|VEON FINANCIAL SERVICES, INC.|
A Registered Investment Advisor
|301/924-2056 March, 1998 Vol. 12, No. 1|
|Economic Regionalism and the Euro and the Dollar|
We are confronted on every side with projections about the future. Movies like Independence Day and Godzilla give us an interesting, though unrealistic, view of what may be ahead. As this newsletter has reported over the past two years, the future should to be seen from the international level. In the past three months, two very important and historic events have taken place. One has been followed and written about for the last forty years, while the other has gone unreported and unheralded.
The truth is that the world is being divided up into economic "regions" in order for it to be managed from an international perspective. For years this newsletter has discussed the value of the dollar against the Deutsche mark (Europe) and the Japanese yen (Asia), which represent two of the world's economic regions. This edition will report on yet another region, which was birthed in March, as well as discuss Europe and the coming euro.
The (coming) five economic regions of the world are: the Americas (the 34 countries of our hemisphere), the European Common Market (11-14 countries), the Asian Free Trade Association, Africa, and the Middle East. The most developed of these regions is the European Common Market, which will officially begin trading with a combined currency, the euro, on January 1, 1999. The newest region to-be region is Africa, which the Group of Seven highlighted in Denver in 1997 to which the World Economic Forum gave its blessing in January-February, 1998. The most volatile is the Asian region, which was covered in the December 1997 newsletter. The newly birthed region, the Americas, is the subject of this newsletter, along with the European Common Market.
I remember hearing somewhere that there would be a world currency at some time in the future. In 1992 we reported on the book Euroquake by Daniel Burstein in which he claimed that by the end of the 1990's the dollar, yen, and Deutsche mark would all be equal in value. This newsletter has given considerable attention to the plight of the dollar, which reached a historic low against the yen in April 1994 only to rise in the past two years to great strength against both the yen and Deutsche mark. In the March-June 1997 newsletter, we discussed the great possibility that the dollar's value has changed in order to make imports cheaper and provide an opportunity for countries outside of America to benefit from a strong dollar, which in turn has made our exports more expensive and our imports cheaper.
I have never seen the mechanics of a world currency discussed in the leading financial newspapers and magazines. Based on the newly emerging economic regions, I believe the future world currency will come about when the predominant regional
currencies are fixed against one another. For example, the value of the euro will be fixed at 1.10 to the dollar. In the Americas, the other currencies of the hemisphere will be fixed against the dollar. We can see only a 10 point difference in value between the euro and the dollar. At this point we don't know the future value of the dollar to the euro after integration with the other 33 countries in our hemisphere. Therefore, I believe that it is safe to say that at some point, the euro, the dollar, the yen and the other two dominant regional currencies will be fixed against one another so that they all have the same value. What is this? A world currency.
You may be wondering what all of this has to do with your finances. EVERYTHING!!!! You see there are winners and losers with a regional currency and with a world currency. The stronger currencies will have to be devalued and the weaker currencies will have to be strengthened in order to reach a new equal value. The stronger currencies will have to give up economic power and strength in order to "transfer" value to the weaker currencies. THIS WILL IMPACT OUR CURRENT STYLE AND STANDARD OF LIVING. In order to understand how this could come about, we need to consider the impact of the euro (Economic and Monetary Union-EMU) and the dollar (the Americas).
The Economic and Monetary Union (EMU) of the
European Common Market
Michael Camdessus, Managing Director of the International Monetary Fund, said this about the integration of Europe: "European monetary union will be the most important decision for the international monetary system since the breakdown of Bretton Woods  and it will make a constructive contribution to the emergence of an international economic order" (The European-TE, 1/10/97, 19). At the most recent Group of Eight meeting in England, the participating world leaders applauded the integration of the currencies that will comprise the euro.
When the euro is launched on January 1 1999, the economies of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain* will form a new economic powerhouse that will account for almost one fifth of the world's economic output and trade. When the euro banknotes and coins hit the streets in 2002, 290 million Europeans, with a GDP of $5.1T, will be using the same currency. On that day, the German mark, the French franc, the Italian lira will die as a formidable rival to the U.S. dollar will appear. The euro will revolutionize the way Europe does business and create a global currency that could rival the American dollar as a reserve holding in the vaults of the world (Washington Times-WT, 3/26/9, 1). *For various economic reasons, the governments of Britain, Sweden, and Denmark have chosen to remain out for the time being and Greece was not able to meet the financial and economic criteria.
