Paulson Will Not Rule Out Stupidity

Yahoo!News is reporting Administration does not rule out currency intervention.

President Bush's forceful call on Monday for a stronger U.S. dollar in the world economy may be coming a little late for Americans fed up with gas prices topping $4 a gallon and steadily rising costs of other imported goods.

My Comment: If Bush wants a stronger dollar he can achieve it easily enough. All he has to do is stop wasting money in Iraq, eliminate tariffs on ethanol, and and bring our troops home from everywhere.

As he left for Europe, the president said the U.S. is committed to keeping its currency strong, a point he clearly felt needed to be made after the dollar's long slide against the euro and other international currencies.

My Comment: Keeping the dollar strong? "keeping"?

Bush and Treasury Secretary Henry Paulson appear to be easing away from their hands-off approach to managing the value of the dollar. While a strong dollar has long been stated U.S. policy, that usually has amounted to no more than rhetoric unbacked by specific steps.

The government has limited options for propping up the greenback, especially in an election year with rising unemployment, slumping consumer confidence and the worst housing market in decades.

My Comment: Other than reducing spending, or raising interest rates, there are NO OPTIONS for propping up the US dollar.

Paulson declined to rule out direct intervention — the buying by the government of dollars in currency markets — as a way to influence the currency's value. Another way to shore up the dollar is for the Federal Reserve to raise interest rates — seen as an unlikely prospect given the current state of the economy.

For seven years, the administration has refused to intervene in currency markets, even though the dollar has been sliding in value for most of the time Bush has been in office. The administration has insisted that currency levels should be set by free-market forces.

My Comment: Exactly how does Paulson propose we intervene? The US has no currency reserves to speak of. Exactly how are we going to buy dollars? With what? Gold?

Bush, in an interview with the Times of London as he flew across the Atlantic, added to his earlier comments, saying, "We want the dollar to strengthen."

My Comment: The reality is Bush is hoping the US dollar strengthens. Strengthening the US dollar is actually quite easy: balance the budget. To balance the budget get out of Iraq and slash military spending and/or entitlements. The process is quite easy. Waste is everywhere.

European allies have urged the Bush administration to speak up more aggressively in defense of the dollar. And the president's unusual comments on Monday seemed to be an attempt to ease their concerns.

My Comment: If European allies want more talk from Bush they are dumber than I thought. Exactly what is yapping at the end of his term supposed to accomplish?

The comments by Bush and Paulson on Monday followed remarks by Federal Reserve Chairman Ben Bernanke last week that the dollar's steep decline had led to worrisome inflation. He stressed that the Fed was paying close attention to the situation.

My Comment: Paying attention is one thing, doing something about it is another.

All the talk about the dollar is being viewed as a coordinated effort at trying to "jawbone" the currency to a higher level. By hinting at possible government action such as direct intervention in currency markets or Fed actions to raise interest rates, it could make currency traders think twice about continuing to bet that the dollar will fall.

My Comment: Jawbone is right! As I asked before what reserves is the US going to use to buy dollars?

However, the campaign ran into trouble just as it was getting under way when Jean-Claude Trichet, the head of the European Central Bank, speaking the day after Bernanke last week, said the ECB might need to start raising interest rates because of inflation concerns.

My Comment: This a an interesting game of international poker being played. Trichet wants to force Bernanke's hand to raise rates. He may have to go "all in" with a rate hike of his own first!

Asked Monday about Trichet's comments, Paulson said in an interview on CNBC that he believed America's strong long-term economic fundamentals "are going to shine through" and provide support for the dollar.

My Comment: Paulson is a puppet with no integrity. He has made an international fool out of himself.

Asked if the administration would consider selling other currencies and buying dollars to support the greenback, Paulson said, "I would never take intervention off the table or any policy tool off the table. I just can't speculate about what we will or won't do."

The last time the United States intervened in currency markets was the fall of 2000 in the final year of the Clinton administration when the U.S. government sold dollars in an effort to support the weak euro.

My Comment: Notice the vast difference between now and 2000. We have plenty of dollars, an unlimited supply, It was easy to sell dollars to buy Euros. Now, Paulson needs to explain exactly what we are going to BUY dollars with.

This is an enormous bluff that even a child could see through.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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