not frozen in time, and the value bubbles through the Production->Market Chain are constantly changing result of macro and micro factors.
So, before investing, Managers should analyze better if their expectations meets the market trend.
2) Review their Costs Structure
Considering two types of costs:
Variable costs – Which increase or decrease, according to the increase or decrease of business volume (or in another word, of “sales”)
Fixed costs – Which remain the same, even if the business volume decrease.
Companies usually increase their fixed costs, when the “economic weather” is good, and forget that all economies evolve in cycles, and economic storms will happen.
Like Romans use to say, “In time of peace, we prepare for war”, in economics, the sentence is also applied as “in time of good economic periods, we should prepare for harsh economic periods.”
So, all businesses should invest more in solutions (human, technological, infrastructure) that will allow accomplishing two goals:
a) Increase their performance and efficiency.
b) Decrease the weight of fixed costs, on the company cost structure. By doing that, companies will perform better with “good economic weather” and will cruise through “economic storms”.
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