Quote of the Day: Malpass (WTF?) on the Dollar

In the WSJ Op-ed section today, David Malpass seems to be having a hard time figuring out why the Greenback is in trouble.

He’s our Quote of the Day:

"Dollar weakness is neutralizing the positive effects of the Federal Reserve’s interest-rate cuts."

As the dollar spirals downward, weakened by Washington’s indifference and market expectations of more rate cuts, liquidity drains from the U.S. into inflation hedges like gold and, in the case of entrepreneurship and risk-taking capital, to countries with strengthening currencies. This drain undercuts the growth impact of the Fed’s recent rate cuts, complicating the recovery from the August credit-market turbulence. Question: What’s harder to sell than a complex loan during a credit crunch? A dollar-denominated one."

No, no, no, no, no!

Its not the that Fed cuts are being neutalized by the weak dollar — its the Fed cuts are CAUSING THE WEAK DOLLLAR.

(Yes, I am getting shrill)


Lifelines for the Drowning Dollar
WSJ, November 9, 2007; Page A19

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  1. alnval commented on Nov 9

    Thank you. See also Krugman yesterday on the same issue.

    It’s really hard for me to call what you do a blog as it’s so far from the random musings of a not totally engaged mind. It’s more like an informed commentary that continues to remind us that things happen not for arbitrary reasons but because there really are rules out there – like gravity – that drive stuff.

    Thanks again


  2. hpov2000 commented on Nov 9

    Other point regarding weak dollar:

    Export for csco, msft, inct etc will increase with weak dollar – at the same time the cost of employment in India(and other countries) does increase as well. With Indian rupee going from ~45Rs/$ to ~39Rs/$ Indian employees got 13.3% raise from US companies perspective.

    (May be in the long term it would be beneficial to US employment.)

  3. Jim M commented on Nov 9

    Barry, if it’s any consolation, it’s been a long time since I’ve read any statement by Malpass that made sense. At least this time he was not blatantly inventing reasons to support the current administration’s view of the world.

  4. Northern Observer commented on Nov 9

    The USA is being placed in a golden straight jacket. The electronic herd of hot international money is going to keep punishing American until its fiscal house is brought to order and some respect is shown by the American fiscal and monetary authorities for the value of their currency. Now this is usually what happens to emerging markets when they misbehave. The thinkers of Wall Street have a hard time thinking of America as being under someones thumb.

    Rates must stay high to keep the international money happy while expenditures must be slashed and taxes must rise to close the fiscal deficit, regardless of the pain to the real economy. The credit card is maxed out, the world is not lending anymore. Pay up.

    It sucks but it can be done. Canada went through 5 years of hell in the 90s to get rid of its structural problems (chronic federal deficits -25 years in a row 72-97).

    It can be done. You just good political leadership … oh I see the problem now.

  5. MAS (Seattle) commented on Nov 9

    That scratch on my car door attracted the shopping cart.

  6. karen commented on Nov 9

    I have a question. Who buys Fannie and Freddie’s bills? For example, on Tuesday FRE will be selling 5.5B in registry bills. Who buys them? Does the US government buy them? Does the Federal Reserve buy them? Because that would be money/credit creation. Bernanke claims that actual money supply has not grown much. But since money and credit are one in the same, and credit has been created to the tune of trillions, and the Fed keeps the “float up” in the repo market every week, so financial institutions never need to liquidate their “assets” to pay down their debt… well, will it ever end?

  7. Estragon commented on Nov 9

    That Malpass comment is about the most economically illiterate thing I’ve read for a while.

    Ironically though, his endpoint is sorta kinda right. A lower USD will ultimately be counterproductive as US businesses are shielded from international competition, and the USD risks losing reserve currency benefits.

    The notion that a currency decline is counter-stimulative is just silly though.

  8. karen commented on Nov 9

    What about this for a quote of the day:

    Jack Malvey of Lehman said (among other things), “This is the deepest correction we’ve ever seen in structured finance.

    This is now worse than Long-Term Capital.

    This is so dispersed, so interlocked and the relationships among the various entities are not as evident.

    This is a painful lesson in financial engineering.”


  9. michael schumacher commented on Nov 9

    It’s so important to consider the source of these opinions in the context of protecting the system. The last sentence is all I need to know about how rationale the viewpoint he is attempting to present is:

    Mr. Malpass is chief economist at Bear Stearns.

    That is, unfortunatly, all that need be read in the entire prose.

    Did’nt we have one like this about say in August???- right about the point we are now in the market..but it’s just a coincidence this time.


