O’Neill: Strong Dollar Policy Is ‘Vacuous Notion’

Former U.S. Treasury Secretary Paul O’Neill discusses the U.S. economy and global financial markets, the performance of the U.S. dollar versus other currencies, and the Federal Reserve’s response to the mortgage and credit crisis.

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Former Treasury Secretary Paul O’Neill"

The "strong dollar” policy that he and every other Treasury chief since 1995 endorsed is "a vacuous notion.”

"It implies in it that somehow we have the ability to manage the relationship between the value of the U.S. dollar and other currencies around the world,” O’Neill, now a special adviser to Blackstone Group LP, today said in an interview with Bloomberg Television.

O’Neill roiled currency markets when he was in office from 2001 to 2002, at one point with comments in an interview with a German newspaper that the U.S. pursued a policy of a strong economy, rather than currency. The current Treasury Secretary, Henry Paulson, has repeatedly stated that he is a "very strong” supporter of the "strong dollar” policy.

"When I was Secretary of the Treasury I was not supposed to say anything but ‘strong dollar, strong dollar,”’ O’Neill said today. "I argued then and would argue now that the idea of a strong dollar policy is a vacuous notion.”

The U.S. currency today fell to a record low against the euro, and has declined 15 percent against its European counterpart in the past year.

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Sources:
O’Neill Says U.S. `Strong Dollar’ Policy Is `Vacuous Notion’
Rhonda Schaffler and John Brinsley
Bloomberg, April 16 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ackYQhodd4Nk

O’Neill Says Strong Dollar Policy Is `Vacuous Notion’
Bloomberg, April 16 2008
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vwyrSX9M2QsQ.asf

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What's been said:

Discussions found on the web:
  1. Steve Barry commented on Apr 17

    Never has an opinion of mine been so re-inforced over and over as the one that CNBC overall is a horrible network. The piece they did today, allowing Jack Welch back on, after criticizing Immelt for his “screw up” yesterday, to totally retract it…then have Kernan fawn all over him and thank him for setting the record straight…I literally want to throw up. This is pathetic on so many levels, not the least of which he is lying to our faces and GE owns the damn network.

    I take solace that, if I’m right about where this economy and market is headed, this station will help cripple GE even more.

  2. Steve Barry commented on Apr 17

    Barry…here is the mother of all projects for you…develop a live internet video channel to compete with CNBC for investors that want no bullshit.

  3. Michael M commented on Apr 17

    The dollar is crazy cheap vs the euro. The rot in the US economy is in:

    Housing – will be same in Euroland, huge bubble, look at slides already in UK, Spain, Denmark etc.
    Banks – will be same in Euroland, just look at stock prices of European banks
    Poor education and too many Mcjobs – not as bad in Euroland,
    Labour market – Structural problems in Euroland, youth unemployment in southern Europe, rapidly increasing unemployment in the US
    Too much consumer debt – generally worse in US, but Euroland is not even close to waking up to the problem
    Underinvestment in infrastructure – worst in US
    Shady accounting and short-termism – worst in US
    Demographics, entitlements – worst in Euroland
    Higher oil and food prices – a bigger problem in US with much higher food and oil consumption per capita and more people living in poverty or near-poverty.
    Government spending and taxes – bigger problem in the US due to wars and general denial about need to eventually raise taxes to balance budget.

    All in all, Europe will fall almost as hard as the US and export reliant European economies will further suffer from US recession. Only difference is that Europe will fall slightly later than US, will take longer to deal with the problems if history is any guide and the US fall will make more noise because there were higher expectations for the US (and US media makes more noise) than for Europe and more traumatic for Americans as booms, consumption, credit and housing are so closely linked to the American national identity and way of life.

  4. K Rice commented on Apr 17

    What a great summary by Michael M of both the economics and psychology of the siutation we find ourselves in (e.g.”…more traumatic for Americans as booms, consumption, credit and housing are so closely linked to the American national identity and way of life”). Periodically, I find myself impressed with the insight of some ‘posters’.

  5. 12th Percentile commented on Apr 17

    If you haven’t read O’Neill’s book, you should. Paul O’Neill got fired because, as W said to him shortly before the firing, “You’re a real truthteller, aren’t ya?”

    Can’t have any truthtellers in the Bush whitehouse.