Today the EMU and the United States are each other's largest trading partners with a combined trade worth more than $230 billion. Today, about 3 million U.S. workers are employed by European-owned companies, with 51% of foreign direct investment in the U.S. coming from the European Union while more than 42% of foreign investment in the EMU comes from the U.S.
The goal of a united Europe is not new. The history of the struggle for a united Europe has given spice to history--there have been many kings and popes who have fought to become Emperor of Europe. Included in the quest were Germanic Charlemagne, who was crowned in 800 A.D. by Pope Leo IIl, the Hapsburg with Charles V; Napoleon Bonaparte, who crowned himself at Notre Dame Cathedral; Prince Otto von Bismarck; Adolph Hitler; and now the European Monetary Union-EMU (Adrian Hilton, The Principality and Power of Europe, 21-31).
It was the 1951 Treaty of Paris, signed by France and Germany, which created the European Coal and Steel Community as a way to obtain greater economic strength. This pool of iron, coal, and steel resources was later enlarged to include Italy, Belgium, the Netherlands, and Luxembourg. In 1957 the Treaty of Rome brought the European Economic Community (EEC) into being, with the initial goal of removing trade and economic barriers between member states and unifying their economic policies.
In 1969 the heads of state and government of the European Community decided they would create an economic and monetary union (EMU). Those joining the EMU have done so at three different times. In 1973, the above six members were joined by the UK, Ireland, and Denmark. In 1985, Spain, Portugal and Greece entered followed by Sweden, Austria, and Finland in 1995 (The European-TE, "The State of the Union" by Ambassador Hugo Paeman, Europe Special Report, November, 1996, 4-5)
The Coming of the euro
In December 1991, the Treaty of European Union was esta- blished in Maastricht (the Netherlands), which set provisions for economic and monetary union, to be followed eventually by political union, including joint foreign and security policies. It was through the European Rate Mechanism (ERM) established in Maastricht that the values of individual countries' currencies were to be pegged against one another. In January 1993, the European single market became a reality for 345 million people in 12 EMU countries.
In order to bring the different countries into one economic entity, it was important that their economies were in a position to converge by means of similar economic status. The following requirements for membership: (1) National governments should not have budget deficits above 3% of GDP on 1/1/99; (2) National governments should not have more than 60% of GDP as public debt; (3) Inflation should not be more than 1.5% above the average rate of inflation of the three best performing countries; (4) Interest rates should not be more than 2% higher than those of the three countries with the lowest inflation ; and (5) Countries were to be members in the Exchange Rate Mechanism.
In addition, the path to the euro also targets the continent's extensive job protection, social benefits, and tax policies. It will require the standardization of each of these areas into common law.
The euro, which began trading on May 4 of this year, will begin official trading on January 1, 1999. All credit and paper transactions by business and individuals will be conducted in the euro. The euro will exist only in credit (plastic, mortgage, and IOUs) form until 2002 when it will also take on the form of coin and currency. Between January 1, 1999 and January 1, 2002, national paper currencies will exist along side the credit form of the euro. (If you go to Europe and charge, your credit card will not reflect national currency but the euro instead.) By June 2002, national currency will cease to exist as the euro will become the sole currency. The value of the euro is projected to be at 1.10 to the dollar.
European Central Bank
On July 1, the European Central Bank (ECB) will officially be born. Headquartered in Frankfurt, the ECB recently appointed a president and an executive board. The ECB is the successor to the European Monetary Institute, which was formed four years ago in anticipation of the EMU.
The effect of the ECB is seen in the newly created European System of Central Banks (ESCB). The ECB will make the major decisions that affect the Economic and Monetary Union (EMU), while the "old" central banks will execute money market operations at the local level. They will act as intermediaries between local transactions and the European Central Bank (TE, 7/3-9/97, 22).