  10. will rahal commented on Nov 9

    Commodities peak with economic cycles.
    I believe we are at the brink of recession. Consequently commodities will correct and so will the US Dollar(strengthening)
    We are currently experiencing an improvement in the US Trade Deficit.
    Since 1970, there has been an improvement in Net Exports during recessions, every single time.
    See “International Trades & Recessions”

  11. CNC commented on Nov 9

    If HIllary wins the election, you will see so many tax increases, the country will look like France, pre revolution. Since 40% of the money is flushed down the toilet in waste, how does this help our fiscal profile anyway. The Democrats want to expand government with enormous beauracracies into socialized health care ( which will run deifcits ) and wasteful CO2 regulations, ( which will slow down GNP growth).

  12. Estragon commented on Nov 9


    The fed doesn’t buy treasuries or agencies directly – it’s verboten by law. It can and does buy them in the secondary market though, and yes, that’s money creation.

    Most likely, China will take a big chunk of the agency issue. 5.5MM is only a few days worth of reserve accumulation.

    On your money=credit point, not quite. Money is “now”. Credit is “later”. Money tends to drive the price of consumables, credit tends to drive the price of assets (which, other than bonds, are really prepaid future consumption). Of course, eventually later becomes now with the passage of time, and the asset price inflation driven by credit will either be accomodated by the creation of money (leading to consumables inflation), or not (in which case the value of asset price declines to reflect actual cashflow).

    Asset holders are betting on the first (inflation) outcome. Bond holders (esp China) are betting on the latter. My guess is that when it suits them, China will act in a way that tanks asset prices, and they’ll reverse their bet (sell bonds, buy assets).

  13. SPECTRE of Deflation commented on Nov 9

    The elites will take care of everything, so nothing to worry about Barry.

  14. karen commented on Nov 9

    In reply to Estragon, (thank you, btw)

    Are we talking a financial catch-22?

    Firstly, I guess I don’t see the difference between consumables and assets. And, secondly, I feel that bonds (treasuries, etc.) aided and abetted by “structured finance” are at the root of the money/credit creation “dilemma” particularly because they can be bought by foreign governments with printing press capabilities of their own. The result of all this has been artificially low interest rates, carry trades, and such an overflow of lending that a fish could have gotten a $1M loan. Have we hit the saturation point yet? Is gold telling us to look behind the curtain?

  15. john commented on Nov 9

    Continue with the rational and informed commentaries. It has been incredibly lonely being from another planet by not believing the cheerleading from wall street and some of the media mouth pieces

  16. dark1p commented on Nov 9

    CNC, you are remarkably brainwashed and amazingly uninformed.

    Don’t rely on Rudy and Fox News for your info. Just a friendly tip.

    For the record, everything in your post is wrong. You know how to use the Google, don’t you? Do your research, booble.

  17. Eric Sebille commented on Nov 9

    Is a Bears Stearns chief economist really one we should listen to for economic analysis? Maybe we should also start listening to Mike Tyson on how to manage our finances and the National Association of
    Realtors on when is a good time to buy a house! Not too mention look to Jim Goldman for advice on when to buy tech!!!

  18. Donny commented on Nov 9

    Sorry I’m off subject.

    Am I the only person that is growing tired of watching Dennis Kneale on TV?

    His repeated guarantees or bets of higher stock valuations are becoming stale to the ear.

  19. james commented on Nov 9

    The problem with the dollar is not its current value but it future value. If the trend continues, less and less people will want to own that crappy currency that’s worth less and less.

    For the long run, this is not good at all for the US economy. It can be argued that it has some short term benefits but it is not worth the damages on the long run.

    Germany understands this all too well for historical reasons. They had a strong DM and now push for a strong Euro. Germany has been a competitive country for the last 50 years so having a strong currency is not bad for the economy.

    The US has to wake up NOW and do the right thing: push for a higher USD … or you can always let the Euro be the new “world currency”.

    I sometimes hate the BCE but they are making the right decisions.

  20. Douglas Watts commented on Nov 9

    CNC never heard of externalities. They do exist even if you put on your best ostrich suit. The externality of not curbing carbon emissions is a 6 degree C increase in average global temperature. But why worry? Earth is just of many planets available for colonization.


  21. VennData commented on Nov 9

    Check on the other side of the page at the WSJ opinion writer’s take on the dollar. In no way do they think that maybe that build of nine trillion in debt has anything to do with the dollar dropping, or the less than neighborly manner in which the administration has treated our allies, friends etc.

    If Bush/Cheney resigned, might the dollar jump?

    CNC, ever been to France? It’s nice. And please let me know exactly what else Hillary Clinton will do against a filibustering Senate in the next eight years.

    …and Donny, yesterday on CNBC before Closing Bell Dennis Kneale said that China won’t do anything to hurt the US.

