U.S. Dollar: Time for Deeds, Not Words 23 comments
-
Font Size:
-
Print
- TweetThis
From Bloomberg, I quote our Treasury Secretary:
“I believe deeply that it’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar,” Geithner told reporters in Tokyo today.
Before I write, I can hear my friend Caroline Baum of Bloomberg gearing up her mental energies to say something like: “Again? How many times can they say that with a straight face?”
If I wanted to create a strong dollar, what would I do?
- I would have the Fed raise short-term rates.
- I would reduce the creation of dollar claims by bringing the Federal budget into balance.
Neither of these are realities. Thus, the weak dollar.
But perhaps there is another way, and if you are reading me at the Treasury, please listen. The idea is to make the countries that have acquired a lot of dollar obligations realize that they are likely better off acquiring goods and services from the US now, rather than at a lower exchange rate later.
There is brinksmanship here, but when I was a bond trader I could make it happen. In the present context, there is no value to piling up more dollar obligations in exchange for goods today, unless one has a domestic political agenda to fulfill.
Now, Japan and China (and OPEC), should be encouraged in this way: 'Buy today; your dollars will likely buy less tomorrow.' That one action would restore balance to the global economy, as less business would be done on a credit basis across nations.
After that, the harder problem of dealing with structural US budget deficits becomes paramount. What do you do with a government that has promised more than it can deliver? The French Revolution comes to mind, but maybe we can do something more gentle. The President addresses the nation and tells the Baby Boomers that benefits from Medicare will be reduced. It becomes a small medical needs and hospice program. The nation can’t afford anything more, and if you were paying attention, you knew that. Oh, and the foolish Part D, created by Bush, gets eliminated with no replacement.
As for Social Security, it becomes means-tested and becomes an old age welfare program, complete with stigma. “If you are receiving Social Security, you couldn’t have done that well.”
If we take actions like that, the US can survive. Short of that, we face significant inflation and a greater diminution of our living standards.
Until then, whoever is our Treasury Secretary will go around the world and say, “The US is committed to a strong dollar.” And this is a valuable service. We all need fairy tales to help us fall asleep easily at night, both here and abroad.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 23 comments:
A strong dollar is not nearly as important as a stable dollar. How would you like to sell goods or services on a future contract with the bounce in the dollar? The unstable dollar kills business because someone seller or buyer has to eat the risk. They can pay someone else to take, but the cost of the hedge gets embedded into every transaction.
I just heard from a guy who was bitching because his supplier wouldn't take US dollars. The supplier wanted to be paid in his currency, Canadian dollars in this case. The buyer ate the risk for 60 days, which must have been a painful deal given what the dollar did for those 60 days.
Increasingly the pressure on the Fed to cease QE is growing even though the pressure for the Fed to keep low rates is also growing. A clearing up of QE will put a damper on inflation and tighten money supply considerably. Enough to keep any further dollar related rallies and stymie the domestic economy.
My general bet is that the Fed can't allow the dollar to slide into double digits in 2010 like it has this year. If it does, interest rates will have to rise further to sell government debt overseas leading to higher interest rates anyways. This is a lose lose situation for them. I wonder how long it will take for the rest of the market to figure that out. I'm getting out now because the market has a way of realizing the facts sooner and more abruptly than expected.
seekingalpha.com/insta...
Dollar is read for another attempt to rally; stocks topping. See report with charts above.
On Nov 12 01:55 PM tunaman4u2 wrote:
> He also said this in March... it's amazing he even wastes his breath
> with no intentions of supporting the dollar & no realistic expectation
> that anyone even believes him anyway.
In fact, I see little constructive analysis other than piecemeal criticism of the isolated parts of the current FED pattern as if in isolation, each reaction to our monetary instability is a future predictor of doom. Even political pundits comment if current FED policy violates their preconceived ideas.
My point is, can anyone put together a comprehesive economic policy that not only overcomes the financial crises, but manages to preserve our capitalistic system and take into account all the problems superior to current FED policy? GI
Treasury Secretaries for decades now. And take a look at a chart of
the dollar ... from 1950 .. or pick your own date. This is not just
Geithner ... he is just a parrot for the administration ... like all the
other treasury secretaries before him.
On Nov 12 04:00 PM robert.b.ferguson wrote:
> David: Greetings. Diminution of our standard of living is the goal
> of this administration supported by the majority party in Congress.
