It might have been more than a little embarrassing for President Obama that the U.S. dollar was making 15-months lows just as he was visiting China in part to reassure the Chinese that their massive investment in U.S. Treasuries were secure. China is concerned that the massive holdings of dollars will continue to lose value. But threats of disinvestment holds a knife to their own neck as much as it does ours so they will likely continue to buy our debt.
The move forced Federal reserve Chairman Ben Bernanke to voice some dollar supportive platitudes at a speech he was giving at the Economic Club of New York. Those platitudes may have helped the dollar rebound the next day but at some point, the dollar will need to be supported by more than empty platitudes.
Economist John Williams recently wrote in an alert, “Beware of Central Bankers Jawboning for a Stronger U.S. dollar. When the Fed Chairman starts talking about watching the U.S. dollar, the greenback is in serious trouble.”
Meanwhile CME Group Chairman Emeritus Leo Melamed was also in China speaking at the International Finance Forum in Beijing. Melamed was making the case for free-market capitalism that has been taking a pounding by some pundits. He noted, “Most authoritative economic experts presently accept the fact that the root cause for the boom and bust we experienced was easy money. And easy money was the creation of government, not lack of regulation, not greed, not financial derivatives. Michael Bordo, professor of economics at Rutgers University stated it precisely: “It was not a failure of capitalism, it was a failure of the central bank.” While (lack of regulatory oversight, greed and derivatives) were factors in the consequential result, they could not have possibly been so without the conditions that only governmental powers can create.”
It is an interesting juxtaposition as many of our political leaders are striking populists themes in regards the recent financial crises but a closer look shows that government action did not just contribute to these problems but in many cases were primary factors.
It is disturbing to hear the new Administration voicing the same folly of a strong dollar policy while maintaining a zero interest rate policy all while claiming the economy is improving. You can’t claim things have improved and continue to improve, hold interest rates at zero and claim you have a strong dollar policy. It doesn’t make sense.
Perhaps more disturbing is that the Administration of change is following the same failed policies on the biggest issues of the day. In the end change will come whether we like it our not.
Tags: Ben Bernanke, Congress, Federal Reserve
