Buh-bye, Strong Dollar

Timothy Geithner, the current Treasury secretary, has tolerated the greenback’s 12 percent slide from its peak this year in March as measured by the Federal Reserve’s trade- weighted Real Major Currencies Dollar Index. While he said as recently as Oct. 3 that “it is very important to the United States that we continue to have a strong dollar,” the last time the U.S. intervened in markets to support its currency was 1995.

 The weaker dollar may boost America’s exports as the economy recovers from the deepest recession since the 1930s. The risk is that it may also drive away America’s largest creditors just as the Treasury relies more than ever on foreign investors to buy the bonds financing Barack Obama’s stimulus spending. The dollar’s share of global currency reserves fell in the second quarter to 62.8 percent, the lowest level in at least a decade, the International Monetary Fund in Washington said on Sept. 30.

 “Since the dollar has been weak and weakening for years, Geithner was using a code phrase, a carry-over from the Bush administration,” said David Malpass, president of research firm Encima Global in New York. “It means that the U.S. approves of a constantly weakening dollar but doesn’t want a disruptive collapse,” said Malpass, the former chief economist at Bear Stearns Cos. and deputy assistant Treasury secretary from 1986 to 1989.

Go read the whole thing by clicking here.

XX Sean’s note — I’m glad to see the mainstream media waking up and smelling the coffee. And to be sure, you can argue that it’s part of Obama’s plan to restart the manufacturing sector and win the midterm elections.

The problem is, they’re playing with dynamite. The currency markets are the biggest markets in the world. It’s very hard to manage these things successfully. And there is more and more evidence that the rest of the world is fed up and ready to move away from the dollar as a reserve currency.

Not helping matters, the U.S. Government’s 2009 Deficit Totaled $1.4 Trillion. The U.S. government ended its 2009 fiscal year with a deficit of $1.4 trillion, the biggest since 1945, the Congressional Budget Office reported.

And that brings up another problem. Have you seen the argument in Washington about whether we should expand our presence in Afghanistan? Someone needs to tell those dudes that A) Osama bin Laden is not in Afghanistan, and hasn’t been there since President Bush let him escape to Pakistan. And B) we’re broke — flat broke! We can’t afford to stay in Afghanistan, even if we wanted to.

They better not wait too long to sort it out. The Dollar fell to a 2-week low versus the euro today, and the US dollar index is under pressure, though admittedly off its lows of the day.

How low will it go? You know (from previous posts) that my target on the US dollar index is 69. And that’s IF we avoid a currency crash. If our currency crashes, well … that would be bad.

Related Posts

• Dollar Doom — Monthly Chart (09/16/09)
• ‘The US dollar has failed. We need to delink’ (12/16/09)
• Dupes of the Dollar (10/14/09)
• Bullish Dollar has Stocks and Commodities on the Run (06/15/09)
• Could King Dollar Be Toppled? (10/16/08)