Sacre bleu

Economic opportunity comes in odd forms, including this one.

Even a catastrophe can demonstrate how important it is to think as someone who Controls His or Her Cash. If doing so can dispel some class warfare misconceptions too, then all the better.

Unfortunately, for some the Haiti earthquake is more than just a colossal tragedy, since it’s possible to attach a moral component to some benign human behavior in the earthquake’s aftermath.

Haiti is the size of Massachusetts, with more people than Michigan. And since people started keeping records, Haiti has been the poorest country in the Western Hemisphere. The citizenry has endured uninterrupted horrible government since independence two centuries ago, unless you count bloody coups as “interruptions”. As you’ve probably heard, shortly after Haiti fell to rubble Royal Caribbean cruises’ Independence of the Seas made a scheduled stop 2 miles from the major northern city of Cap-Haitien. Never an industry to look beyond the surface, the media helped matters by using loaded terms like “frolic” and “frivolity” to describe the pampered passengers on board, who allegedly sipped mai tais and played shuffleboard while thousands of people died relatively close by. While you’re welcome to bash people who vacation on cruise ships as emblematic of indulgence and sloth, that isn’t the point.

If you glean one piece of knowledge from Control Your Cash, let it be this: alternatives must exist. Given that cruise ships exist, and that that existence is somewhat permanent, exactly what is supposed to happen if the Independence of the Seas cancels its visit to Cap-Haitien? The ship has to go somewhere. Were the Independence of the Seas to drop anchor a few miles off the coast of Hispaniola, or continue uninterrupted to San Juan, perhaps that would somehow mitigate the carnage around Port-a-Prince. Out of sight, out of mind, right?

Circumstances placed the passengers on board the Independence of the Seas in an awkward situation (yes, it’s all relative. “Awkward” compared to the passengers who took the same cruise the previous month, not compared to the Haitians waiting for the International Building Code inspectors to come by and slap a giant “Condemned” sign on the entire western half of the island.) If it’s distasteful to play on waterslides and sample the breakfast buffet while docked in Haiti, would it be any less so to do the exact same thing a few dozen miles offshore, where the locals couldn’t see the ship? Do you really believe the poor dark-skinned unfortunates can be that easily fooled?

Refusing to dock by Cap-Haitien won’t alleviate anyone’s suffering, unless you count assuaging the partially developed consciences of a few uptight and unthinking people. Furthermore, Cap-Haitien was 50 miles from the epicenter of the quake and is relatively unscathed. So naturally, the logical thing to do would be to bypass the port and keep tourist dollars from entering the country when they’re needed most.

Haitians, by virtue of being poor and rendered poorer by tectonics, don’t have the luxury of concerning themselves with such secondary cares as etiquette and propriety. While the spectators can debate the merits of hybrid subcompacts vs. SUVs, or refuse to eat food grown 101 miles away from their homes, the Haitians themselves have more pressing problems. Such as getting fed and sheltered.

It shouldn’t take a natural disaster to illustrate this point: while ordinary modern humans don’t live at the beck and call of rich people, it sure is handy having them around. Because once someone elevates from mere comfort to affluence, the difference between the two is measured by money that needs to be spent or invested. That money will almost always be spent or invested with people poorer than that rich person.

Liquidity of money is everything. Liquidity means the speed at which funds get spent in the economy as they move from lower-valued uses (sitting in a tourist’s pocket) to higher-valued ones (being exchanged for food and shelter, by a Haitian selling whatever goods or services.)

The irony is that cruises, despite being synonymous with ostentation, are anything but ostentatious. 75 years ago, the average person had as much chance of going on a cruise as she did of traveling in space. Today, cruises have been democratized to the point where Royal Caribbean offers 4-day junkets from Miami to the Bahamas (and back, presumably) for $247. That’s not per night, either.

Perhaps the distaste and second-guessing stems from the level of pampering the passengers on board the Independence of the Seas enjoy. If she had only one whirlpool instead of two, or served off-brand ice cream in her coffee bar instead of Ben & Jerry’s, that might mitigate the protocol horror.

Kudos to Royal Caribbean CEO Adam Goldstein for putting practicality ahead of public relations. He unapologetically made the economic case for docking in Haiti, hoping to persuade the holdouts who think it’s bad to patronize the hundreds of local merchants who rely on moneyed Americans to indirectly feed their families.

