How Sick the Dollar?

Monday, November 12, 2007 | 06:07 AM

Be sure to check out the WSJ article (Doctor the Dollar? Depends How Sick) on page C1 this morning:

"The dollar has fallen 9.5% against major currencies since Henry Paulson became Treasury secretary 16 months ago. His response has been to repeat the mantra that a "strong dollar is in our nation's interest."

What would it take to make Mr. Paulson and Federal Reserve Chairman Ben Bernanke, who has seen the dollar fall 11% since he took office in February 2006, respond to the dollar's drop? And what could they do?"

When a currency falls as precipitously as ours has, it is, in no small part, a referendum by foreign governments (and their private investors/traders) on a country and its government. We know that the current administration is not particularly popular overseas. Its no coincidence that since they took office on January 20, 2001, the dollar has fallen ~35%.

The false conceit of the article was summed up in the sub-heading: "Bush Administration Prefers to Let Markets Operate, And Cures Open to Fed and Treasury Are Limited."

This is, of course, sheer nonsense. This government, like the ones that preceded it, only like Free Markets for the upside of the cycle. When the cycle turns down, and things get dicey (as always happens), they become interventionists, interfering with the Free Markets to avoid the real and necessary pain markets regularly mete out. Hence, the ultra-low interest rates and the all so regular Open Market Operations.

Of course, the Free market mantra is "The Big Lie." Repeat something enough, regardless of how obviously false it is, and even otherwise intelligent people (and reporters) begin to believe it.

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10 year Dollar Index
10_year_dollar



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Sources:
Doctor the Dollar? Depends How Sick
DEBORAH SOLOMON
WSJ, November 12, 2007; Page C1
http://online.wsj.com/article/SB119481779722489320.html

Further reading:

The FRB Atlanta trade-weighted dollar index is a summary statistic for tracking and analyzing the foreign exchange movements of the U.S. dollar:  Dollar Index Data
http://www.frbatlanta.org/econ_rd/dol_index/di_index.cfm

Greenback worth nothing in terms of American pride
Tim Harper
Toronto Star, Nov 09, 2007 04:30 AM
http://www.thestar.com/News/article/275023

Monday, November 12, 2007 | 06:07 AM | Permalink | Comments (17) | TrackBack (2)
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» Opening Bell: 11.12.07 from DealBreaker.com
Banks to Share Platform for 144a Trades (WSJ) Turns out, having a dozen different fragmented markets all pursuing the same goal didn't make much sense. So, after a long time of hyping up their own private 144a exchanges, several... [Read More]

Tracked on Nov 12, 2007 7:47:29 AM

» Nitpicking The Big Picture from Fiat Lux
Its a rare day that I get to say something like this, but I think Barry Ritholtz missed the point a little in his smackdown of the WSJ Doctor the Dollar? article today: When a currency falls as precipitously as ours has, it is, in no small part,... [Read More]

Tracked on Nov 13, 2007 12:15:00 AM

Comments

we're all staying up waiting to see what your day brings
gold dans la chute
cu where for art thou
to give you an idea we are listening to merle haggard
good luck
rgds pcm

Posted by: peter from oz | Nov 12, 2007 7:14:15 AM

The comments to this entry are closed.



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