There was great discord over who would head up the European Central Bank, obviously a plum position. After eleven hours of debate, the European Union leaders agreed to a compromise, which calls for Wim Duisenberg (Germany) to be nominated for a full eight -year term. However, he will step down voluntarily after four years to retire and allow Jean Claude Trichet (France) to be nominated for a full eight -year term. The executive board is comprised of Christian Nor (France), Ottmar Issing (Germany), Sirkka Hamalainen (Finland), Eugenio Domingo Solans (Spain); and Tommasso Padoa-Schioppa (Italy) , who served a term as the managing director of the Bank for International Settlements, the most powerful central bank in the world based in Basle, Switzerland.
On January 1 1999, the European Central Bank will freeze conversion rates of participating national currencies to the euro. It will also set the exchange rate between the euro and the dollar, will begin using the euro for monetary operations, and will also set monetary policy. By 2002, euro banknotes and coins will start to circulate, replacing national currencies, which will be cancelled by July 2002.
Effect on the Dollar
While it is hoped the euro will lead Europe to a new age of prosperity and competitiveness, the euro will affect Americans as well as Europeans. Business contracts are currently written in U.S. dollars, but with the advent of the euro, those contracts will be switched to euros.
A massive shift from dollars to euros will fundamentally change the balance of the world's financial system. The euro may be where the buck stops. A strong euro means European exports to the U.S. will be more expensive and U.S. exports to Europe will be cheaper. This is good for U.S. manufacturers but it also means higher inflation in the U.S. because of the higher cost of European goods (Washington Post-WP, 4/1/98,1). Currently, the dollar comprises 60% of the world's central bank reserves. The dollar is used in at least 80% of the world's financial transactions and accounts for 27% of the world's production (WP, 4/1/98,1).
As a result of the new giant financial market which will be birthed by the euro (the European stock market is expected to grow from $2.5T to $7.5T), investment banks such as Morgan Stanley, Goldman Sachs, and Merrill Lynch are shifting people from New York to London to exploit EMU's possibilities. The euro government bond market is valued at $1.9T, almost as big as the U.S. Treasury market. It is anticipated that the euro will speed deregulation. (BusWeek-BW, 4/27/98, 96-97)
Recently China signalled its intention to gradually convert a portion of its huge foreign currency reserves into euros once it has judged the strength and stability of the new European currency. The EMU is China's fourth largest trading partner. And about 60% of China's $140B foreign exchange reserves are currently denominated in dollars (Financial Times-FT, 5/6/98, 4).
Another example of the euro's impact on the dollar is the European Central Bank's most recent $2 billion three-year bond offering, which was floated in "quiet activity ahead of the Federal Reserve meeting," and was priced at 15 basis points over the three-year U.S. Treasury bill (FT, 5/20/98, 24). This is called competition-- and where will investors go? To the highest yield! Our rates will have to rise to keep up. The Chicago Mercantile Exchange, the second largest U.S. futures exchange, has paved the way for the eventual trading of futures in the new euro currency. The contracts which are currently in the respective national currencies are designated to convert to the euro on January 1, 1999 at a conversion rate of 1:1.
As the euro emerges as a hard currency to rival the dollar, international central banks will convert a portion of their foreign exchange reserves into the European currency.
Higher Cost of Living for Americans
The euro has been called a "Trojan Horse" by David Bowers, European equity strategist for Merrill Lynch & Co. (BW, 4/27/98, 92). While no one can predict exactly how the dollar will be impacted, it is a safe bet that there will be a change from its current value. As Europe changes from the use of the dollar to the euro, as central banks exchange their dollar reserve for euros, and as American and foreign corporations switch to the euro to do business in Europe, it is reasonable to say that it will impact the value of the dollar in a considerable way.
What this means for you and I is that it will take more dollars to live. The Federal Reserve, in order to attract and keep foreign investments in U.S. Treasury bills, notes, and bonds, will have to raise interest rates higher than other countries in order for the dollar to remain attractive. This will increase our cost of living.
Other Effects of the euro
Also, we need to consider that the fifteen countries in Africa whose currencies are linked to the French franc will be switching to the euro. With that many African countries tied to the euro, perhaps their new economic trade area will use the euro. In addition, many countries in eastern and central Europe that use the dollar might also adopt the euro as may other "non-euro" countries, such as Sweden, Denmark, Norway and Switzerland (WP, 4/16/98, 1).
