Strong Dollar? Not so much

Officially, the US has a "strong dollar" policy. Which is like saying that officially, Red Sox players are allowed to have no facial hair.

What we really have, what is becoming increasingly clear, is a "weak dollar" or more particularly a "what the fuck is the dollar" policy.

Let me explain. The current administration, Geithner in particular, has made statements such as "We will never use our currency as a tool to gain competitive advantage," - clearly Mr. Geithner, that is not something I am worried about. For a country like the US, a strong currency is a good thing. The US is the reserve currency of choice. Our capital markets are (were?) the gold-standard of the world. Investing in the US, investing in the dollar, investing in US treasuries were all seen as the way to go if you wanted the best, and most reliable.

Now, for countries which are developing, are more focused on manufacturing, and are not well known for their financial markets (like... hmm..... China), a weak currency can be a good thing, as it makes exports more attractive around the world while increasing the cost of imports (this can be a good thing if you are trying to build companies which can compete globally).

However, what the US currently has is a policy of just not having a policy about the dollar. The last time anyone made an official comment about the "strong dollar" policy was back in November. At the same time, no one has made any comments about a weak dollar policy either. In other words, what the current administration is doing is printing lots and lots of dollars, sticking its head in the sand, and hoping that things work out. For Obama (and his supporters) "ignorance is bliss" has become something of a way of life.

The end result is, sadly, predictable. With no clear support of the US dollar, and with the US running massive budget deficits on top of an already epic pile of national debt, the US will end up losing its gold-plated status. Ratings agencies are already making noise about how they will have to drop the US's debt rating, and with good reason. The long term effect of this will be the collapse of the greenback as the global reserve currency of choice and of the US financial markets as the international standard.

America, and Obama in particular, needs to wake up and see that being the global hegemon does not let you write blank checks and ignore the consequences. Falling from power is a very real possibility, just ask Sparta, Macedonia, Rome, China (a few times), Japan, Venice, Holland, France (again, more than once), Germany, Prussia, Nazi Germany, or Bernie Madoff.

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