Tuesday, April 26, 2011

Geithner's cognitive dissonance

Treasury Secretary Tim Geithner today said that "a strong dollar is in our interest as a country," even as the dollar plumbed new, all-time, nominal and real lows against a large basket of other currencies.

We can only hope that this week's FOMC meeting will find our Fed governors less clueless about the reality of what is happening to the dollar. The dollar has never, ever, been so weak, and it's no coincidence that U.S. monetary policy has never been so expansive and so fraught with uncertainty.


Benjamin Cole said...

Obviously, most pundits have misunderstoiod Geithner's comments, as they viewed Geithner through their own preconceptions.

I, like Geithner, support a "strong" dollar--one that strengthens trading and exports.

A strong dollar is one that results in more US jobs and GDP growth.

Currently, about 1 percent of our 1.5 percent annual expansion rate in GDP is attributed to a dollar that facilitates exports.

Exports are growing, and I think they will boom in years head, if the dollar stays "strong." It takes time to set up overseas sales--the real boom may be next year and the one after that.
This is good news!

All of this is welcome for American businesses. Moreover, I think we will see foreign interest in US real estate grow sharply, thanks to a dollar that increases their purchasing power.

I never really understood the hoary sentiments formerly attached to a "strong" dollar, unless it was misplaced patriotism, that an overly high exchange rate somehow signalled American strength.

Perhaps we should use expressions like a "trade-enhacing exchange rate" to describe the dollar today.

I look forard to many years of growing exports--what is not to like about that?

Public Library said...


You are a 1 trick pony. Name a country envied around the Globe for having a weak and sinking currency? Ever?

Benjamin Cole said...


Fair enough.

But I can quickly name four nations that exported their way to prosperity--China, Japan, Taiwan and S. Korea--and not one that imported its way to prosperity.

Besides, the dollar has twice been down in this trading range before. Each time, it set in motion an export-surge, and after that, the dollar strengthened. I am not calling for a dollar that sinks continously. I am calling for a dollar at this, or a little lower, trading range.

These are new times. It is important not to misread signals. In the past, gold might have been tied to US monetary policy. Not sure anymore. I think not.

If investors expect inflation, why is real estate soggy and equities so-so? Only gold investors expect inflation?

Corn=ethanol. Take away that rural subsidy, and you have corn sink--monetary policy not in the picture.

Coffee? You mean to tell mean coffee prices are tied to the Fed? The Fed caused the Russian wheat bust? That when Saudi Arabia takes 800kbd daily off the market, it was the Fed's fault?

Crickey, general inflation is at historical lows. Dr. Perry ran a chart showing services running at one percent inflation. We were in deflation in 2009-2010.

Inflation is as serious as Mickey Rooney trying out for the New York Giants.

McKibbinUSA said...

We are experiencing that period of deflation that typically preceeds inflation -- everyone who has already moved aggressively into income producing stocks and real estate will weather the deflation just fine, or better than fine -- those who have top skills (surgeons, physicians, skilled trial lawyers, scientists, professional atheletes, moviestars, and so forth) will also do fine (or again, better than fine) -- those who moved into precious metals I suppose will do well (but, watch out for rising bond rates, which will sink precious metals) -- unfortunately, those without equities and/or skills will not do well -- also, those who receive all of their money from the government (either as income or pensions) will not do well -- those who are still unemployed in the US will probably never work again in America, leaving only charity or emigration as their last option -- those working for the government may soon be facing unemployment -- that's the future for Americans and the world -- the rules have not changed -- yes, the devastation of the dollar and other deflationary pressures will eventually lead to a relentless and sobering inflation -- who will do well in the upcoming inflation (?) -- the same people as above who are already doing well during the current deflation -- my heart reaches out to those who are, or soon will be suffering in America...

Public Library said...


Japan tried the same thing and it did not work.

Gold maintains its value regardless of the ignorance of man.

It will do so in the future too unless we learn to make stars and the materials they create via nuclear fission/fusion or whatever lady nature does.

Benjamin Cole said...

You know who wrote brilliantly on paper currency? Benjamin Franklin.

With clarity he explained how reliance on gold and silver leads to currency scarcity, and then inefficient bartering. He wrote excellently on these topics in 1734, I believe.

Franklin warned against inflation, and against printing too much money.

Ben Bernanke is probably the most astute student of the Great Depression, and the recent financial collapse anywhere.

I can assure you he will not print too much money. If anything, he will be a little too cautious.

As Dr. Perry at Carpe Diem has pointed out, inflation in services is running at 1 percent. Housing is still deflating. Unit labor costs are deflating.

Very difficult to obtain a general inflation when prices in major sectors keep holding steady or retreating.

Let us hope Grannis is right, and real estate booms. But right now, investors are saying there will not be a major inflation. Otherwise, they would be hopping on real estate.

acrossthecurve said...

The only export growth will be buying income producing assets here and then selling them overseas for a tidy profit.

acrossthecurve said...


rents might not be rising but the % of income spent on rent and utilities is definitely rising.


Frozen in the North said...
This comment has been removed by the author.
Frozen in the North said...

Actually, the value of the USD is only slightly lower than it was in 2008, just before a massive rebound. Question is why was it not a problem then, but is a problem now!

Moreover, its not like the US Treasury can go out and say, we want a weaker USD so that we can improve our exports. No one (including the Chinese BTW) would ever say that aloud. Realpolitics seems the be at work here.

Benjamin Cole said...

The cheap dollar and inflation were not problems in 2008 because Bush was president then?

Frozen in the North said...


Ah, now I get it, dollar weakness and deficit don't matter when its the Repubs who are in charge. I knew I was missing something...

acrossthecurve said...

uhhhhh, it was a major problem in 2008, hello 147$ oil.