Let me point out that U.S. Treasury Secretary Robert Rubin at the Group of Eight Finance Ministers meeting in London, which I attended, said that he did not expect any change on the dollar. He "expects the dollar to continue to play a central role in the international system...[based on] the size and strength of the U.S. economy. [As a result of] the extensive ties between the U.S. economy and the rest of the world, none of this will change with the creation of a successful euro."
Recently the Securities Industry Association warned that U.S. securities firms have not yet prepared their computer systems for the euro (FT, 4/28/98, 4). At the same time this switch is taking place, the world will also be engaged in the process of dealing with the Y2K reformatting problem.
What Does the euro Symbolize?
Very simply, the euro is a new, visual symbol of a new way of life (TE 1/18-24/96, 7). It symbolizes the passing of a former way of life under individual nation-states to a new- integrated empire-- a sort of "revived Roman Empire."
The euro will change how corporations and countries do business. It will have a profound effect on the strategy and operations of businesses--pricing policy, corporate and country finance, legal contracts, international systems.
In addition, corporations in the past have relied on commercial bank financing. With the euro, corporations will have to be more dependent on a liquid capital market in corporate bonds. In addition, it currently takes five days for money to be transferred from one EMU bank to another. With the European Central Bank, settlement will be immediate (FT, 11/21/97, Special Section, EMU-II).
Since money is the most easily transportable product of all, many cross-border mergers are taking place, especially in the banking, insurance and brokerage industries.
The euro also symbolizes the fact that governments will lose influence and that the national frame of reference will fade in light of the European Common Market. While national governments will set tax rates and establish labor regulations, they will not make policy for the whole. Their function will basically equal that of the function of the states here in the U.S.
Conclusion to the euro
In my opinion, the euro will "fly" and it will become a strong currency. I cannot believe that, after 40 years of preparation, the countries, governments, international investors, and international organizations like the United Nations and Group of Eight will allow it to "go down the tubes." It was the Marshall Plan, the NATO Alliance, the Organization for Economic Cooperation and Development, and the Fulbright student exchange programs which were the institutions that built bridges across the Atlantic and led to reconciliation among former European adversaries.
During a September 1996 meeting at Dublin Castle, European finance ministers and central bankers convinced skeptical international investors that the euro will be a serious rival to the dollar as a global currency in the early years of the 21st century (Europe Special Report, 11/96, 6-7) (emphasis added). To quote Martin Huefner, chief economist at Germany's Bayerische Vereinsbank, "The dollar is now the overwhelming world currency and it will get some competition. If a mouse is sleeping with an elephant and the elephant turns over, the mouse jumps out of bed. If it's two elephants and one turns over, the other doesn't care" (WP, 1/12/97, A1,A26).
The new and rising European Common Market will fulfill the dream of Napoleon who said, "I wanted to found a European system, a European code of laws, a European judiciary. There would have been but one people throughout Europe." The next step for the European Parliament will be to chose a president. In view of European history, could we consider this person the "Emperor " of the "Revived Roman Empire"?
The Free Trade Areas of the Americas
As a result of long-term planning and considerable press, most people know of the coming change to the euro. However, the recent unification of the 34 countries of the Western Hemisphere is not known to most North Americans. Everything about the Free Trade Areas of the Americas is different from the European Monetary Union. The "Americas" is a public-private partnership; it does not need the consent of Congress. In addition the Clinton Administration has been working for the past four years to integrate key U.S. departments with corresponding agencies in the other thirty-three countries.
On April 19 1998, I witnessed, via a television monitor in the press room of the Summit of the Americas conference in Santiago, Chile, the 34 presidents of the Western Hemisphere countries sign a document that will integrate our countries into this entity called the Free Trade Areas of the Americas. As I analyzed what I was witnessing, I realized that it was, in essence, a "new constitution for the 21st century." While it is true that Bill Clinton stated in his State of the Union address that, "we [America] will forge new partnerships with Latin America, Asia and Europe," I did not anticipate that it would mean the America we know would change as we integrate our government responsibilities with those of the other countries in our hemisphere!
