How Sick the Dollar?

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.

10 year Dollar Index


Doctor the Dollar? Depends How Sick
WSJ, November 12, 2007; Page C1

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

Greenback worth nothing in terms of American pride
Tim Harper
Toronto Star, Nov 09, 2007 04:30 AM

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What's been said:

Discussions found on the web:
  1. peter from oz commented on Nov 12

    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

  2. D. commented on Nov 12

    China is about to do to the US what the US did to the UK… and it’s going to be one freakin’ Tea Party!

    Load up on Pop Corn and watch the show.

  3. commented on Nov 12

    Opening Bell: 11.12.07

    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…

  4. touche commented on Nov 12

    Jim Melcher, says he’s “worried about a recession. Not a normal one, but a very bad one. The worst since the 1930s. I expect we’ll see clear signs of it in six months with a dramatic slowdown in the gross domestic product.”

    “Another danger he sees for the market is the prospect of huge withdrawals of funds from America by foreign investors due to the falling dollar, the credit crisis, and a slowing economy.

    “At the moment, Mr. Melcher’s chief investment strategy is shorting stocks and certain bonds, notably mortgage-backed and junk bonds, through the use of derivatives, put options, and credit default swaps. He is also short ABEX, an index of residential mortgage-backed securities.”

  5. peter from oz commented on Nov 12

    am I the early crow and deserve what I get late in the day?
    au/cu/zn diving
    estragon as we wait for godot perhaps he’s coming?
    desperate 4th quarter hedge punters hope not
    rgds pcm

  6. Michael Donnelly commented on Nov 12

    Pretty safe bet to assume the dollar continues to sink, and since oil is implicitly tied to the Euro the price of oil continues to rise.

    Can 3.50 a gallon gasoline be far behind ? Could we get $4 ? Curious if BR or anyone else has a forecast.


  7. michael schumacher commented on Nov 12

    it IS options expiry. I gather the push up wil be met with some selling, however when you buy the dips the trend is that you WILL get bailed out.

    Like the futures earlier……people are just a little nervous don’t you think?? Someone sees some smoke in East London and instant reaction on the SPX…..just a little skittish methinks.


  8. michael schumacher commented on Nov 12

    I’ve already seen $4 here in San Diego….soon to be $4.25 or higher.


  9. zao commented on Nov 12

    When other countries see their currencies implode (er, adjust to market forces), we are the first ones to advocate tight money policy and tight fiscal discipline (aka balance the budgets). Is it really rocket science?

  10. Francois Theberge commented on Nov 12

    “Can 3.50 a gallon gasoline be far behind ? Could we get $4 ? Curious if BR or anyone else has a forecast.”

    Well…there was this dude that had a forecast, in 2000. For some reason, he was ridiculed quite a bit for doing so.

    He is about to be proved right on this one. Like he was on global warming…*evil grin*


  11. Francois Theberge commented on Nov 12

    “tight money policy and tight fiscal discipline (aka balance the budgets). Is it really rocket science?”

    For anyone else than the politicians, the special interest groups and the voters, it is not rocket science.

    Oops! That leaves few people standing, doesn’t it?

  12. Jmay commented on Nov 12

    How is setting a Fed Funds rate of 1% non-interventionist?

    They meddled in the upswing, and they’ll meddle in the downswing. It’s what they do.

  13. dissent commented on Nov 12

    Well I think the consequences of electing (incompetent) thugs to office TWICE is beginning to be felt by Americans. The Iraqis have been feeling it for quite awhile now.

    The ideologues that have captured this country have a lot to answer for. But so do the voters. In the long run, you get the democracy you deserve.

    The pretense that a sophisticated world leading country does not need a government because ‘government is the enemy’ is now exposed as an utter fraud. But the hacks have done considerable damage to basic governmental competence – that we all rely on, even ‘The Market’. Thanks, thugs.

  14. marcello commented on Nov 12

    >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

    why stop at “government” ??? What about business, especially Big Business ? THey are all about the inevitability of the market on the way up, and the first to clamor for government protection when it turns. “Socialism for the Rich, Capitalism for the Poor”. Been true for generations

  15. Jombi commented on Nov 12

    My only question in all of this stems from my basic understanding that things cant increase w/o bound forever…. There always is a limit of any system….

    Like the common idea that home prices always appreciate and this idea of inflation… $50k sure isn’t what it was 10 years ago… On average people make more and more… if I fast forward 20 years what will I see given this trend? … Will your average person make $100,000 and pay $10/gal of gas… I mean, what does that spell for 401k’s and investments? What does that spell for the world? A healthy economic system shouldn’t be built on ever increase non-linear expansion and growth.. There always has to be a leveling off or pullback.. the thing is , the very economic system that runs the world needs more and more to survive from day to day… Is it really possible for it to survive a (starvation period)? I just dont see how someone can buy into that? It is just getting sad that you have to actively trade and invest and hedge this and that just to survive now-a-days… You can’t just got on to college, get your Masters, and Work your but off at work and expect to survive.. You have to be in a little bit of this and that… If that is the case then competition is definitely getting more fierce and everyone knows what happens when competition increases in a habitat…. I mean, if you chart a trend and accept the running conditions of our system isn’t it easy to see (increase/expansion) is not sustainable forever? Then people speak of cycles? I doubt cycles are always going to be 7 years, etc when more and more variables and conditions are added into the equation…
    Things are just out of whack I feel it is only a matter of time before everyone becomes knowing of just how out of whack things are….

    It’s the simple way things are being ran that is screwed up… There is no way that an educated person can look it head on and say things can continue like this when the basis of the system is generally screwed up and dependent on unbounded growth just to function….

  16. Fiat Lux commented on Nov 13

    Nitpicking The Big Picture

    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,…

  17. David commented on Nov 13

    The Stock Market looks better today, I think we got past the main problems. I ask, What will happen next? I think the worst is over and we bottom out, it looks very positive now.

  18. Jombi commented on Nov 13

    I think it is carefully planned wrapping for the bad news that is going to break on Wednesday :
    Seems a bit funny how we suddenly are at the
    ‘bottom’, are oversold, and now have seen the light because of some non-forward earnings data…Just as we are on the heels of a day that is going to be filled w/ horrible (A/B) rated economic data… Think it is a prop up to ease into tomorrow pushed by the hack jobs on the street.

  19. Jerry commented on Jan 10

    I couldn’t agree more in regards to the connection between this administration and the weak dollar. They’ve been selling us the same crap for last 8 years. Anyone with common sense can see the relation between the two. Thankfully, we don’t have too much longer with him and we can look towards a new beginning. One that will provide insurance against all of the uncertainty we’re currently experiencing.


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