Just ask the merchants along Front Street in Lahaina, Hawai’i, who salivate when a cruise ship docks at the nearby terminal and passengers disembark, ready to spend. The people running those shops are Americans. If it’s a slow day at the shop, the merchants and their employees still have warm beds inside structurally sound dwellings to sleep in that night.

But for a Haitian local, the $15 he can earn for a day’s worth of tour guiding can mean the difference between going home, and going home hungry. The alternative (there’s that word again) would be for the cruise ship passenger to keep that money to spend it at the next port of call, which is certain to enjoy a higher standard of living than anywhere in Haiti does.

If the passengers are “uncomfortable” with coming within 50 miles of a disaster zone, or if people with no vested interest in the situation are uncomfortable, suck it up. Or you could ask a Haitian who just lost his house, his income, and a family member or two if there’s anything he can do to salve your discomfort.

One way to solve the problem of naked income disparities would be to have Royal Caribbean only cruise to ports with substantial per capita incomes. Luxembourg, for instance. That way, neither the cruisers nor the locals will perceive any inequality. Alas, Luxembourg is landlocked.

As to the finger-pointers who decry the Independence of the Seas’ passengers as representing all that is unholy with the festering white underbelly of globalization? If those naysayers really gave a damn about Haitians, they’d buy a cabin, dock at Cap-Haitien, ask for the deluxe tour from whichever Jean-Michel or Rene greets them at the port, tip generously, then head into a local café and order as much tassot et banane pesé as their well-fed First World stomachs could hold.

“Rich”, “out-of-touch” and “pampered” are perfect descriptors for anyone who recommends essentially forbidding poor Haitians from earning a livelihood. Especially now. A physical distance from the problem doesn’t exonerate you, either. If you’re ready to chastise Royal Caribbean and its customers, while you’re spending even a nickel on non-necessities of your own, you’re far more loathsome than the cruise passengers you condemn.

Think your lek can kick my colón? Get riyal.

Strong dollar, weak dollar, what does it mean?

I haven't seen this many Indochinese dong since Sunee Plaza. Hi-oh!

It means the price of the dollar, as quoted in foreign currencies. (It doesn’t make a lot of sense to quote the dollar in terms of domestic currency. It’s always going to be worth $1.) There are 182 national currencies in circulation across the planet, but for this post we don’t need to concern ourselves with sparsely traded ones like the Botswanan pula or the Kyrgyz som (no offense to our readers in Gaborone or Bishkek. Control Your Cash is huge in Bishkek.)

Most of the world’s large cross-currency financial transactions are undertaken in just a handful of currencies: among them the euro, the pound sterling, the Japanese yen, the Canadian dollar, the Australian dollar, the New Zealand dollar… and the U.S. dollar. In the world financial markets, the U.S. dollar’s value is expressed relative to the prices of these other currencies. And around the world, that can be vital. One Control Your Cash author had the perspective of growing up in Canada, where the value of the Canadian dollar (quoted in U.S. cents) is at least as prominent a financial indicator as the Dow is in the U.S. Given that the U.S. dollar has historically been the most widely held stable (and most stable widely held) currency in the world, it makes sense that it’d be the one that other countries would choose to quote their currency in terms of. In many parts of the world not referred to above, three particular (foreign) currencies carry equal importance when measuring their relative strengths. In South Africa, for instance, the U.S. dollar, pound, and euro are quoted in terms of each other, making for 3 daily rate quotes (6 if you count each quoted in terms of South Africa’s own rand.)

We do this – quoting euros in dollars, or dollars in pounds, or pounds in euros – because there’s no pure, objective measure of wealth: no commodity whose value always stays the same with respect to everything else. There can’t be, as the economy is dynamic and accelerating. Millennia ago, it might have made sense to count, say, a suckling pig as a unit of currency. My hog is worth 4 of your sucklings. My horse is worth 20. My cow, maybe 8. Oh, wait, it’s a bull? Fine, you can have it for 3. When consumer electronics and decorative tiles and golf clubs don’t yet exist and therefore can’t be quoted in terms of suckling pigs, no problem. But the moment an economy advances even a little, you need something uniform and readily transferable to conduct business in. Even cigarettes work better than piglets, but that implies that your economy has already advanced to the point where cigarettes can be manufactured. Gold works to some extent, as we discussed here, but there are myriad reasons – mostly nationalism and conspicuity – why each nation insists on printing its own money.

