Gm Xanadu. I agree with you about that $1.50 Euro target. From all the research I've done in recent years, I've had Euro $1.50 as my long term goal,(may overshoot to $1.55, but not much higher) but didn't dare think it seriously sustain much higher values for the very reasons you state.
From my observation, tensions have been growing in some quarters of the euro-zone for a while. I have been watching the property bust in Spain, and manufacturing numbers out of Italy. I have also read debates within Italy where some voices are even calling for Italy to withdraw from the european union. They aren't unique, I'm sure, although I doubt they're serious at this point
However it's obviously very difficult to make a 'one size fits all' policy for so many different countries at different stages of development, as you say.
France is also hurting, and I remember some years back (when there were all those riots outside Paris) the French finance minister at the time was almost apoplectic at the thought of Euro advancing to $1.38/$1.40. Sarkozy is also publicly stating that he feels the Euro is too high, so I guess those pressures in France haven't gone away. Few other countries have the sophisticated hedging in places of the German manufacturers.
All this is made worse now by China targeting Europe as the destination of choice for their exports.
However Brussels is trying very hard to keep public disagreement to a minimum, because no one wants to imperil the experiment. Brussels has also made the decision to keep the currency very strong in the belief that it is inspiring confidence. This is true to an extent, but when the impact of a disproportionately high Euro begins to hit growth, manufacturing and jobs, it may have unintended consequences.
Not an easy tightrope to walk.
Will the US remain the reserve currency? Ambrose Evans-Pritchard, one of my favorite analysts out of the UK, seems to think so. China may in time supplant the US in all regards, but it is hardly fully ripe at the moment. Canadian dollars, like Swiss Francs, might remain a safe haven currency, but cannot accomodate the needs of the billions of dollars looking for a home.
However Ambrose Prichard also thinks gold could see $3000 ounce, becoming the defacto default currecy as the US dollar loses value. I happen to agreen with his assessment.
In the short term, we are looking at another 8 months to a year of dollar collapse, and it will pick up speed from here esp as more bad news from the housing front and weak earnings from US corporations hit the markets.
And...as we've all noted before...if the US begins a war with Iran, it will be impossible to predict the full impact on the US currency and US markets.
But barring that possibility, I think in a year to a year anda half, the USD will have hit bottom, and with a new administration being sworn in, we may see new guidance on US monetary policy. That could be a time for a powerful reversal provding that new guidance is accompanied by a package of fiscal reforms and national policy changes. Of course even if the new administration is fiscally intelligent and capable, the USD will never again enjoy the absolute supremacy it once had, imo. The risk has been exposed, the seeds of doubt and concern have been planted, and other countries have proven themselves more fiscally resonsible.
However, if the new administration taking office decides to continue a policy of exporting the US deficit rather than attempting to reign it in and pay it down, then other nations will have no choice but to finally select another currency in which to do business, no matter how disruptive that decision may be. We live in an age of major transitions, when the previously unthinkable becomes reality every day. I believe that victorian age europeans living in 1915 had many of the same sensations we are experiencing now.
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