It's Hard Out There For An Expat
The dollar is well on its way to comparing unfavorably to the 50-cent piece, and friends of mine in Europe (Richard Nahem and Vincent Gagliostro, pictured in Friday's International Herald Tribune) are feeling the pinch. From a story by Doreen Carjaval:
PARIS: Erica Nevins's faith in the dollar was shaken the moment she pressed a crumpled $1 bill into the hand of a little girl begging for money on the streets of Marrakesh, Morocco."I don't want this. This is nothing," Nevins recalled as the scornful reaction of the child, who demanded more.
Since then Nevins, an American fashion executive, has replayed that moment over and over in her head as she confronted the harsh reality of living on a dollar income in Paris and then moving to pricey London. "The absurdity of this is that it's so true," she said. "A dollar really means nothing. It's scary."
With plunging exchange rates, American expatriates whose pensions or incomes are paid in dollars are scrimping. No more dinners out when a bottle of Perrier for €3.50 translates to $5 and no more Christmas shopping binges when a shiny iPod for €159 is the equal of $230.
"Those that can hold out are holding their breath and we're hoping for a return of the dollar, but those that can't are going," said Susie Bondi, an American who has lived in Paris for 12 years, but is moving to Vienna in January with her husband, Fred, to stretch their pension dollars in a city with a lower cost of living.
The past six months have been anxious for expatriates, with the dollar sinking against the euro, the pound and currencies from the Czech koruna to the Costa Rican colón. Those declines are accelerating the flight of expatriates in Europe, according to tax attorneys who listen to the woes of clients who are giving up because they see no relief in sight.
Here's the bit about Richard and Vincent:
Vincent Gagliostro is a graphic designer and freelance video filmmaker who left the New York advertising industry two years ago to settle in the Marais neighborhood in Paris with its promise of cheaper living that reduced his monthly housing costs from a $6,000 mortgage to an 18th-century apartment rental for €1,700. When he first moved to Paris, he said, he worked for a base of clients from the United States, but he is trying to diversify to earn euros."The dollar still heavily weighs on the quality of my life. As long as I continue to rely on at least 50 percent of my income with American clients, it's going to do that," Gagliostro said while dining on a simple €10 brasserie lunch of pasta and chicken.
Gagliostro's partner, Richard Nahem, a Brooklyn native, has also sought to supplement their income by offering customized tours of the Marais, but his new business, Eye Prefer Paris Tours, is dominated by Americans and Canadians who pay him in a mix of euros and dollars. To economize, he has cut back on his own indulgences, such as clothing purchases. But he cannot resist his favorite high-end patisserie, Gérard Mulot, where a chocolate éclair costs €2.80.
"When it comes to pastries," Nahem explained, "there's no price resistance for me."
Yeah, I know the feeling.
By the way, here's the Paris blogger party Richard and Vincent held last year. Met them, and lots of great Paris bloggers, like PollyVousFrancais and Susie Hollands, through my friend Laurie Pike's The Paris Blog ("The Blog With Gaul").
These days, Laurie Pike is now practically landed gentry in Paris. Well, landlord gentry, anyway!
Heh. Shopping and Fucking. I saw that years ago in New York. Phillip Seymour Hoffman was in it. It was mediocre. I'm surprised it's still kicking around.
As far as the weak dollar goes, it wouldn't have anything to do with the record budget deficits we've been running for the last six or seven years, would it? Does this mean we can't run our country forever by selling off our government debt to the Chinese? Nope, nothing can go wrong there.
justin case at December 15, 2007 11:21 AM
OK, I confess my dismal ignorance when it comes to exchange rates. Can't people just adjust their prices to compensate? Although I see where that woudldn't work with ongoing service contracts. Or price tags that are already made up and attached.
Never mind.
cassandra at December 15, 2007 11:31 AM
Adjust their prices to compensate? Are you actually suggesting that, when I go to the Parisian department store Le Bon Marché that they lower the price on a scarf, just for me, because they feel sorry for me about the dollar?
Amy Alkon at December 15, 2007 12:27 PM
I'm not economist but I recall listening to a 30 minutes discussion on BBC (the NPR broadcast of it) with economist talking about how the low dollar/high Euro will be good for the US in the long run and very bad for Europe. I've heard both liberal and conservative economist say this and they rarely agree on anything.
Here is an overview of the concerns.
http://tinyurl.com/3cy7dy
Dale at December 15, 2007 12:55 PM
Well, the lower dollar does help US exports. Hard to dislike that. And making imported goods more expensive is an incentive to make stuff here in the US. Again, not a bad thing.
So why, precisely, is a declining dollar necessarily bad?
I'm not likely to have sympathy for anyone overseas that decides to be anti-pragmatic and use a non-local currency to be paid in.
brian at December 15, 2007 1:14 PM
An amusing debate, or thought exercise, you can have on your own is to imagine that every country uses the same currency. Though you would think that this would reduce price differences to those directly associated with the difficulty of processing raw material into a product and selling it, you would still have speculation on the futures of any process affecting the final price.