If everything has a value – and if anything should, money should – it stands to reason that currencies can be traded for each other. And what makes a currency worth buying? Well, considering money isn’t edible, what makes it valuable is its potential for growth. It’s an investment, like anything else people trade in the financial markets.

If I buy ExxonMobil stock, I’m betting that the stock will increase in value – or in other words, that each dollar I’m buying the stock with will one day be worth less stock.

Yes! Breakthrough.

But currencies are different. If I buy pounds, doesn’t that mean I’m betting that my dollars will one day be worth fewer pounds?

Yes.

Does that make me a traitor to my country?

No, it makes you an investor. Indeed, currency transactions differ from most transactions in that when you deal in currency, you’re exchanging two abstract quantities whose only practical purpose – whose primary purpose – is ultimately to buy other things with. But if the currency you do business in (and if you’re American, that’s largely going to be U.S. dollars) is in danger of losing value relative to other currencies, there’s no point in waiting for it to happen while watching your dollars get weaker.

A “weak” dollar only means weak relative to other currencies. A currency can also lose value relative to itself over time (and almost always will), but that’s a different phenomenon – inflation, which can occur without respect to what’s happening in the rest of the world.

There are plenty of reasons why currencies fluctuate in value, a big one being interest rates. Let’s use the U.S. dollar and the pound as examples. The United Kingdom’s central bank*, the Bank of England, recently set its bank rate (the rate at which commercial and investment banks can borrow money from it) at ½%.  Every few months the Federal Reserve sets the American equivalent, the federal funds rate. Instead of a number, it’s a range, which is currently 0–¼%. (The more a bank borrows, the lower the rate it pays.) The effective federal funds rate, which is a weighted average of the money borrowed by banks, is .11%.

The U.K. rate is unequivocally higher, and not by a little. Which means that ever since those rates were set, the pound has promised higher returns than the dollar. Which makes the pound more desirable than the dollar, which is why the pound is worth more dollars now than it was a few months ago.

(The Bank of Japan’s rate is .1%. The European Central Bank’s is ¼%**, as is the Bank of Canada’s.) We’re not recommending currency investing, nor discouraging it. We’re just trying to explain how it works, which is better than you understanding it retroactively.

In the last 10 months, the pound has gained 20% on the dollar. Does that mean the entire American economy is weak relative to the Brits’? No. If your U.S.-based business buys a lot of British materials (labor, capital, whatever), it’s gotten more expensive to operate, because your business is taking in money in dollars and paying it out in pounds. If your U.S.-based business exports a lot to the U.K., then life is magical. You might not have noticed a thing regarding the price of what your company sells, or what it costs to make it, but from the perspective of a British consumer, your products got cheaper (in pounds.) Which is a big advantage over any British competitors of yours.

There are other criteria that determine currencies’ relative strengths, of course. A country with a lot of debt relative to its size (e.g. Venezuela) might have a crazy person in charge (which it does.) That crazy person (Hugo Chavez) can keep printing currency to settle the country’s debts, making the currency worthless and vaporizing the wealth of all the Venezuelans who earn and save money in that currency. But a country with a vibrant economy, little debt, and lots of imports relative to its size (e.g. Singapore) will usually have a stable currency. Singapore has to buy goods from other countries in order to survive, which means Singapore has a vested interest in keeping its currency worth something. It doesn’t have a lot of financial obligations, so there’s no incentive to weaken its currency by inflation.

Where do we fit on this scale? The United States has a tremendously vibrant economy, at least relative to the rest of the world, regardless of what’s been happening the last 18 months. The U.S. also has a lot of debt. However, we import a lot in absolute terms (although in relative terms, it’s nothing compared to Singapore. Plus we export a lot, too.) And while our chief executive isn’t crazy, it’s not a stretch to call him an opportunist who’d think nothing of ordering the Federal Reserve to help accomplish certain political goals that might not be economically sound.

Where to find currency rates? Yahoo! Finance is our favorite all-purpose financial site: it’s clean, comprehensive and easy to navigate. Scroll down to “Currency Investing” on the left column and have at it.

*You do a blog post, and then you realize halfway through that you might introduce an unfamiliar term. A country’s central bank – most every country of decent size has one – isn’t a bank in the sense that it has branches you walk into and make deposits in. A central bank exists to lend a country’s government its currency. The central bank actually creates the money the government borrows, which is why the dollar bills in your pocket carry the phrase “Federal Reserve Note”.

**You can choose between decimals and vulgar fractions on your own blog. We’re using both.

**This post is featured at Compounding Life**