INTRO: By now, I’m sure you’ve all heard about
the new iPhone 14.
It’s basically identical to the iPhone 13 even including the internal chip.
One thing that Apple should get credit for is keeping the prices the same atleast for
American customers despite the record high inflation.
The same, however, cannot be said about European customers who experienced price hikes across
the board.
Take the iPhone 14 Pro Max for example.
In the US, this phone comes in at $1,100.
In the UK, this phone comes in at £1,199 and in Germany, this phone comes in at €1,449.
This translates to $1,385 in the UK and an eyewatering $1,450 in Germany.
It wasn’t just the pro series that saw these price bumps either.
All the standard iPhone models went up by £70 or €100.
This means that the average European will need to spend 30% more than an American to
get the same product.
Most people have written this off as pure greed from Apple.
If Apple had risen prices in the US, the media would’ve shredded them.
But, by only increasing prices in Europe, they’ve been able to substantially reduce
the backlash.
This argument definitely has a lot of merit to it given that Apple didn’t exactly need
to raise prices given their healthy profit margins.
But, with that being said, there is also a legitimate reason for raising prices only
in Europe.
To put it bluntly, European currencies are currently performing a cliff dive maneuver
in comparison to the US dollar.
The conversion rate from Euros to Dollars is at 20 year lows, and this isn’t some
new phenomenon either.
In fact, the Euro has been consistently losing dominance to the dollar since mid 2008 when
you could get $1.60 using just €1.
Today, however, you can barely get a single dollar with a single Euro.
A similar story can be seen with the pound as well.
The pound is currently at a 37 year low against the dollar and it has been on a consistent
decline since late 2007.
At the peak, you could get over $2 with a single pound, but today, you can only get
$1.15 with a single pound.
When you consider these shifts in currency values, Apple’s price hikes while still
insane, make a little bit more sense.
But, this brings up the question, why in the world are European currencies doing so bad?
DEAD WEIGHT: Taking a look back, this is clearly not a
new trend.
This downtrend has been forming for well over a decade and the recent issues have simply
worsened the situation.
So, what set off this chain of events?
Well, one of the biggest fundamental issues plaguing the Euro since its creation is the
fact that it’s not just representative of one country.
Initially, this was seen as a benefit.
The Euro promised to unify the Eurozone countries economically and make trade between these
neighboring countries easier than ever before.
This unification also promised to make Europe as a whole a stronger economic force against
the US.
But, the problem with a unified currency is that its virtually impossible to set economic
policies that are appropriate for every member.
You see, with America, while the various states have differences culturally and politically,
they’re extremely homogenous economically.
When Californian businesses are suffering from a bear market, so are Texan businesses.
Similarly, when New York businesses are booming, it’s more than likely that Floridian businesses
are also booming.
So, it makes sense for all these states to use the same currency and for the Fed to set
overarching economic policies.
The same, however, cannot be said about the members of the Eurozone, and especially the
poorly performing members.
Over the past 15 years, this has primarily been Spain and Greece.
You see, Greece basically got wiped out by the 2008 financial crisis.
If the EU didn’t bail them out, Greece would’ve defaulted on their debt and spiraled into
a depression.
During the worst of it, Greece’s budget deficit was equivalent to 12.9% of their GDP.
For perspective, that would be equivalent to the US have a budget deficient of $2.7
trillion per year.
At first, Greece tried to play it cool and assured everyone that they would get their
debt in check within 2 years.
But, just 4 months later, Greece would admit that could default at any moment.
Around the same time, Spain was going through their own economic crisis.
Like Greece, Spain’s economy was devastated by the 2008 financial crisis and they were
spiraling into a depression.
As an outside observer, Americans could feel bad these countries and their people, but
economically speaking they weren’t all that affected.
The same, however, could not be said about Eurozone countries who had skin in the game.
Greece and Spain were already massive deadweights bringing down the Euro, but if these countries
collapsed, oh boy, it would be bad.
So, the prosperous Eurozone countries had no choice but to bail out these failing economies.
The EU and the IMF would provide 240 billion euros worth of emergency funds to greece and
a 100 billion euro rescue package to Spain.
And where do you think all this money came from?
It of course came from quantitative easing also known as money printing.
Since 2008, the Euro money supply has literally doubled.
To make things worse, the bailouts weren’t all that impactful either.
Sure, they helped these countries stay afloat and not default, but fundamentally, they didn’t
change anything, and the underlying economies would just continue to get worse.
A BREAKING POINT: While Spain and Greece were undergoing economic
hell, many EU countries like the UK and Germany were actually recovering extraordinarily well.
They’re unemployment graphs were plummeting and their need for money printing was dwindling.
However, they couldn’t stop the money printing because certain Eurozone countries like Spain
and Greece were still very much feeling the pain.
In both Spain and Greece, unemployment woud rocket to 25 to 30%.
For perspective, unemployment didn’t cross 25% even during the worst of the great depression.
So, these countries were no longer just experiencing a financial crisis.
They were in a full fledged economic depression and this was painfully evident in their GDP
numbers.