  6. wally commented on Apr 17

    The problem is a simply one: the use of the words ‘strong’ and ‘weak’ is inappropriate. They imply some sort of moral values. Everybody thinks ‘weak’ is bad. Just say ‘high’ or ‘low’ or ‘high-multiple’ or some words that are more neutral.
    It is just an exchange rate, after all.

  7. VennData commented on Apr 17

    What O’Neill’s experience at Treasury reveals is the message management of the Bush administration.

    From the Gonzalez lies to the FBI lies… from “Mission Accomplished” to the “no one will use the ‘R’ word” from “the deficit’s going down” to “Strong dollar” their “marketing” is geared to the lowest common denominator.

    The GOP had all the gears of government and look where we’re heading.

    Whether the press gets it 100% right all the time is problematic, the fourth pillar and the blogosphere is doing yeoman’s work to chip way at this edifice of spin. And all to keep tax cuts going to the rich.

  8. Nooner commented on Apr 17

    All you weak kneed liberals need to take a break from blaming Bush for everything.

    Nobody pointed a gun and said “pyramid up and buy a house you can’t afford”, “take a 2nd loan out and buy a Range Rover and a second home”, “borrow against your 401K and go on vacation” “max out your credit cards” “buy Google at $750”

    This has been going on for 15 years or more and all through Clinton too.

    Stop blaming politicians and then asking them for help.

    Do you really want Obama or McCain to fix the problems?

  9. Joe Klein’s conscience commented on Apr 17

    12th Percentile:
    Did you see the Bush interview with Martha Raddatz last week? As far as the strong dollar, until the US reigns in the deficit spending, the dollar will only get weaker. This also tied into Barry’s post about the hedge fund managers. At some point we are going to have to raise taxes to pay down the debt. Who are we going to raise it on? Who can most afford it? That’s what it boils down to.

  10. Nooner commented on Apr 17

    we should also be glad we are crying about the economy and not the death of Americans in the New York City subway….

  11. Mr. Obvious commented on Apr 17

    we should also be glad we are crying about the economy and not the death of Americans in the New York City subway….

    Posted by: Nooner | Apr 17, 2008 9:11:20 AM
    ————

    Ahhhh…the strawman of the new century…when all else fails, trumpet the GWOT….

  12. Tom F. commented on Apr 17

    Good comment to the liberals, Nooner. But Bush is still an utterly stupid loser.

    O’Neill, you’re a fucking airhead if you think think this country can’t control the value of its currency. I’ll tell you what the answers are, you dumb bastard. (1) Quit funneling all the ideas, technology and jobs that are created in this country to Mexico, China and elsewhere. (2) Quit the rotten business of counterfeiting the $US and and funneling it under the table to the crappy little shysters on Wall Street.

  13. Pualie commented on Apr 17

    Hey Mr. Obvious,

    Look on the bright side: The weak dollar is putting Europe out of business. A weak Europe will attrack all the terrorists there.

  14. Nooner commented on Apr 17

    Everybody thinks Bush makes his decisions based on his faith, he makes them based on his experience as a baseball club owner.

    After he listens to all his scouts and picks a first baseman, that is his guy no matter how badly he performs. L Paul Bremer was the worst first baseman in Iraq, and the short stop he had in place to deal with Katrina was a joke.

    Anyway, things are not so bad here but it looks like we are running out of Kleenex.

  15. Dutchman commented on Apr 17

    @Michael M
    “Housing – will be same in Euroland, huge bubble” There is some slide but that is due to less demand because europeans are buying cheap american houses.

    “Banks – will be same in Euroland, just look at stock prices of European banks”
    Our banks were stupid to participate in your subprime morgage scam and lost a lot of money, the continued decrease was due to lack of volume.

    “Poor education and too many Mcjobs – not as bad in Euroland” No shit, I can’t speak for other nations but a recent report showed that in Holland more than 50% of the population has a college degree or higher.

    “Labour market – Structural problems in Euroland, youth unemployment in southern Europe, rapidly increasing unemployment in the US” I can’t speak for other EU nations but Holland just hit a record low unempoyment.

    “Too much consumer debt – generally worse in US, but Euroland is not even close to waking up to the problem” Again I can’t speak for other nations but in Holland there is no consumer debt, there is private savings which is higher than the public debt.

