Blame Obama, Blame Bernanke for the dollar decline?

Getting tired of people blaming Obama or Bernanke for trashing the dollar? I am. Critics cite deficits, borrowing, quantitative easing/”printing” as reasons. I also frequently hear people attacking Greenspan for his “easy money” policies which helped fuel the housing bubble (I agree), but never mention this along with the decline in the dollar. Take a look at the chart below. It’s clear the bulk of the dollar’s decline was under Bush/Greenspan, though Bernanke has presided over a significant drop too. I hold Obama nearly blameless here, except to the extent his politics have focused in the wrong places (healthcare and hardening the opposition into stupid debt ceiling debates).

Some thoughts on China blasting a Congressional Report

Here is what drives me nuts about international politics and politics in general: there doesn’t seem to be any no real, genuine, honest discussion between parties. Maybe behind closed doors, though there doesn’t seem to be evidence of it. If so, the people of the world are apparently deemed too stupid to handle the truth. Perhaps they are? Regardless, here is another example of blatant hypocrisy and lying.

Just what we suspected: China lied

Well, China reneged on its new floating yuan policy. The AP reported today that China will keep its currency “basically stable and reasonable” just a few weeks after saying it would allow the yuan to float. After the June 21 announcement that “People’s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.” we questioned whether the intent was genuine. Less than three weeks later, it is clear China only made that announcement to deflect discussion of the exchange rate policy at the G-20 meeting.

How much did the renminbi appreciate since June 21? A whopping 0.75%.

China to let Yuan float freely or not?

On Friday, the People’s Bank of China announced that “the People’s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.” On the heals of this announcement, commentators and the media lauded this as progress. After all, the G-20 meeting is coming up in a few weeks and it would have been horribly unpleasant for the Chinese had they not conceded something on currency maniplution (or “managed” as the Chinese prefer to call it).

I couldn’t help but notice that the statement contained absolutely nothing about timing or magnitude. In fact, the statement goes painfully out of its way to say significant adjustment is not necessary:

With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist.

So there you have it. Frankly, I think this is likely to be “vapor-ware” of sorts. So far, the Yuan has appreciated since the announcement. Let’s see how far it goes and how long it lasts.

Iran moves back to the Dollar

Iran announced way back around 2006 that it would sell more oil for Euro’s and transition away from U.S. Dollars. This was of course ammo for the “collapse of the dollar” crowd. After all, the U.S. imports enormous quantities of crude and so the dollar must be losing its reserve status if we can’t even buy oil with dollars right?

Well, Iran has just announced a giant about face. You see, they are curtailing oil sales in Euros and going back to the Dollar. Turns out the Euro isn’t so great afterall. Oh, how sentiment changes fast! As I’ve argued before, the Dollar may be an unattractive currency, except for all the rest!

Chinese Effrontery, part II

We have an old saying, “the pot calling the kettle black”. This English proverb simply means “when you accuse a person of doing something that you are guilty of doing yourself.”  Perhaps there is no such similar Chinese proverb? I wonder this aloud because China’s Premier is doing just that.

Some bearish news for the dollar

Since I wrote the 3-part piece about the dollar (parts I, II, III), some nasty things have occurred in Washington. It was just one-month ago that I made the following warning in “Part III: Can the Dollar Weaken Anyway?“

“Another very bad outcome for the dollar may happen if Congress starts dismantling the Fed’s independence”

Guess what?

Who’s Afraid for the Dollar? Part III- Can the Dollar Weaken Anyway?

The first two parts of this series dealt with the reasons the dollar is not about to collapse, but could the dollar weaken anyway? The short answer is a resounding ‘yes’. The dollar’s value will fluctuate and it may even decline fairly significantly in value as a result of all the recent monetary policy. However, hyperinflation is not in the cards, nor is an outright dollar crisis.

Who’s afraid for the dollar? Part II- the Chinese and Reserve Currency Status

So what happens if the Chinese stop buying our debt? Let’s start with a some perspective: China currently owns about 11% of all the outstanding U.S. Treasury notes and agency debt (Fannie, Freddie, etc). While this is a large, significant and growing proportion, it is hardly enough to consider the Chinese our economic masters. Consider that the UK, Cayman Islands, Luxembourg, Belgium and Canada collectively own twice as much as the Chinese. Indeed, Japan alone is still our largest creditor holding a little more than the Chinese.

Who’s afraid for the dollar? Part I

We hear many prognosticators talk negatively about the dollar (I call them “dollar bears”). Some predict the dollar will get so weak it will crush the economy, cease to be the world’s reserve currency, and drive interest rates to double-digits. Some even talk about Zimbabwe or Weimar Republic style hyperinflation due to the all the money the Federal Reserve is “printing”.  These fears are overblown and unrealistic in my opinion and I’d like to take a moment to explain why this is not something we should fear. Since this is an extensive topic, I will break it into several parts.