New Global Trend: Dump a Dollar, Buy a Euro
Do you know what underpins, even drives, the global economy? It’s not the Federal Reserve Bank or any other central bank. It’s not the International Monetary Fund. It’s not a specific country. It’s not gold, oil or any other commodity. It’s not currency traders. It’s not even the almighty greenback.
What drives the economy is a force that cannot be seen—that is untouchable, intangible. It’s a phenomenon that can be shaped and molded; it’s fickle and susceptible to spur-of-the-moment change. In reality, the truth about what drives the global economy at the most fundamental level is alarming, sobering—even frightening.
The answer: confidence!
That’s right; our globe-girdling financial system—this interrelated, seemingly convoluted web of banks, industry, government, trade, stock markets—is underpinned and driven by an unseen force lodged within the unstable minds of men. The global economy is driven by the decisions of millions of individuals, ceos, private investors, stockbrokers, industry leaders, manufacturers, government officials. The economies of the world are shaped and molded by these people. And what is motivating and influencing the decisions made by these individuals?
Perceptions. Feelings. Morals. Emotions. Convictions. Confidence.
Take the American dollar, for example. Its role on the world scene is hard to overestimate: As the currency of choice for global trade and commerce since World War ii, it has greased the global economy for decades. Why? Fundamentally, it’s because the world’s perception of the United States—that it is a superpower with a strong, consistent and stable economy—has caused individuals and nations to invest their confidence (and subsequently their money) in American power and stability.
The American dollar, like all other fiat currencies, has no intrinsic value of its own—it is not underpinned by anything of real, tangible value. Its value lies in the global demand for the dollar, which is motivated by the confidence that global consumers have in the U.S. economy. Thus, if the global perception of America and its economy changes, if individuals begin to lose confidence in America’s financial stability, serious dilemmas arise.
This is precisely what is occurring.
The Trumpet has reported extensively on the progressive crumbling of America’s economic foundation: the unprecedented high budget and trade deficits, the housing market bubble, the massive Social Security and Medicare liabilities, the massive decline in savings and the outrageous personal debt among Americans, the loss of manufacturing, the reliance on foreign powers to finance American spending. Now, alarmed and growing increasingly edgy because of the critical condition of the American economy, the rest of the world is losing confidence in the U.S. as a stable economic system.
As people the world over increasingly perceive America’s dire economic condition, they are searching for a more solid alternative in which to invest their confidence. Recent months have revealed an alternative economic power the world is turning to: Europe.
After years of stagnation, many European economies and the overall European Union economy are now being considered alternatives to America’s. In 2006, the European Union showed signs that it could become the global economic powerhouse it has always sought to be. This trend looks set to continue, and as it does, watch for the merchants of the earth to shift their confidence away from America and begin to invest it in Europe.
Global Confidence Shift
In December 2006, the Wall Street Journal spoke of this growing economic powerhouse. “Europe’s economy is firing on all cylinders after years of feeble growth, helping sustain global expansion as the U.S. economy slows and surprising many economists who doubted the Continent could muster enough demand to break its reliance on exports” (Dec. 6, 2006; emphasis mine throughout). Ignited at first by rising exports, the Continent’s economic resurgence is now spilling over to impact other facets of the European economy, including investment, job creation and consumer spending.
An increasing number of financial gurus and investors now see Europe as an alternative to America. “It’s looking increasingly like Europe hasn’t caught a cold from the U.S. sneezing,” commented economist Neville Hill from Credit Suisse in London.
In November last year, the Organization for Economic Cooperation and Development (oecd) reported, “[T]he U.S. economy is running out of steam, but a European resurgence and the boom in Asia will prevent the world economy from derailing as it did after the stock market crash of 2000 ….” According to the oecd report, the comeback of the European economy in 2006 contributed to the “rebalancing” of global demand and output, “mitigating the impact of a U.S. slowdown” (International Herald Tribune, Nov. 28, 2006). America’s economy is stumbling while Europe’s is quickening its pace. In fact, America’s economic malaise is dramatically enhancing Europe’s reputation as a viable and attractive global financial center.