The following history and analysis are based on my trip to Santiago, Chile, documents taken from Internet, and the State Department report entitled Words into Deeds, which outlines the progress towards this integration since 1994.
In 1994, the first Summit of the Americas was held in Miami, Florida, with the presidents and prime ministers of the other 33 countries of the Western Hemisphere in attendance. Cuba was not a participant because it does not hold democratic elections. At that meeting, participants agreed to form the "Free Trade Areas of the Americas" which would be completed by 2005. According to a recent publication by the State Department entitled Words into Deeds Progress Since the Miami Summit, (publication number 10536), significant progress towards the total integration of our hemisphere has been made by these countries. On the opening page, Bill Clinton comments, "For the first time ever, we established an architecture for hemispheric relations from the Arctic Circle in the north to Argentina in the south. We created a work plan from which the democratic governments of the Americas could be judged by their people. We established a follow-up process to ensure that the decisions we reached at the Summit would be carried out. And we built a framework for further discussion at this year's summit in Santiago, Chile, based on our shared values, common interests, and join mission to pursue a true partnership for hemispheric peace and prosperity."
The infrastructure that has been put in place in the last three and one-half years is quite extensive. There are 23 separate initiatives gathered into four main areas: I. Preserving and strengthening the community of democracies in the Americas, II. Promoting prosperity through economic integration and free trade, III. Eradicating poverty and discrimination in our hemisphere, and IV. Guaranteeing sustainable development and conserving our natural environment for future generations. The report shows the progress that has been made under each of the initiatives. Interestingly enough, all of these initiatives are concerned with the same issues found in many United Nations conventions, and treaties and action items of the mega-conferences, such as the 1992 Earth Summit in Rio, the 1994 UN Conference on Population and Development in Cairo, the 1995 Social Summit in Copenhagen, the 1995 Fourth Women's Conference in Beijing, the 1996 Habitat II Conference in Istanbul, and the 1996 World Food Summit in Rome.
In order to implement these initiatives, ministers representing labor, transportation, finance, justice, energy, telecommunications, science and technology, education, anti- crime initiatives, trade and commerce, and health and human services, have been working together since 1994. What this means is that the new infrastructure now includes the 34 ministers representing each of these areas, and those ministers are integrating their organizations with each other, creating new laws and the legal infrastructure to integrate the 34 countries into one!!!
As a result of the Summit of the Americas, the United Nations Convention on Climate Warming (which the Senate refused to ratify) is automatically subject to the rules and regulations of the Free Trade Areas of the Americas, along with sustainable development and a number of UN treaties which the U.S. Senate has not ratified. Adherence to international law is a given, as many of the national laws will be eliminated in order to integrate the 34 countries into one economic unit.
The integration will be done on several levels: (1) the actions by the various ministers--trade, education, finance, etc.; (2) the signing of "bilateral" agreements between the U.S. and Chile, the U.S. and Brazil, the U.S. and Mexico, and the U.S. and the rest of the 34 countries in which they agree to work together to open markets and the other processes of government between countries, and (3) the signing of the Free Trade Areas of the Americas, which is a public-private partnership. It should be noted that just as America will sign bilateral accords with the other 33 countries, so too, will each of the 33 countries sign bilateral accords with the other 33 countries so that by the time they are done, 1,089 bilateral accords will have been signed to integrate the countries into one.
In contrast to the EMU, the new Free Trade Areas of the Americas-FTAA is set up compete differently since it is a public- private partnership.
The Summit of the Americas Declaration of Principles
The Declaration of Principles supporting the Summit of the Americas states in the first two paragraphs: "The elected Heads of State and Government of the Americas are committed to advance the prosperity, democratic values and institutions, and security of our Hemisphere. We reiterate our firm adherence to the principles of international law and the purposes and principles enshrined in the United Nations Charter [emphasis mine] and the Charter of the Organization of America States (OAS), including the principles of the sovereign equality of states....by building strong partnerships....Our Declaration constitutes a comprehensive and mutually reinforcing set of commitments for concrete results." The document then calls on the Organization for American States (OAS), the World Bank Inter-American Development Bank (IDB), which is part of the World Bank, the Pan American Health Organization (PAHO), and the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) for integration. This Declaration does not call on the Congress of the United States or the Constitution!! It must be remembered that the Constitution states our rights (freedom of speech, etc.) come from God and cannot be altered, amended, or taken away. Under the United Nations Charter, our rights come from government and can be taken away based on our behavior, actions, and speech.
