Tag Archives: The Dollar

Continuing Dollar Dilemma

Zachary Karabell does a nice job explaining the “superfusion” cooperative arrangement between the U.S. and China, showing why China doesn’t want and won’t trigger a crashed dollar. They want a strong and stable dollar, which, as we have been writing for a long time, is also in our best interest. We are of course constrained by global investors, who rationally want solid real returns. But the competitive and currency positions of the U.S. are a function of our own monetary, fiscal, and regulatory policy actions, not some malign intent on the part of weaker foreign economies who in fact depend on a healthy, thriving America.

David Malpass, as usual, explains it best in this video:

Fisher on the Fed and the Fisc

Richard Fisher was the first Federal Reserve official, back in November 2006, to publicly pinpoint the easy-money mistakes that would lead to the crash.

Now, in the aftermath, as the Fed confronts a whole new set of challenges, here’s a good, long interview of Fisher by Mary Anastasia O’Grady of The Wall Street Journal.

Mr. Fisher defends the Fed’s actions that were designed to “stabilize the financial system as it literally fell apart and prevent the economy from imploding.” Yet he admits that there is unfinished work. Policy makers have to be “always mindful that whatever you put in, you are going to have to take out at some point. And also be mindful that there are these perceptions [about the possibility of monetizing the debt], which is why I have been sensitive about the issue of purchasing Treasurys.”

He returns to events on his recent trip to Asia, which besides China included stops in Japan, Hong Kong, Singapore and Korea. “I wasn’t asked once about mortgage-backed securities. But I was asked at every single meeting about our purchase of Treasurys. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States. That seems to be the issue people are most worried about.”

As I listen I am reminded that it’s not just the Asians who have expressed concern. In his Kennedy School speech, Mr. Fisher himself fretted about the U.S. fiscal picture. He acknowledges that he has raised the issue “ad nauseam” and doesn’t apologize. “Throughout history,” he says, “what the political class has done is they have turned to the central bank to print their way out of an unfunded liability. We can’t let that happen. That’s when you open the floodgates. So I hope and I pray that our political leaders will just have to take this bull by the horns at some point. You can’t run away from it.”

Extraordinary admission

Last night on Charlie Rose, Treasury Secretary Tim Geithner made an extraordinary admission. Here’s the exchange:

Rose: “Looking back, what are the mistakes, and what should you have done more of? Where were your instincts right but you didn’t go far enough?”

Geithner: “There were three broad types of errors in policy. One was that monetary policy here and around the world was too loose for too long.  And, that created just this huge boom in asset prices; money chasing risk; people trying to get a higher return; that was just overwhelmingly powerful.” 

Rose: “Money was too easy.”

Geithner: “Money was too easy, yeah . . . . Real interest rates were very low for a long period of time . . . .”

There you have it. Pretty simple. And yet it is the first time I can recall that any U.S. executive branch official, spanning the Bush and Obama Administrations, has admitted monetary policy was even one factor, let alone the central factor, leading to the crash. This is very big stuff. (more…)