The euro is a good thermometer of Europe’s success. This young currency’s strong performance, particularly on the international scene, has taken many by surprise, as it has emerged as the primary currency after the American dollar. The last quarter of 2006 was especially momentous, as the value of euro notes in circulation broke the _‚_600 billion mark (us$787 billion), nearly double the value of the national currencies the euro replaced when it was first adopted in 2002. The Financial Times stated, “The U.S. dollar bill’s standing as the world’s favorite form of cash is being usurped by the five-year-old euro” (Dec. 27, 2006). According to calculations performed by the Times, the value of euro notes in circulation in December 2006 exceeded the value of American dollars in circulation.
This is truly remarkable for a currency only five yearsold!
This global shift in confidence is stopping the mouths of critics. When the euro was released five years ago, many critics said it could never share the field with the dollar, pound or yen. On its five-year anniversary in January, the value of the euro was near its all-time high, and it shows no signs of coming down; it rose 14 percent in 2006 alone. As short as it is, this impressive history is causing demand for the euro to grow rapidly.
In a startling announcement in October last year, former U.S. Federal Reserve Chairman Alan Greenspan warned that both private investors and central banks were beginning to dump dollars in favor of the euro. “We’re beginning to see some move from the dollar to the euro, both from the private sector … but also from monetary authorities and central banks,” Greenspan said at a conference sponsored by the Commercial Finance Association on October 26. As the value of the dollar slides and as banks and governments grow concerned about America’s long-term economic stability, more and more nations—including Russia, China, Japan, Sweden, the United Arab Emirates, Qatar, Syria and South Korea—have begun to talk about diversifying their holdings away from the dollar, which in many cases has meant purchasing more euros.
“Indeed, there is the very real possibility that several countries could switch a proportion of their foreign currency reserves out of dollars over time to the euro,” said Howard Archer, chief European economist for Global Insight in London (Associated Press, Dec. 30, 2006). Even in some non-EU states, the euro is being used alongside the local currency in trade and commerce. Associated Press explained recently that “at least half a dozen other European mini-states and territories are using the currency as legal tender without approval from the European Central Bank.
“The euro was introduced five years ago to provide economic cohesion among EU countries. But euros also are in circulation in dozens of countries and overseas territories ranging from the North Atlantic to the Pacific. In Europe, Montenegro, Vatican City and San Marino and the principalities of Andorra and Monaco have used the euro since its inception. And in the province of Kosovo … the euro circulates alongside the Serbian dinar” (January 1).
The euro’s success, as AP noted, doesn’t bode well for America: “[T]he rise of the euro has made inroads into the dollar’s international dominance.” For a young currency that the European Central Bank has not excessively promoted, the growing use of the euro in international markets and in foreign exchange is testimony to the mounting confidence of banks, investors and governments in the European economy. Global demand for the euro has been organic; it started at the grassroots level and is being driven by growing faith in the Continent.
The rise of the euro is proving a boon for America’s oil-rich enemies too. The strengthening euro has equipped Iran with the option of demanding its clients pay for oil in euros rather than American dollars. Iran already receives payment for more than half of its oil in euros. Now Venezuela, another top oil producer, is strongly considering selling its oil in euros.
Russia, another major oil producer, is also switching to the euro. On April 20 last year, Russian Finance Minister Alexel Kudrin said, “Russia cannot consider the U.S. dollar as a reliable reserve currency because of its instability. This currency has devalued by 40 percent against the euro in recent years. The international community can hardly be satisfied with this instability.” Over the next four weeks, the dollar plunged 6.6 percent. In June, Russia announced it had reduced its U.S. dollar foreign exchange reserves from 70 percent to 50 percent, while increasing its euros from 25 percent to 40 percent. The same month, Russia also socked the dollar by starting to trade futures contracts for gold and crude oil denominated in Russian rubles as opposed to dollars (in which most of the world’s commodities are traded) in the Russian Trading System.
By reducing their reliance on the dollar and investing in the euro, America’s enemies have a new weapon to use against the U.S.
A weakening dollar and strengthening euro is even making trade and commerce more difficult for America’s allies. During the last half of 2006, nations that accepted payments for goods and services (such as oil) in dollars saw the value of their dollars decrease dramatically against the euro and other currencies.
The significance of the world diversifying away from the dollar by buying more euros cannot be overstated. It is one of the most powerful proofs that global confidence in the American economy is eroding and that global confidence in Europe is taking its place. In a system where currencies are underpinned by perception and confidence, this is a trend with gargantuan ramifications.