> They have often stated this. Remember when candidate Obama was lecturing
> us about not driving our SUVs and keeping our homes comfortable in
> any environment because other nations don't like it? President Obama
> wants to go to Copenhagen and sign a treaty which will effectively
> tax us to redistribute our wealth to third world countries because
> we have been ruining the planet while they have remained backward
> nonindustrialized nations. That too is our fault since we plundered
> their resources for our benefit leaving nothing for them. Such an
> evil nation must be severely punished to achieve social, economic
> and poetic justice.
You are right but which country or countries would volunteer to have the strong currencies. Only countries with no indutrial base and high natrural resources do benefit with such formulas but then they have to trade in the own currency and that curreny and there has be a reliable currency and massive amount it available for trade.
The producers like China seek to excape currency superiority top improve their sales while expecting to invest their profits in a currency that is superior to their own for additional gains. To do this, currency manipulation is the name of the game but there is no fundamental way of solving such a problem.
The only worldwide solution for currency manipulation is a reference commodity index where currencies can be traded against but it wont solve the fundamental demands of some producers like China to have a inflation protection and secondary profit in currency trading. They are going to import inflation one way or another or we will see a collapse every 5 years and the cost of collapse is paid by different players.
On Nov 13 02:35 PM Thomas J. Gordon wrote:
> Dudley... has it ever occurred to you that so many people aren't
> prepared for retirement because they think that social security and
> medicare will bail them out? To me it's simple mathematics. There
> is some percentage breaking point where the people who can't take
> care of themselves overwhelm those who can pay for themselves and
> pay taxes to support everyone else. When that point is reached, society
> collapes. No system, capitalism, communiism, socialism, democracy
> can deal with a society where 1/2 the people can't take care of themselves
> and need the other half of society to take care of them. There are
> no economic needs.
David is arguing that universal welfare programs like Medicare and Social Security are simply not affordable. He is not arguing that they are immoral. Before the 1970s there was a stigma attached to receiving welfare, and that stigma goaded people to manage their affairs more prudently and to take any work they could get. But that was thought to be too "harsh".
Just as the Fed will not tell us which banks need bailouts so the welfare banks won't suffer the stigma of being failures, the 'authorities' decided that individuals should not suffer the stigma of being economic failures. Banksters paid themselves bonuses and lived beyond their means, and when they failed it was working taxpayers who had to bail them out. Now retiring baby boomers who spent their life living well expect to be bailed out because they spent too much and didn't save enough.
Chinese peasants earn a fraction of what Americans earn, yet they are able to save enough for their declining years when they can no longer work. They do this by living frugally and not wasting their money on bigger houses, newer cars and other consumption that over the full course of their life they cannot actually afford.
Americans felt "entitled" to live a middle class lifestyle that by global standards is lavish. But many Americans couldn't really afford that lifestyle. When these people are no longer able to work they will wish they had saved more and hadn't spent so much keeping up their lifestyle.
Compare the simple 800 square foot bungalow that your 1950s parents raised you in, with today's 2400 square foot McMiddle Class monument to excess consumption. Your parents could afford that 800 sq ft house. Maybe they even built a single car garage after a decade or so of paying down their mortgage. Most people never could afford the 2400 sq ft house with attached 3 car garage, but they 'borrowed' it anyway for their personal enjoyment.
It's a simple matter of economic arithmetic: if over the course of your 40 years of working life you earn total take home pay of $2 million (in today's wages and dollars), and if you expect to live 20 years after you stop working, then you should have saved 1/3 of your total income all your working life it you want to maintain the same lifestyle. If you spent the entire $2 million buying a bigger newer house and having vacations and spoiling your children, why should your frugal neighbor have to bail you out with a retirement welfare program like universal SS?
On Nov 12 04:00 PM robert.b.ferguson wrote:
> David: Greetings. Diminution of our standard of living is the goal
> of this administration supported by the majority party in Congress.
> They have often stated this. Remember when candidate Obama was lecturing
> us about not driving our SUVs and keeping our homes comfortable in
> any environment because other nations don't like it? President Obama
> wants to go to Copenhagen and sign a treaty which will effectively
> tax us to redistribute our wealth to third world countries because
> we have been ruining the planet while they have remained backward
> nonindustrialized nations. That too is our fault since we plundered
> their resources for our benefit leaving nothing for them. Such an
> evil nation must be severely punished to achieve social, economic
> and poetic justice.
You state .... "My point is, can anyone put together a comprehesive economic policy that not only overcomes the financial crises, but manages to preserve our capitalistic system and take into account all the problems superior to current FED policy? GI"
======================...
Sure and it would not be all that hard to do, but the problem is we are not in charge and able to make the decisons and enforce them, and those that are have no intention of making changes that will harm themselves and their vested interest buddies, even if they would help the average American and American society in general.