    But Kneale’s the same guy who would say that the US government would never do anything “good” for the US let alone our financial our markets. So the Chinese government is so much smarter than the US government that they won’t do something(s) dumb? Don’t any of these Administration apologists strive for any consistency in their marketing.. er… a… discussions?

  22. karen commented on Nov 9

    James, when I see a chart of the falling dollar, I see a snowball on a hill gathering momentum. i suspect that the masters of the universe opened pandora’s box. hubris will get you every time…

  23. Neal commented on Nov 9

    The hard, cold truth is that the American consumer is being sacrificed for the health of the investment banks.

    The passive tone of the article “As the dollar spirals downward, weakened by Washington’s indifference and market expectations of more rate cuts..” is there to remove the link of action and effect.

    The people at the Fed aren’t stupid–they made the cuts (and will make more), knowing full well the negative effects on the dollar, oil, etc.. There is no possible excuse of ignorance for them. Their choice is to save the investment industry and let the consumer pick up the pieces as best they can.

    The question is, what will further rate cuts gain the investment industy? A few days of up market? Will it convince anyone that unsalable “assets” are now worthwhile? What about the lauded 70% of the economy and the the economy held aloft by the consumer? If they collapse, what good would that do for the markets?

    The only answer possible is that when rate cuts can no longer be done, you will then find the US government becoming the buyer of last resort for the unsalable “assets”.

    Because, after all, when we are able to pour trillions into the waste of Iraq in order to defend the American way of life, why wouldn’t we be able to put a trillion or so into the waste of the investment industry in order to preserve the way of life of the investment houses.

  24. muckdog commented on Nov 9

    On the otherhand… What if China’s move to diversify from a weak dollar to “stronger currencies” is a contrarian indicator? What if they’re bottom-ticking the greenback? Selling the buck low, and buying other currencies at the high.

    Maybe they’re the crowd. The dollar has had a long slide. Why didn’t they diversify 5 years ago?

  25. Mike commented on Nov 9

    With a chief economist like that, no wonder Bear Stearns is heading towards insolvency.

    Keep giving ’em hell, Barry! Your efforts are appreciated! I come here everyday for useful knowledge :-)


  26. Ken commented on Nov 9

    I don’t think those two premises are mutually exclusive Barry:

    Fed Rate cuts are hurting the dollar on the one hand and a weakening dollar is hurting the positive impact of rate cuts. I think the author is simply making another argument against rate cuts and trying to explain to his audience why rate cuts won’t work this time: because it’s hurting the dollar which is causing capital to flee the dollar.

    Advisors have to explain to people why rate cuts won’t work this time. Most people think it just that simple: cut rates, grow economy.

  27. phil commented on Nov 9

    At least three unstated issues are really being addressed by Mal(feasance)pas.

    1) They’re trying to brainwash the public that the dollar and interest rates are un-related.

    2) ‘If we don’t know the two are related, we can’t be responsible for making the wrong decision can we?’ Is this plausible deniability? I don’t know.

    3) ‘They’ are masking the real reasons for the rate cut which are to protect the irresponsible banking system allowing them a larger spread to borrow short and lend long. Since there are no more banking reserve requirements, essentially, the Feds have to do this.

    ‘They’ do get it, they’re just not admitting it.


  28. VJ commented on Nov 9


    If HIllary wins the election, you will see so many tax increases…

    Actually, she has proposed reversing the massive and disastrous tax cuts for the Rich & Corporate.

    the country will look like France

    That would be an improvement (pre-Sarkozy).

    The Democrats want to expand government with enormous beauracracies into socialized health care…

    No Democrat (or anyone else of consequence) has proposed “socialized health care“.

    Try a dictionary.

    ( which will run deifcits ) and wasteful CO2 regulations, ( which will slow down GNP growth).

    Actually, the two greatest periods of prosperity in the 20th Century were when taxes on the Rich & Corporate were their highest or had been raised on the Rich & Corporate.

    One of the numerous RightWing propaganda myths that were destroyed during President Clinton’s two terms was that of stricter environmental regulations allegedly causing slower growth and job losses. We had stricter environmental regulations and had both higher economic growth and high job growth.

    Additionally, there was a study of the economies of all fifty states done by M.I.T. in the 90’s that established that the states with stronger environmental regulations had higher growth and lower unemployment, whereas those states with weak or accommodating environmental regulations had lower growth and higher unemployment. Stricter environmental regulations pushed companies to find new and more efficient technologies, which translated into new jobs and more economic activity.

    Of course this was prior to our reentry into the age of unenlightenment.


  29. Adam commented on Nov 9

    Did anyone hear Luskin on Kudlow last night actually advocate shooting liberals? The world is a considerably worse place for that man having existed.

