In other words: A discussion of The Bush Administration
The Coming Storm
Falling Dollar
NEW YORK (Reuters) - The dollar retested record lows against the euro on Monday after trimming gains made on the initial excitement over the capture of former Iraqi President Saddam Hussein at the weekend.
"The euro picked back up. The Saddam news affected overnight trade but the U.S. trading session has been underweight," said Tim Mazanec, senior foreign exchange strategist at Investors Bank and Trust Company.
"The trend of dollar weakness/euro strength is once again picking up and the geopolitical news is having limited effect in U.S. trade," Mazanec said.
The euro was slightly softer near $1.2287 against the dollar, off its record high above $1.23 reached on Friday.
So the "we got Saddam" rally didn't even last a day. Another prediction of Fox News analysts (i.e. RNC spokespersons) has been proven wrong (they talked about a 1,000 up tick on Dow Jones from the capture of Saddam).
Let's look back a moment, shall we? Back to the heady days of Clinton:
Euro takes new beating
The euro remains near its lows after a Bundesbank council member warned that European Central Bank intervention to support the ailing currency was likely to fail.
Remarks by Klaus-Dieter Kuehbacher dampened expectations that the ECB might intervene in the market, which had provided some support to the beleaguered currency.
Mr Kuehbacher said intervention would only work if the US and Japan took part as well, but he said he saw no willingness from the US to get involved.
"Any intervention by the ECB against these big partners would have no effect," Mr Kuehbacher said.
"There is nothing left for Europe than to push ahead with structural reforms," he said.
Following Mr Kuehbacher's comments, the euro fell by almost half a cent to below the mid-$0.89, down from its morning highs of about $0.90.
Eurpore was in a panic. But then came many things: the dot com crash, George Bush, the return of large US deficits for at least the next decade, and suddenly we get:
A Falling Dollar
Are people not buying into the dollar anymore? Worse... it seems they're not buying into America as much any more:
Where have all the European investors gone?
Since the beginning of 2002, the dollar has fallen by about 25 percent compared with the euro. That means an espresso at that café just off the Ponte Vecchio in Florence now costs an American tourist $2.50 instead of $2. On the flip side, European purchasing power is higher in U.S. markets than it has ever been. As a result, one might expect European purchases of dollar-denominated goods, whether they're Disneyland tickets or Disney's stocks and bonds, to be growing.
But in September, as chart CM-V-1 shows, net foreign purchases of U.S. assets were less than $16 billion, down dramatically from $62.4 billion in August and $75 billion in July. In September, Europeans collectively sold about $400 million in U.S.-denominated assets.
Are Europeans going on a buyer's strike in a fit of pique over Iraq? Not necessarily. For the first nine months, inflows from Europe were $224 billion. And one month's data does not a trend make. But more recent data isn't exactly encouraging. Last week the Wall Street Journal reported that "at November's auction of two-year U.S. Treasury notes held last week foreign investors bought just 32% of the $26 billion issue. That compares with the 42% foreigners snapped up at October's auction of the same size."
Low interest rates, which tend to dampen demand for the dollar, are partially to blame. And the actions of the administration's economic team aren't helping. Treasury Secretary John Snow has ineptly tried to talk down the dollar, knowing that the weak dollar would be good for domestic manufacturers and help counteract the trade deficit, all the while, of course, insisting that the United States remains committed to a strong dollar. For his part, President Bush has tried to discourage Japan and China from weakening their own currencies, which they do by buying U.S. government securities and dollars, even as he's racked up huge deficits, a policy that in turn requires ever greater sales of government bonds. (Even after virtually every original member has been replaced, this economic team still hasn't demonstrated it knows how to play the game.)
The larger the deficit the more we'll need Europe's investment in our bonds... but they don't seem to be buying. This inevitably will lead tointerest iterestdramaticallyamaticly higher, if we're going to get the Eurporeans interested. This could kill the "recovery" we've supposedly been in for the past two years. But will Greenspan start the hikes now or wait until after the election. If he raises the rates dramatically in the next few months, he'll slow the "recovery," which may hinder Bush's reelection. If he waits until after the re-election he'll have to make a more dramatic adjustment... perhaps pushing us back towards a recession. Either way not a good thing. Though politics aside, Greenspan should do it sooner than later, and including politics he should definitely do it sooner than later (Bush the elder always blamed his re-election loss on Greenspan, why not the same for the lesser Bush?).
Other things that would help the American dollar? Well, quite frankly getting rid of Bush would help. A strong signal that we are interested in a strong dollar, that we are interested in rejoining the world community, and that we are interested in reducing our deficit would all help in making our bonds more popular even with lower interest rates. Europeans do take politics in to account with their investments, and if they don't like the US they won't invest in the US. We need their investment.
If America was a cow and we were in Texas, tax payers could sue for damaging our sales potential. Bush is making our dollar and our bonds a damaged good. It will take years to get the faith of the world back, because, when you get down to it, the value of the dollar is based only on faith (thanks to Nixon, there's no gold backing it up... there is only good will), if they lose faith (and they are starting to), we lose our strong dollar, or low interest rates, and the ability to run a deficit in times of need (unlike now when we are running a deficit because Dick's pals need a new pool).
The falling dollar picture at the top of this post is from Business Week.
- rob 11:34 AM - [PermaLink] -
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