When I asked Janet Reno during an interview about America's hen dependence on international law, she basically said it was necessary to get the terrorists and computer hackers. When I countered with, "Do you see an integration as we become more combined to international law on the national level?" she said, "I don't think we are becoming more combined....I think what is vital is that we develop processes and procedures that help us ensure justice, protect human rights and avoid arguments, fusses, and discussions about processes and rules as opposed to the basic issues, which are when somebody commits a crime that they should be held accountable promptly, swiftly, and according to constitutional standards...." Interestingly enough, I have just returned from England where the Group of Eight meeting was held, international crime was one of the key issues, with numerous agreements made for national police departments to work together to combat international crime.
With regard to a common currency, former Federal Reserve Chairman Paul Volcker predicted in 1991, "In five years, you will find a fixed exchange rate among the peso, the U.S. dollar and the Canadian dollar" (New York Times, 12/18/91, D2). As reported in our October 1997 newsletter, former Congressman and Housing Secretary Jack Kemp said he wants a single currency for the United States and the other 33 nations in the Western Hemisphere. "They would have a common currency linked to the U.S. dollar, and you'd have stable exchange rates as a result," said Kemp who is considering a presidential bid for 2000 (WT, 10/27/97, A4). For the past two years, U.S. Treasury Secretary Robert Rubin has been meeting with the finance ministers from the other 33 countries. In December in Santiago, Chile, Rubin said, "The United States, Chile and the whole of the hemisphere have tremendous opportunities in today's economy--if we all meet our challenges. Prosperity in each of our markets provides better opportunities for our trading partners, and instability in any one of our economies creates uncertainty with respect to all of the other economies. In an interdependent world, each country helps itself by getting its own economic house in order and in helping other countries to do the same. That's the key to sustaining global growth and to facilitating the integration of our economies. And that is the path to prosperity into the next century." While there has been no open discussion about a common currency or a currency in which all of the South American countries would link their currencies to the U.S. dollar, there are plans to merge the stock exchanges so that eventually there will be a common stock exchange for our hemisphere.
Lastly, the Free Trade Areas of the Americas, like the European Common Market, will require a common currency and a common central bank. I am assuming that the U.S. dollar and Federal Reserve will fulfill each of those.
Congress Bypassed through Public-Private Partnerships
A portion of a summary taken from their Internet site (http://www.americasnet.net), entitled "The Road to the Summit: From Miami to Santiago" states, "In the closing remarks of the Summit [Miami], President Clinton stated, 'Our goal is to create a whole new architecture for the relationship of the nations and the peoples of the Americas to ensure that dichos become hechos, that words are turned into deeds.' This 'new architecture' was a new system of cooperation between the countries of the Americas" (emphasis mine).
What is this new architecture? At the 1996 Habitat II conference in Istanbul, I heard the term "public-private partnership" for the first time. I spent nine months researching this concept, conducting several interviews with different people, including one at the World Bank. The three words can be broken down and explained separately, with the combined meaning then becoming clear. Partnership is a business arrangement. In a partnership, you can have as many partners as you wish. A partnership is the most agile form of business and provides the most flexibility. As I have confirmed in two different interviews with key officials at the World Bank, there is always a profit to be made in a partnership. Public refers to government--all and any levels of government, from local to county to state and federal, as well as international. It also can apply to governmental entities such as the World Bank or the United Nations. Lastly, private refers to the private sector-- non-profit organizations (non-governmental organizations), foundations, and businesses--multinational and transnational corporations.
In a May 11 speech by Deputy Secretary of the Treasury Lawrence H. Summers to the Council of the Americas he said, "The FTAA will be important not just for the future of this region but also because it will in many ways be the template for the major global challenge at the dawn of a new century." (emphasis mine)
When you bring these entities together, where is the power? With whoever or whatever has the money. Is the money with governments? No. Is it with individuals? No. It is with corporations. According to the Summit documents, the partners in this public-private partnership are as follows:
PUBLIC - Governments - International Organizations:
PUBLIC - Non-Governmental Organizations:
Remember this is a partnership---a business arrangement--and because it is not a treaty or a convention, it does not have to go through Congress. THIS BYPASSES CONGRESS!!