The dollar is down vs the Euro, not because of a difference in how long someone thinks you should have worked to earn the equivalent of the item you are looking at, but because of a lack of confidence in fiscal policy set by a number of things allowed by government and its people.
People speculated on their own home's value. This is foolish, as advised by nearly everyone in the financial advice business, but it was allowed because there were no "brakes" on such transactions. You'll note that Wall Street's computers are "gagged" to prevent wild rides by automated investment programs; something like that should have been in place; that horse has left the barn.
It remains that most people do not understand that "money" is not the green/gray paper in your pocket. Most also do not know what a "Federal Reserve Note" is. So they are surprised when a beer costs $1 in England, $4 in Norway, etc.; it took the same amount of time to make it, and so it "should" sell for the same amount of labor in exchange. Tsk. Nope.
Radwaste at December 15, 2007 1:53 PM
As much as I'd like to believe a begging child is completely au fait with the exchange rates, surely the reaction was due to the fact that you can't use dollars in Morocco.....
Vickie at December 15, 2007 2:49 PM
Are you actually suggesting that, when I go to the Parisian department store Le Bon Marché that they lower the price on a scarf, just for me, because they feel sorry for me about the dollar?
No, but they might sell the same goods for less in the U.S. than they do in France.
justin case at December 15, 2007 4:35 PM
--An amusing debate, or thought exercise, you can have on your own is to imagine that every country uses the same currency.--
This wouldn't make too much difference. Even in the US, prices in Tennessee are much lower than in New York City. One would like to work in New York City, and live in Tennessee, but the logistics keep the price differential intact. Some people work in NYC, live cheap, and send money to Mexico, where it goes much further.
--So they are surprised when a beer costs $1 in England, $4 in Norway, etc.; it took the same amount of time to make it, and so it "should" sell for the same amount of labor in exchange.--
Labor is only one component. A Michelob in the Four Seasons in NYC is carrying a load: rent, taxes, staff wages, quality of service, etc. Swing off the road to a bar in South Dakota, and the same Michelob doesn't have the same 'freight'.
I don't know the particulars of England-Norway, but I'm guessing it is more expensive to sell beer in Norway: higher taxes, higher rent, fewer outlets. England probably has a business climate and regulatory structure that keeps beer drinking within reach for all.
doombuggy at December 15, 2007 5:45 PM
In Feb '06, I was in Sweden. In one of the toy stores there the Nintendo Game Boy Micro was selling for the equivalent of $149 (I don't remember the exact amount, but it was somewhere around 1100 Crowns). That same Game Boy Micro was selling for $99 everywhere in the US. And that price didn't include taxes, in either location.
There is no way you can convince me that a toy made in China by a Japanese company is going to have a 50% price difference because of the position of the US Dollar (which was doing quite well against the Euro back then).
Comparing prices in Paris and New York is like comparing oranges and Cadillacs.
I think Rad's on to something though - a lot of foreign banks bought into the sub-prime mortgages. So, when a dollar-denominated investment begins to lose, it doesn't really shock me that currency traders would suddenly get nervous about the currency as a whole.
brian at December 15, 2007 7:46 PM
I lived in Seoul, Korea twice.
The first time I lived there a dollar got you 700 won. And the ex-pats where complaining that a couple of years earlier a dollar got you 1,000 won. And the ex-pats that had been there for years and years complained because, ten years ago, a dollar got you 2,000 won.
The second time I lived there a dollar got you 1,300 won. And the ex-pats were complaining that last year a dollar got you 2,000 won.
Ex-pats complaining about the exchange rate, it never ends. Which is why ex-pats are some of the most tiresome people on earth -- and why I didn't stick around Seoul.
David Crawford at December 15, 2007 8:18 PM
doombuggy, you are playing the game as I suggested - to determine when an exchange rate matters, and when it does not. Money in the USA is labeled "Federal Reserve Note"; those that do not know what that is, here you go: it's a promise to pay. Pay what? Whatever the market insists that note is worth!
Yes, your currency is based on a tautology!
The dollar, rather than a representation of a fixed mass of a non-manufacturable substance as it was when the "gold standard" - actually silver - was in effect, now means, "A measure of the amount of concern which can be generated to possess that dollar." Further, it is merely a government marker; the unit could be the "hen", cackle and all, because we trade effort for these tokens.
And that's why the dollar is slipping, and has fluctuated since it was invented: it's now a measure of how vital American participation is in world trade.
Think of this: if the rest of the world thought it could act as if the USA no longer existed, what would the dollar be worth? Answer: Zero!
One of the wildest things about money is that it is only partially defined by what people think thinks "ought" to cost. The effect, "inflation" is caused by a general public need to be paid more for the same job, so as to get some new thing they want.
Have you noticed something? When housing was granted to people with no real ability to pay, we got a kind of inflation which isn't counted in the normal way. People are now thinking they need to be "paid" more - through a "back door" deal giving them a break on their mortgage - because they think they deserve the home they chartered by mistake!