How about the following:
1) Politicans - reduced all politicans pay to the average American's pay, reduce their benefits and pensions to what the average American gets, reduce their medical coverage to exactly what medicare provides for average Americans.
2) Drastically reform lobbying laws - require all lobbyist's presentations to any government official to be taped and aired publically upon penalty of 10 years in jail for violation. Require all lobbyists (except private individuals) to pay a $100,000/day fee directly to the Treasury and be reported.
3) Reduce the US military budget by 50% starting with the next fiscal year. Set up the US military as financially accountable to the US taxpayer not directly to politicans. Remove that portion of general taxation that funds the military. Set up fund accounting, and a separate tax, such as a sales tax, that goes directly to the Pentagon to fund the military. Make them accountable. The US military spends more than all the other countries in world put together on their military operations. Force the US military to become accountable, efficient, and what the country can afford. One report showed the military was paying $400/gallon for gasoline in Afganistan (even Warren Buffett can't afford that). Other media reports show it costs as much as $1 million/year/soldier in Afganistan (that's the entire gross income of 20 average Americans for one year).
4) Politicans and wars - make it a condition of elected federal politicans that they personally be accountable for any votes that put the US into a war. Namely, it is a condition of election, that if a politican votes to put the US into a war, that said politican or someone in his immediate family unconditionally agrees to join the military and accept combat roles in such a war. If the monarchy in the UK can have their sons and daughters serve in the military (and they don't even vote for it), then why cannot the gutless self-serving US politicans put themselves and their families at risk for something they personally voted for.
5) Healthcare - almost anything would be a massive improvement over what exists now. We prefer the Dutch model, which is 100% run by private insurance companies, covers 100% of citizens, provides basic healthcare for everyone at about $160/month, and provides everyone the option of purchasing extra coverage if they are willing to pay extra premiums, and costs less than 1/2 of what total healthcare in US is. All healthcare should be removed totally from employer costs or responsibilites and be at the individual level.
6) Regulation - most regulatory bodies should be removed from funding via general taxation and become self-funding organizations funded by the users who use and benefit from the regulation. Examples would include:
- Securities and financial markets- only 1 regulator, the SEC. Others such as CFTC, Office of Thrift, FDIC, etc would become divisions within SEC. State security regulators should be rolled into these bodies with reps from each state and standardized rules, with minor execeptions permitted by state for need only. All costs of regulation to be paid by user fees such as 2 cents per share traded, $2 per bond traded, or whatever it takes to fund the regulator. Major outside players that affect the integrity of financial markets should report and be hired by the SEC. Examples might include: ratings agencies, auditors, etc. Funding for these services to be paid directly by the user but paid to SEC and SEC is the client and hires the independent expert, not the security issuer.
- Agriculture, FDA, FHA, Geological Services, and most government agencies. Should be removed from general taxation and funded by user fees and assessements on the parties that are regulated. Yes, the users will pass on the costs, but better to pay via part of product/service cost that as a income tax.
7) National Fraud Enforcement Agency - massive fraud in multiple areas from medicare fraud, to securites frauds, to government contractor frauds, to scams galore targeting seniors and the public likely cost taxpayers and Americans many hundreds of billions if not more annually. This can be stopped. For example:
- set up a National Fraud Enforcement Agency, totally self-funded (zero taxpayer dollars), and based on the Rico laws. Rico laws provide for asset consfiscaton and severe jail terms. Model the Agency on the contingency fee plan used by private law firms. Staff the agency with thousands of lawyers, investigators, and FBI agents. They get compensated, maybe 40-50% of assets recovered, based on pay-for-performance and their success. Remainder of asset recovery goes directly to retire national debt. The agency staff ought to be able to become millionaires just in prosecuting medicare and securities fraud alone.
8) Employment - use income taxation and incentives to heavily reward business that build America, ie. jobs and US content. For example, create a new US business taxation class with ultra low tax rates, maybe 5%, providing the business is predominately American. Maybe 95% US employees and 95% US content (services, materials, assembly, etc.). Let business decide if the savings via offshoring, plant closures, import of foreign parts, etc, is worth the tradeoff of higher vs. lower taxes. For example, IBM may well be able to save payroll costs by offshoring thousands of jobs as they have several times, but they will pay it back by being ineligble for ultra low tax rates.
9) Transportation and oil - clearly the use of oil/gasoline for American transportation is a major issue. Just the cost of imported oil alone is in the tens of billions of dollars per month and is the major reason for ongoing trade deficits. No reason why the government cannot, within a few years, force a change to almost eliminate the imported oil used for transportation (which is about 60% of all oil consumed in the US). Probably would be cheaper for the US government to outright pay for conversion of all commercial vehicles to NG (natural gas), and provide heavy incentives for electric or natural gas powered automobiles. Naturally the infrastructure to support this would also have to built out. But millions could be employed in the transformation. Big costs, but also big savings over time.