Clinton said in his closing speech, "Here in Santiago, we embrace our responsibility to make these historic forces to lift the lives of all our people. That is the future we can forge together. It is a future worthy of a new Americas in a new Millennium." (emphasis added)
At this point, nothing has been made public with regard to the integration of our currencies. Will it be by adjusting other currencies to come into parity with the dollar? Will they be fixed against the dollar on a certain day? All of this is not known. However, at the Group of Eight meeting in England, I asked Canadian Prime Minister Jean Chretien if he, as the new chair for the Summit of the Americas, was concerned about the effect of the euro on the Canadian dollar and then the forthcoming integration of the 34 currencies of the Western Hemisphere. He responded, "No: It is a development that will take some time before the euro will be really effective and how it will operate. The question will be how many countries will use the euro as their monies of reserve. We don't know yet. As you know most of the countries of the world use the American dollar for their reserves."
AMERICA MAY FEEL A DOUBLE WHAMMY. THE INTEGRATION OF THE EURO IS EXPECTED TO IMPACT THE VALUE OF THE DOLLAR; THE SUBSEQUENT IMPACT OF THE INTEGRATION OF THE DOLLAR WITH THE OTHER 33 CURRENCIES OF THE WESTERN HEMISPHERE WILL ALSO IMPACT ITS VALUE. I think Prime Minister Chretian's response was simplistic, given the complexity of what is being tried for the first time in history. When America was born, the states agreed that they would be one under the constitution and therefore have a common currency. The rulers of the world are taking historically individual nation-states and combining them into one, a completely different situation.
I believe it has been made clear that we are at the mercy of the international system and those in key positions who are "calling the shots." I believe that most important conclusion for you to reach is the fact that the cost of living will increase. The change by both corporations and countries from the dollar to the euro will affect how you and I live. The integration of the 34 countries of the Western Hemisphere into one new unit called "The Americas" will also impact how we live. We in America will be forced to reduce our standard of living so that Third World countries like Bolivia, Guatemala, Argentina, Columbia and other Latin American countries can improve theirs as ours is brought down. This specifically is called a transfer of wealth. The United Nations and other global bodies have incessantly called for a transfer of wealth so those from the south (poorer countries) can improve their standard of living and those from the north (richer countries) can reduce theirs. This is happening in Europe. The rich countries of Germany, Italy, France, Belgium, and Holland will have their economies merged with a number of the post- communist countries in an effort to equalize all economies. Again a transfer of wealth.
How all of this will work out is very uncertain. This is a mass experiment in creating a society in which everyone is equal. No one knows how it will actually work out, leaving us with more uncertainty as to how to live, how to keep our financial heads above water, and where and how to invest.
As an investment professional, I cannot believe that the large multinational and transnational corporations and banks will be adversely affected. I cannot believe that the strong economic infrastructure that is in place will be diminished to the point that we are beggars. However, I do believe that our burden to make a living and keep more of what we make will be made heavier.
How to protect ourselves is a major question. There are those who would run out and say, "Buy gold, stock up on food, and pay your house off." Not everyone can do that. I would recommend that ALL READERS ANALYZE THIS INFORMATION IN LIGHT OF THEIR SITUATIONS and THAT THEY REVIEW THEIR INVESTMENT PORTFOLIOS AND THEIR POSITIONS. Perhaps it is time to take gains.
Since everything we have been discussing is paper, you may wish to consider buying gold which is a tangible. While I fully realize toilet paper and food could become more valuable than gold, my motto is "some versus none." I BELIEVE CAUTION IS THE WISER WORD FOR THIS DAY AND HOUR. Since we are human, perhaps Divine intervention is needed with regard to what we need to do. Ps. 118:8 says, "It is better to trust in the Lord than to put confidence in man."
On the last page you will find a chart that compares current news analysis regarding the projected effects of the implementation of the euro.