  30. michael schumacher commented on Nov 9

    wow….the ratings industry is spewing all sorts of reaffirmations all of a sudden. Nothing to do with where the market is at or that it’s a friday.

    Never seen so much all at once….

    Setting it up for a neutral close…..you know it..


  31. wunsacon commented on Nov 9


    Borrow-and-spend voters, mostly comprised of Dem-bashers such as yourself, threw a big party on credit. Now you want to blame the *next* president for your hangover? That’s a pretty dumb reaction.

    It seems the first 5 years of the GOP’s tenure was punctuated with “it was Clinton’s fault!”. And now, you’re saying “it *will* be Clinton’s fault!”

    Look in the mirror, CNC. Seriously, I believe it’s you’re fault.

  32. donna commented on Nov 9


    The democrats would like us to actually HAVE a government, as opposed to the gang of thieves currently ripping off the country and cratering anything of value.

  33. Stuart commented on Nov 9

    Yesterday in response to a comment about Dennis Kneale, I opined the only two worse than him are David Malpass and Jerry Boyer. Hmmm, to think David Malpass would utter such nonsense….right on cue. Why oh why do these baffoons get airtime….

  34. Estragon commented on Nov 9

    karen – “Have we hit the saturation point yet? Is gold telling us to look behind the curtain? ”

    Who knows? One of the distinguishing characteristics of the credit/asset sort of deferred inflation is the supply/demand curve inverts. A money/consumable curve typically shows demand declining as price increases. A credit/asset curve though sometimes shows demand increasing with price.

    The money curve is bounded by demand on the upside and zero on the downside. The exception to this is the very rare race condition created by hyperinflation. In that event, money and consumables take on credit/asset like qualities (i.e. bread can be hoarded for a profit, and cash suffers bond-like time value risks).

    The credit/asset curve has no obvious upper bound though. The boundary, to the extent one exists, is perceptions on the present value of future terminal and cashflow values. By nature, future values can’t be observed directly, only implied by the behaviour of current purchasers.

  35. Bob commented on Nov 9

    Its just the WSJ op/ed page. Don’t ever expect sanity from it.

  36. Bonghiteric commented on Nov 9

    It looks like the Plunge Protection Team got the kind herb I sent them and started smoking at around 3:25 and totally missed protecting the plunge. The dumb bastards were supposed to wait until 4:20.

  37. Bonghiteric commented on Nov 9

    It looks like the Plunge Protection Team got the kind herb I sent them and started smoking at around 3:25 and totally missed protecting the plunge. The dumb bastards were supposed to wait until 4:20.

  38. dave commented on Nov 9

    His commentary eneded with an off-topic/ self-serving pitch about running soc. sec. revenues through (his industry’s) stock & bond mutual funds.

  39. Pat Gorup commented on Nov 9

    David Malpass is one of those “yes men” that Kudlow repeatedly asks to appear on his show. Enough said….

  40. jan perlwitz commented on Nov 10

    How does a cut in the Fed funds rate causes a weakening of the dollar? How is the causal chain supposed to go between the Fed funds rate cut and the weak dollar?

    The dollar weakening had been going on already before any rates were cut.

  41. John commented on Nov 10

    Malpass proves anyone can be chief economist for Bear Stearns including my dog. When I read this yesterday my eyes literally glazed over. There’s no connection between Fed rate cuts and sudden acceleration in the dollar’s decline and his solution to dollar weakness is to….wait for it….talk it up, privatize social security, do something(?) about healthcare, and cut taxes. And for even more amusement you can move over to Stephen Moore’s very odd defense of supply siding where he posits the fact that the ex prime minister of Estonia(I kid you not) is in favor of it as evidence the world is embracing supply side economics.

  42. Tom C.. commented on Nov 10

    The bond market doesn’t seem too upset with the value of the dollar right now. Stephen Moore’s point has to do with fiscal policy, both current and potential, being reflected in currency values. The rhetoric from the American left, as the campaign season heats up, is enough to scare just about any foreign holder of dollars.

  43. VJ commented on Nov 11

    Except it wasn’t the “rhetoric from the American left” that trashed the dollar, but instead the failed policies of the American RightWing. Not to mention the record federal deficits, record bankruptcies, record home foreclosures, declining wages, rising Poverty… the list goes on.

    As to Stephen Moore, when the Clinton administration’s budget & tax legislation passed Congress in August of 1993, he predicted that “Clinton’s plan will torpedo the economy“.

    ‘Wrong-way Moore’ strikes again.

  44. Tom C. commented on Nov 12

    Records? I’m no bigger a fan of gummint stats than you are but the ‘records’ you mentioned ain’t record anything.

  45. VJ commented on Nov 13

    Except historic record all-time highs.

    That’s all.

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