10) investment banking - reinstate the Glass-Steagall provisions. Require the separation of investment banking from commercial banking.
In short, yes there are probably thousands of changes that could be made to what the politicans are doing now, that would result in much better results for average Americans and American society. That's not the problem. The problem is that the stranglehold that the vested interests have in continuing a system that overwhelmingly benefits themselves. The vested interests being politicans, lobbyists, wall street, public companies, regulators, and a tiny minority of the wealthiest elites. They are certainly not going to enact major structural reforms that take away their own goodies and privileges and it matters not if the remaining 90% of the country goes to down the tubes, so long as the vested interests protect themselves.
On Nov 13 10:39 AM Mr. G wrote:
-
> As a bond trader,I would assume the author tends to understand how
> markets move and for what reasons better than the average trader.
> The commentary on market fundamentals appears to be grounded in experience,
> but I see little commentary on the current FED action whether it
> is properly structured to bail us out of the current fiscal crises.
>
>
> In fact, I see little constructive analysis other than piecemeal
> criticism of the isolated parts of the current FED pattern as if
> in isolation, each reaction to our monetary instability is a future
> predictor of doom. Even political pundits comment if current FED
> policy violates their preconceived ideas.
>
> My point is, can anyone put together a comprehesive economic policy
> that not only overcomes the financial crises, but manages to preserve
> our capitalistic system and take into account all the problems superior
> to current FED policy? GI
Your instructions to me to be more frugal so my neighbor doesn't have to pay for me is how many taxpayers feel. I hope I will not "need" social security. However, I would like to know why I pay payroll taxes (that are non-deductible) with the understanding that I will get social security payments in the future. If I am going to be means tested, who determines the means. Rich for democrats is anyone with an income stream that can be taxed.
The government has an obligation it should keep - especially for older Americans who have less time to adapt to severe changes in programs. Look at the TRILLIONS of dollars spent in the last 2 years to "save" the economy. What has it gotten us? So much debt that now social programs for the elderly are no longer affordable. Give me a break. We can save Wall Street regardless of the cost, but we can't meet our moral obligations on social programs for the elderly? Great! And what exactly is wrong with France?
On Nov 13 08:01 PM derryl wrote:
> Dudley,
> David is arguing that universal welfare programs like Medicare and
> Social Security are simply not affordable. He is not arguing that
> they are immoral. Before the 1970s there was a stigma attached to
> receiving welfare, and that stigma goaded people to manage their
> affairs more prudently and to take any work they could get. But that
> was thought to be too "harsh".
>
> Just as the Fed will not tell us which banks need bailouts so the
> welfare banks won't suffer the stigma of being failures, the 'authorities'
> decided that individuals should not suffer the stigma of being economic
> failures. Banksters paid themselves bonuses and lived beyond their
> means, and when they failed it was working taxpayers who had to bail
> them out. Now retiring baby boomers who spent their life living well
> expect to be bailed out because they spent too much and didn't save
> enough.
>
> Chinese peasants earn a fraction of what Americans earn, yet they
> are able to save enough for their declining years when they can no
> longer work. They do this by living frugally and not wasting their
> money on bigger houses, newer cars and other consumption that over
> the full course of their life they cannot actually afford.
>
> Americans felt "entitled" to live a middle class lifestyle that by
> global standards is lavish. But many Americans couldn't really afford
> that lifestyle. When these people are no longer able to work they
> will wish they had saved more and hadn't spent so much keeping up
> their lifestyle.
>
> Compare the simple 800 square foot bungalow that your 1950s parents
> raised you in, with today's 2400 square foot McMiddle Class monument
> to excess consumption. Your parents could afford that 800 sq ft house.
> Maybe they even built a single car garage after a decade or so of
> paying down their mortgage. Most people never could afford the 2400
> sq ft house with attached 3 car garage, but they 'borrowed' it anyway
> for their personal enjoyment.
>
> It's a simple matter of economic arithmetic: if over the course of
> your 40 years of working life you earn total take home pay of $2
> million (in today's wages and dollars), and if you expect to live
> 20 years after you stop working, then you should have saved 1/3 of
> your total income all your working life it you want to maintain the
> same lifestyle. If you spent the entire $2 million buying a bigger
> newer house and having vacations and spoiling your children, why
> should your frugal neighbor have to bail you out with a retirement
> welfare program like universal SS?