Readers, this a direct result of nominal "free trade" economics which was built upon the US being the market of last resort. This gets expressed also in the relative valuation of different currencies. Now that consumption in the US is falling off, the trade war against the US people is ricocheting backwards as though economies which were dependent upon that arrangement are suffering. The melt down and the "austerity" measure inflicted upon the Greek people are likely to be cast off even violently. This socialization of the debt which was converted into private profit is in effect the price of admittance to the trading zone manipulation that was also used to outsource jobs within the European Union. The stresses upon the European Union banking sector through the earlier collapse of eastern European countries and the involvement there in European banking investments. Trade among sovereign nations, than trade through colonialist or neo-colonialist and explicitly unequal relationships. The next bump downward is likely to be dilly, because there is no existing cushion as falling derivatives bleed the system and really the return to casino banking solved NOTHING. Look out!!! Admin

Intensified fears over government debt in the eurozone are pushing the euro weaker against the dollar. The G7 achieved nothing over the weekend, the IMF is stuck on the sidelines, and the Europeans are sitting on their hands at least until a summit on Thursday. There is a lot of trading time between now and then – and most of it is likely to be spent weakening the euro further.

The UK also faces serious pressure, and there is no telling where this goes next around the world – or how it gets there.

There may be direct effects on the US, as our banking system remains undercapitalized. Or the effect may be through making it harder to export – one of the few bright spots for the American economy over the past 12 months has been trade. But this is unlikely to hold up as a driver of growth if the euro depreciation continues.

Some financial market participants cling to the hope that the stronger eurozone countries, particularly Germany, will soon help out the weaker countries in a generous manner. But this view completely misreads the situation.

The German authorities are happy to have the euro depreciate this far, and probably would not mind if it moves another 10-20 percent. They are convinced that they must – in fact, should – export their way back to acceptable growth levels.

Competitive depreciation is of course a no-no in international policy circles. But if your dissolute neighbors – with whom you happen to share a credit union – threaten to implode their debt rollovers, and makets react negatively, how can you be held responsible?

Germany and France have no objection to euro depreciation – they are confident that the European Central Bank can prevent this from turning into inflation.

It’s the US that should be concerned about the effect on its exports (and imports; goods from the eurozone become cheaper as the euro falls in value) if the euro moves too far and too fast. But the US failed to raise the issue with sufficient force at the G7 finance ministers conclave in Canada and the course is now set – at least until Thursday.

The euro depreciates, the dollar strengthens, and our path to recovery starts to run more uphill.

And if these European troubles start to be reflected in difficulties for leading global banks over the next few days or weeks, the negative impact will be much greater.

http://baselinescenario.com/2010/02/07/euro-falling-us-recovery-under-th...