Spain’s GDP would fall from a peak of $1.6 trillion to just under $1.2 trillion.
Similarly, Greece’s GDP would fall from a peak of $354 billion to $192 billion.
Even today, neither of these countries have been able to return to their peak GDPs.
And this becomes even worse when you consider that Europe has been experiencing record inflation
meaning that their inflation adjusted GDPs are even worse.
Also, while I’ve mainly been picking on Greece and Spain throughout this video, these
guys were by no means the only perpetrators, though they were the worst.
Some of the other countries dragging down the Euro included Cyprus, Portugal, Italy,
Slovakia, and even France.
And this left the ECB in an extremely difficult situation.
What were they supposed to do?
On one side, they have countries like the UK, Germany, and Denmark were unemployment
was reaching historically low levels.
These countries indicated that it was time to chill out on the money printing and potentially
even start quantitative tightening.
However, on the other end of the spectrum, you had the perpetrators who were in a more
dire state than ever.
These countries indicated that it might even be time to pump up the money printing.
The ECB would end up siding with the countries that needed help and they would keep economic
policies loose.
While this was probably a godsend for the struggling countries, the prosperous countries
weren’t exactly happy and rightfully so.
The prosperous countries didn’t really benefit all that much from the loose economic policies,
but they were very much harmed by its accompanying side effects.
They were starting to feel that they brought significantly more to the table than they
were receiving, and this feeling is what would eventually evolve into Brexit.
In June of 2016, Britain would vote on leaving the EU, and after years of negotiations and
discussions, Brexit would finally take place on January 31, 2020.
Much of England felt like they had finally gotten a fresh start and that they were no
longer weighed down by the EU.
But, little did they know, the pandemic was just around the corner.
FUEL TO THE FIRE: Starting off with the most obvious economic
side effect of the pandemic, we have the money printing.
People often like to criticize the US for their excessive money printing as they should,
but what people often forget is that the whole world has been printing just as much money
if not even more.
Take the UK for example who has printed £895 billion.
At the average conversion rate over the past 2 years, this is equivalent to $1.14 trillion.
Now, the US has grown its money supply by a far larger amount coming it at roughly $6.2
trillion, but you have to look at it in relative terms.
Compared to the American GDP of $21 trillion, American printing works out to roughly 30%
of their GDP.
Compared to the English GDP of $2.7 trillion, however, English printing works out to 42%
of their GDP.
The ECB hasn’t been nearly as aggressive with their money printing, but they’ve been
much more lenient when it comes to interest rates.
The ECB literally maintained negative interest rates into 2022, and they’re just now starting
to aggressively hike rates.
All of that extra relative printing from the UK and loose economic policies from the ECB
have to be reflected somewhere, and that somewhere seems to be the conversion rates.
Economic policies aren’t the only battle that Europe has been fighting though.
They’ve also been hit hard by Russian sanctions.
You see, Europe has historically been extremely dependent on Russia for oil and natural gas.
Now that the west has decided to sanction off Russia, Europe has been forced to find
new energy partners which has been anything but easy.
The problem is that the entire world knows that Europe is desperate for energy which
means that sellers can charge a premium and that’s exactly what they’ve been doing.
Gas prices across the notable European countries are well above $5 per gallon if not over $6
per gallon.
A similar story can be seen with electricity prices as well.
Meanwhile, Russia is simply adding fuel to the fire by essentially retaliating against
the sanctions.
You see, Europe has yet to fully cut off Russia.
They still receive a significant amount of crude oil through pipelines like the Nord
Stream 1.
This specific pipeline was closed in July for 10 days for regular maintenance.
But, when the pipeline was reopened, it was only operating at 20% capacity.
Russia would close down the pipeline again at the end of August citing an apparent leak,
and it has yet to be reopened as of September 8.
In reality, it seems like Russia is simply halting oil flow on purpose to spike energy
prices in Europe.
As Europeans are forced to spend more on energy, they’re naturally gonna pull back on discretionary
spending.
And given that the central banks are also starting to pull back, this sets up the perfect
storm for an economic disaster.
THE STATE OF EUROPE: At the end of the day, the Euro was created
with good intentions.
It aimed to unify Europe economically and create a global powerhouse.
However, a major shortfall of the system is the vast inequality between the member countries.
This has forced the prosperous countries to constantly prop up the failing countries which
hasn’t been particularly helpful for either of them.
The UK has decided to take this issue into their own hands and become the first country
to leave the EU, but this hasn’t worked out all that well either.
The pandemic along with the russian sanctions have taken a massive toll on all European
countries, and most of them are simply fighting to put off a nasty recession bring down inflation.
Compared to this, the US is actually doing really well.
We’ve been ahead of the curve when it comes to economic tightening and the recession isn’t
that bad, atleast not yet.
So, naturally, the US dollar has been destroying European currencies, and by the looks of it,
that’s not gonna to be stopping anytime soon.
So, Europe better get used to those iPhone price hikes because they’re likely permanent,
but that’s just what I think.
What do you think about European iPhone prices?
Comment that down below.
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