    “Underinvestment in infrastructure – worst in US” Hollands infrastructure isn’t falling apart.

    “Shady accounting and short-termism – worst in US” We fell for your subprime scam just like everyone else but other than that we are fine.

    “Demographics, entitlements – worst in Euroland” The dependency ratio will change because more people are old but there are also less people young, furthermore, entitlements are not costs; they add to consumer demand.

    “Higher oil and food prices” Those higher prices are offset by the strong euro, plus we are less dependent on oil because the consumption is lower.

    @Paulie
    “Look on the bright side: The weak dollar is putting Europe out of business. A weak Europe will attrack all the terrorists there.” The weak dollar has very little effect on Europe since the US wasn’t exporting much anyway, if we want to protect our economy from the collapsed dollar all we have to do is create an import tax on US goods. To the second point; Europe is not weak, in fact it is stronger than the US, and of course Europe has had to deal with the terrorist threat more than you already. The latest attacks happened in London and Madrid remember.

  16. Nooner commented on Apr 17

    Dutch,

    It is not about the US exporting, a weak dollar/strong Euro means we don’t BUY ANYTHING from Europe.

    The Euro will disappear in 3 years, right after the cars start to burn again in Paris..

  17. Alfred commented on Apr 17

    “The idea of a strong dollar policy is a vacuous notion”

    This is probably the most stupid thing I have ever heard coming from of a government official, albeit in retirement. Of course if that implies that Washington politicians are lying or saying something that they don’t mean to say then there is something to it. In other words, if a TS comments on a strong dollar policy this notion has to be backed up by other actions. To support a “strong dollar” and at the same time to tolerate fiscal pillaging and mindless monetary policy is inconsistent to say the least. The proof for this can be easily witnessed in the most recent corporate earnings, where currency adjustments make up for domestic weakness (KO up19pc/9pc cc, INTC up11pc/>5pc cc, ABT up 14pc/5.5pc cc…). This list goes on and on and it shows that authorities fall back to something they can understand – to devalue their way out of trouble.

  18. Paul in NYC commented on Apr 17

    Nooner, the subway here is as vulnerable to terrorist attack as ever, no thanks to Bush.
    And the subject here is the weakness of the dollar, and Bush’s general preference to cheerleading and slogans rather than real solutions. Stay on subject.

  19. Nooner commented on Apr 17

    Paul,

    Have we been attacked?

    Last one out of NYC turn off the lights, NYC sucks, there is more excitment in a mall.

  20. philip commented on Apr 17

    Hey Dutchman,
    The Dutch (along with the Brits and Danes) are up to their eyeballs in mortgages. Also, Euro mortgages in Spain, Ireland, Bulgaria, and England have nothing to do with the U.S. Euro banks make stupid loans all on their own. Also, re-read the original post, I think you misread sections of it. He said, for example, that the infrastructure problems were a difference between the U.S. and Europe but it appears you read it differently. Europe has many strengths, but least among them is its power of self-criticism.

  21. Dutchman commented on Apr 18

    Hey philip

    “the Dutch (along with the Brits and Danes) are up to their eyeballs in mortgages.” Yep we are, but that doesn’t mean we are in a bubble or headed toward catastrophy. Our high rate of mortgages is the result of several factors some of which have to do with laws other factors are because of the economic climate. There is a really good paper on this published by the CBS which is the dutch economic statistics and analysis agency. Unfortunately its in dutch so it may not be useful to you.. The major factors in this increase are; ageing population, less renting, new types of mortgages, low mortgage interest rate and most of all a law that allows us to deduct the interest of the mortgage from our taxes.

    As for the comment about our infrastructure; the specific sections of his post that I was responding to are: “Underinvestment in infrastructure – worst in US” and “Europe will fall almost as hard as the US”.
    From the first I deduced that he meant that it was bad in the EU but worst in the US, with which I disagree, I don’t think its bad in the EU. And the second I take to be the conclusion drawn from his various statements about the EU, since I disagree with most of his statements I don’t accept his conclusion. I think Americans have some sort of wishful thinking going on and are hoping for old Europe to die alongside you, I just don’t see any evidence of that. Not that we won’t be hit, I just don’t think the effects of the current crisis will be that disastrous for Europe.

    But I agree that Europe is far from perfect, we have our good guys and our bad guys just like everyone else and we need to do a lot better.

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