Radwaste at December 15, 2007 9:30 PM
Back when there were rumors of a lower priced Playstation3 coming out, I noticed in the comment section of a videogame blog a bunch of folks whining about the high comparative cost in Europe compared to the USA. The complainers blamed Sony for being greedy rather than considering the possiblity that the European penchant for huge government programs might effect the prices of consumer goods (beyond the VAT).
That got me thinking to compare prices on a bunch of goods, and I used Amazon.com and Amazon.co.uk to check the price on a few items, and on some things the difference was small (not much more than the VAT), on others it was more than 80%.
My hypothesis is that folks in the UK (and the rest of Western Europe) pay more for everything they buy because of their cradle to grave 'safety net' and 'free healthcare'.
Free ponies don't come cheap.
xwl at December 15, 2007 9:39 PM
"Yes, your currency is based on a tautology!"
While this is something that I understood before, I'd never used that extremely succinct way of putting it. Very nice.
The thing is that all the other currencies (as far as I know) are also based on the same tautology. The trickier question is why does one currency fluctuate fairly drastically relative to another? In other words why did 1€ cost $.85 in 2001 and now it costs $1.50? A 75% increase in 6 years is not trivial.
"The effect, 'inflation' is caused by a general public need to be paid more for the same job, so as to get some new thing they want."
Really? Because that does not explain this: http://tinyurl.com/3xkvtq
I'm not an economist and I could be completely wrong, but I've long thought of inflation as an effect of government saying "voila, here's some more money" faster than people can invent ways to make the money more valuable.
Shawn at December 16, 2007 1:59 AM
Shawn - Inflation has many mothers.
Inflation happens when a commodity's demand outstrips supply (as with copper, steel, oil).
Inflation happens when a reserve bank releases more currency into the wild. This also, however, increases liquidity.
Inflation also happens when currency traders intentionally tank a currency (see Soros, George and Asian Currency Crisis).
Inflation also happens when a government decides that their currency is worth more (see China revalues Yuan).
Inflation is also caused by increasing wages.
Rad - the single biggest lie about a gold standard is this: The value of gold changes. And gold's value is determined by (wait for it) - the market.
A major find in new gold tomorrow would absolutely tank the value of gold. So a gold standard is no less a fiat currency than is a Federal Reserve Note.
Oh - one other thing on the PS3 - Check the prices on amazon here and in the UK. 40 GB PS3 - US$399 (including movie), UK £269.99 (RRP £299.99), Japan ¥ 37,981 (RRP ¥ 39,980), Germany €399.98, France €399.00.
RRP is the recommended retail price - which is what it sells for in the US everywhere.
Using today's (12/16/07) exchange rates $399.99 is £198.03 and ¥45308.88, and €277.15.
In two countries that use the same currency, there's a €0.99 difference, probably meaningless.
But the PS3 is substantially cheaper in Japan, and significantly higher in the UK. However, the UK price includes UK VAT. Don't know about the German one (can't read German well enough to tell if the EU VAT is in it already or not). However, I seriously doubt that the UK VAT is really 35%.
And that's the final confounder in determining currency value - An item is worth what someone will pay for it.
brian at December 16, 2007 5:41 AM
Brian, of course you're right about gold - but it was once illegal for an American to own it for investment purposes. This was specifically to curb speculation on its value.
Radwaste at December 16, 2007 7:04 AM
Regarding your claim about Soros, a paper by Goetzmann, Brown, and Park:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=58650
Amy Alkon at December 16, 2007 8:58 AM
Waitwaitwait-
You mean Soros' bragging that he took down the British Pound in the 90s was a lie? Or did he bring down the Pound intentionally, and the ringgit just fell of its own accord?
I mean, the reason everyone assumed Soros brought down the southeast-asian currencies was because he'd done it to the Brits - and bragged about it.
brian at December 16, 2007 9:34 AM
People's claims of their vast influence are often exaggerated. Especially those people who thrive on the idea, real or imagined, of their vast influence.
Amy Alkon at December 16, 2007 10:15 AM
Firstly, if I gave any money to a beggar who scorned it, okay, then I'd all too happily take it back and they'd get nothing. Boy, I'm amused by that. Can we label the visual in my head, beggars can't be choosers?
Secondly, I'm staring down the barrel-end of fixed income looming and even though I don't want to leave my home town, researching cheaper places to live in the US of A and I'm supposed to feel sorry for a retiree in London or Paris, neither of which I ever have any hope of seeing (except vicariously through your wonderful pictures) and I'm supposed to feel sorry for them? Sorry, don't.
Besides, whatever happened to the anti-Socialism stance that we're supposed to cover our own butts? Frankly, dollar goes up and down. I know shit about economics and even I know that. It isn't going to conveniently stayed fixed at where it was when you emigrated. Plan for that.
Donna at December 17, 2007 10:57 AM
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