CNC Mortgage Blog

Last week I was at a dinner with a friend and he was opposed to the US helping to support the Euro so that the value does not fall. I tried to counter his arguments but didn’t have all my numbers ready.

Now I think I have come up with a good explanation of why the US should help to prop up the Euro.

Assume you need to buy a nice new car and you have been looking at four options, Cadillac, Continental, Mercedes and BMW. They are all pretty similar except for the price; the two European cars are running at around US$60,000, the US built cars are costing US$45,000 each. At an exchange rate of US$1.55 = e1.00 the European cars have a price of e38,709.

If the Euro drops to US$1.20 = e1.00 the price of the European cars would drop to US$46,451.

If the price of the Euro goes to US1.10, those foreign cars would cost $42,580.

At that point you would decide between the US built cars at $45,000 or the European cars. If you decide to go for the European cars it will probably cost some jobs in Detroit.