Tuesday, June 10, 2008

Strong Dollar Jawbone

For as long as I've been watching the dollar slouch, I've never heard the Bush administration say peep. That is...until now. Today Mish wrote a great post "Paulson will not rule out stupidity" covering the AP article "Administration does not rule out currency intervention."
"As he left for Europe, the president said the U.S. is committed to keeping its currency strong, a point he clearly felt needed to be made after the dollar's long slide against the euro and other international currencies.

"A strong dollar is in our nation's interests. It is in the interests of the global economy," Bush said outside the White House."
Golly, that's not what Benny said under oath a while back (but has seen the light). Mish was quick to point out, and I agree, that goal would easily be met by balancing the budgets and bringing the military back to the U.S. Instead it has seemed the administration would rather Paulson and Bernanke try to fix our overspending problem with fancy math...until now.
"For seven years, the administration has refused to intervene in currency markets, even though the dollar has been sliding in value for most of the time Bush has been in office. The administration has insisted that currency levels should be set by free-market forces."
Why now though? Why after years of a falling dollar would Bush finally say something? Is this critical mass? Perhaps. Like I have said before Its about Solvency, not liquidity. So despite firing up the printing press, lowering to 0% and letting anyone pawn junk at the fed window...We're running out of options, Benny now knows and apparently so does Yahoo News.
"The government has limited options for propping up the greenback, especially in an election year with rising unemployment, slumping consumer confidence and the worst housing market in decades."
Paulson however has not caught George and Benny's reality bug yet because he's still acting like he has moves rather than just overtly jawboning.
"Paulson declined to rule out direct intervention — the buying by the government of dollars in currency markets — as a way to influence the currency's value."
HA HA HA HA HA HA BUY WITH WHAT YOU MORON! Borrowed Money? Gold? Petro reserves? Trade them for Goldman and Merrill? Sell out our children? Oooops. Check. The point is; Benny the academic now gets it. He was convinced he could turn on the monetary spigot and make magic...and it worked! What he didn't consider in his academia was an exit plan. So now here he is stuck still doling out cash - caught in Wall St's revolving door - because they refuse to acknowledge and write down their toxic pools. If you cut off their methadone, some will die and chaos may ensue. Think of the lengths we went to prevent that - (BSC). If we force their hand, some will die and chaos may ensue. However, you must consider that regulation forcing transparency is perhaps Benny's only move. Otherwise he'll be swatting flies from the window forever.

So let's review.

To raise the value of the dollar.

1. Flat Economy
2. High Inflation
3. Falling Dollar
4. Raising unemployment
5. Low interest rates
6. Low consumer confidence
7. Low exports
8. High energy imports

1. Raise Rates
2. Borrow it from China
2. Print it

Here's to your "second half recovery" boys!

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