U.S. Congressman Ron Paul from Texas commented on the situation on January 1: “There are now more euros in circulation worldwide than dollars. This alone is not necessarily troubling, as the dollar remains the world’s most important reserve currency. About 65 percent of foreign central bank exchange reserves are still held in dollars, versus only about 25 percent in euros. … Still, the rise of the euro internationally is another sign that the U.S. dollar is not what it used to be. There is increasing pressure on nations to buy and sell oil in euros, and anecdotal evidence suggests that drug dealers and money launderers now prefer euros to dollars. Historically, the underground cash economy has always sought the most stable and valuable paper currency to conduct business. More importantly, our greatest benefactors for the last 20 years—Asian central banks—have lost their appetite for holding U.S. dollars.
With 65 percent of central bank reserves comprised of American dollars, the dollar remains, at this point, the currency of choice. But for the young, relatively unproven euro to comprise 25 percent of international currency reserves is impressive.
Many financial analysts anticipate that the euro will grow even stronger this year—particularly against the dollar and the yen. As this trend persists, consider the psychological changes it portends. The shift in confidence from the American currency to the European suggests that some dramatic changes are occurring on the world scene. Though it may not occur next week or next month, if this trend persists, America’s easy days of plentiful money and low inflation will be over; interest rates will rise; consumer confidence will plummet, and so will the economy.
2006 was the year the world accelerated its diversification away from the dollar. Watch what happens in 2007.
A New Superpower
As we see the world remove its confidence from the American economy and invest it in the European economy, we should be concerned. Such a radical shift will upend the American economy, which will drive other nations to invest in Europe all the more. The U.S. is facing an economic calamity far worse than the stock market crash of 1929; the scale of this financial crisis will be unprecedented.
Of course, in a globally interconnected economic system, a collapse of the dollar will have massive ramifications around the world—including in Europe. The spillover effects of an American economic crisis may well trigger the fulfillment of specific Bible prophecies related to Europe: namely, its unification under one strong leader—a scenario Herbert W. Armstrong spoke of for decades. History shows that crisis can force nations to band together and to look to a political savior for a way forward.
But in the end, the European economy will be in a position to take advantage of America’s downfall and fill the vacuum it will create—and is already creating. The economic ruin of America portends the formation of a deadly economic and political force in Europe. Ultimately, the Continent will amass the power and influence to become the greatest economic superpower of the age. Like America after World War ii, Europe will become the center of global activity, growing wealthier and more influential, garnering more global power. And, like America these past 60 years, when Europe comes to underpin the global financial system, it will become the greatest, most dominant power on Earth.
This is a sobering thought, but it is also more exciting than you can possibly imagine. Why?
This is thrilling because the Bible speaks of such an event occurring right before the Second Coming of Jesus Christ!
God revealed to the Apostle John almost 2,000 years ago that a European superpower would be at the helm of global trade and commerce prior to the return of Jesus Christ. Read Revelation 17 and 18.
These chapters warn of a terrible political superpower that is ridden by a sinister religious force. To learn precisely who this European superpower is, its history and how it forms in modern times, request our free booklet Germany and the Holy Roman Empire. This church-state duo establishes dominion and economic control over the entire globe. Revelation 18 discusses the eventual downfall of this terrible beast and all those associated with it.
“For all nations have drunk of the wine of the wrath of her fornication, and the kings of the earth have committed fornication with her, and the merchants of the earth are waxed rich through the abundance of her delicacies” (verse 3). From this verse we can tell that at the time of its destruction this great beast will be the center of global trade—the economic power around which the merchants of the earth orbit. Read verses 9-18 of the same chapter.
The whole world will revolve around this political and economic superpower. When we see the world investing its confidence in Europe today, we are witnessing the seeds of this trend being sown. Over the coming months and years, global confidence will continue to shift away from America and toward Europe. The world will begin to orbit around a European axis.
In the context of Bible prophecy and world history, the thought of a European superpower possessing absolute power is frightening: Bible prophecy warns that this European empire will exert its power and influence in a deadly manner.
The seriousness of this future should move us to positive action in our lives _—to learn more about these end-time prophecies, to investigate them and learn how to escape them. The God of this universe is not a pessimist. His Bible is not filled with terrifying, gloom-and-doom prophecies that are inescapable. When you read about these prophecies, you should be alarmed—but if you are moved to action and stirred to seek out God and His protection, then there is nothing more exciting on the face of this planet!