On Sunday, January 25th, the voters of Greece elected Alexis Tsipras of the Syriza Party to the post of Prime Minister. The winning candidate, considered a ‘leftist’, advocates leaving behind the austerity prescribed by the other 27 Euro nations. According to most reports, this switch will create difficulties for the European Union that, like here in the U.S., has been trying to recover from the economic downturn beginning several years ago.
Why should we in the US be concerned about the politics and economic fortunes of Greece? The answer is that as a part of the European Union (EU) of 28 nations and 500 million people, the US imports about $382 billion of goods and services and exports about $254.5 billion annually.
The new Prime Minister was elected on a platform of rejecting austerity and returning to spending by raising the minimum wage without regard for economic growth to pay off the $10 billion of Euro debt this summer. The jobless rate in Greece is over 25%. In the past three months, the Greek Stock Index has lost 1/5th of its value. Following the election Greek stocks fell 3% and one of the leading bank stocks fell more than 17%. The Euro currency has been sliding downhill and several big New York banks forecast the fall to end up around $1.05 to $1.12 to the € (Euro). On the one hand that is good, making EU exports more affordable to the US and other nations that trade with EU bloc countries.
Although lower value of the Euro currency helps overseas sales, the European Central Bank (ECB) in Brussels has launched a bond-buying program to avoid deflation that has depressed prices and wages. Most currencies in the world have bowed to the dollar over the past few months in order to improve competitive pricing at the expense of reduced profits and lower wages.
The crux of this jabber above is that the United States must deal with the strengthened dollar and the weaker foreign currencies. This relationship of currencies dips deep into our US economy. Because of our higher-valued dollar, our exports are more expensive abroad. In turn this means that our industrial and commercial output will command less of foreigner’s disposable income as well as business investment in new equipment made in the USA. That may include delays in shipments of airplanes by Boeing (the nation’s largest exporter) and capital items such as computers, cars, appliances and consumer agricultural commodities.
Implications for our Federal Reserve are that a high value dollar tends to suppress inflation when the Fed is trying to raise inflation up to a 2% level so interest rates can be advanced slightly. The bad news about a strong dollar is that because exports will be widely affected, our negative balance of trade will be amplified. Last year our imbalance in international trade amounted to over $670 billion; US imports stood at almost $2.2 trillion while exports topped off at $1.5 trillion.
There were 50,000 merchant vessels on the high seas in 2014 carrying goods between exporting ports and importing destinations. There are almost a half million aircraft in the world carrying freight and passengers. The Internet has about three billion users. UPS and FEDEX ship an estimated five billion packages to 220 countries annually. Post offices around the world deliver billions of letters and packages. According to one estimate, there are more cell phones in the world than there are people (7 billion).
In addition to social contacts, these connections reflect world trade, employment, unemployment, exporting and importing. This globe is a virtual beehive (or anthill) of exchange and we must understand that when it rains in Manitoba, the price of wheat futures may be affected at the Chicago Board of Trade. When an OPEC (Organization of Petroleum Exporting Countries) member drops the price of crude, the cost of gasoline and diesel fuel will probably decline. If Greece ignites a trend in currency values, the metrics of world trade may fall into epic disorder.
Your job and your life are influenced by events on the other side of town and on the other side of the world.
– Dick Baynton