27th April 2011: Just When You Thought It Was Safe to put on a New Pair of Underpants: The Comedy of Geithner’s “Strong Dollar Policy” is Back

27th April 2011: Just When You Thought It Was Safe to put on a New Pair of Underpants: The Comedy of Geithner’s “Strong Dollar Policy” is Back

After a period of “reputational recovery”, where he was largely silent on the international media stage (join the dots on that one) Treasury Secretary Timothy Geithner is back in full verbal flow. Unfortunately for him and his Administration, he’s started opening his mouth in public again. I can’t put it any better than Joel Bowman of The Daily Reckoning:

“Fed approaches crossroads as growth slows…” says one paper…

“Euro strikes 16-month high against dollar…” reads another…

And then, “Geithner vows to defend strong US dollar policy…” from the very same wire…

Hmmm… What to make of all this? We’re reminded of that joke about how you can tell when a politician is lying. (His mouth is moving.) A strong dollar policy? He must surely be kidding. How can Mr. Geithner vow to defend something he has never had?

“Our policy has been and will always be, as long as I will be in office, that a strong dollar is in the interest of the country,” Geithner told a New York conference organized by the Council of Foreign Relations.

Then, threatening to add perjury to comedy, “We will never embrace a strategy to weaken the dollar.”

Remember when Geithner stood in front of those university students in Beijing a couple of years ago to assure them of his same strong dollar policy? “Chinese [dollar] assets are very safe,” he said, without even cracking a smile or giving a wink. As far as we remember, the students took his deadpan delivery very well. They laughed right in his face.

How embarrassing was this? What part of HYPOCRISY does Mr Geithner not understand?

Readers will know I have not always been a fan of Geithner (although, to be fair, I did grow a little ambivalent about him when I was completely insulated from everything he ever said or did, for a few months in my life), at least, not in the economical or political sense. But I’ll admit, as a comedian he’s great value. Today the comedian we all know and love is back at the pulpit.

Emotionally, secular currency movements are quite simple to grasp, they react to administrative policies. Yet Geithner clearly didn’t get the memo that every other G20 Treasury Secretary seems to have stapled to his or her forehead. Obama must keep his calamitous clown caged in an isolated, virtual closet of political wonderland, releasing him once in a while so that he may stumble obliviously into the media limelight – upon where he is told: an audience either rolling around in pant-soiling laughter or spitting at him is a sign of utmost respect. But the cracks are beginning to show, deep down I suspect Geithner knows that something is amiss. I mean just watch the expression in this short clip… his eyeballs independently and frantically clamouring skyward, then this way and that, as if they’d rather exit their sockets than permit any possibility of eye-contact with an audience member while the brain and mouth engage to spout forth repulsive nonsense on Dollar. Does this look like an honest and intelligent adult man – truly confident in what he’s saying?

The US will “never” embrace a strategy which weakens the Dollar, he claimed yesterday, and so sooner had the words left his mouth the Dollar Index plunged to a new low and Gold surged to a new stratospheric high. The Euro, that great bastion of economic growth and political stability, overcame its trash status and suddenly forgot the quagmire of its infinite, multi-faceted, insurmountable woes and took off to a new nose-bleeding altitude against the Geithner-backed Greenback – one Euro will now get you almost one and a half American Dollars. I think we can write off seeing any American Tourists in Paris next year – they just can’t afford the croissants. Of course, when I say Gold surged to a new high I don’t just mean the highest level in a while, I mean the highest level ever and it’s not a creeping arrival it’s been on an exponential trajectory ever since Geithner set foot inside a federal building. I’m not even going to mention oil, my psychiatrist told me to stay off the subject until my GAS (Gasoline-Station Anxiety Syndrome) is under medical control.

Source: Bloomberg - 40 years of Gold Pricing

The Dollar, in the mean time, is less than half (you heard that right – down over 55%) the relative value it held at its 1985 high when compared to other major currencies. Still the DXY is at 73.7 today – another 3 points to go before we breach the all time low held just before the Lehman collapse…

Of course, as I’ve said before in my caveman economics scenario, almost everything can be used as a medium for exchange and therefore occupy status as a primitive currency – which is why we see food and oil and other commodities rising in (Dollar-based) price. Their value hasn’t changed much, of course, it’s just that the “price” of a US Dollar has gone down in relative terms. This is not hard even for a 12 year old to grasp, which is why I’m surprised that Bernanke is prepared to risk his already anaemic credibility by claiming otherwise. He still suggests that, in this modern world, the actions of the sole superpower’s central bank are independent or irrespective of rising commodity prices. It’s “not my fault” he says, waving his hands in innocence like a burly Paraguayan central defender who’s just hacked down a fleet-footed winger at the knees. “My policies to explode the monetary base of the World’s Reserve Currency by a few trillion here and there is a contained experiment which will only affect people that step across the border into good ol’ US of A”, he continues – despite the fact that by direct definition it is not (see I thought I’d check my Facebook page just in case someone I knew was planning another revolution).

Helicopter Ben: "If I increase the supply of US Dollars, it's not my fault if prices of commodities, denominated in US Dollars, go up"

In Bernanke’s defence, while his actions clearly produce global consequences, that is just where the buck stops (pardon the pun) – he can only do the job that befits his mandate. So please do not fall for the buck-passing (pardon the pun again) trick from politicians like Geithner – you can’t blame the Fed for everything. As I wrote at the end of the end of my last comment, Washington is as much to blame for the demise of the Dollar as The Fed, perhaps more so. This is because the Fed must react to policy front-running from the Treasury. It’s a highly interwoven political relationship which, over the last few years, has only become more incestuous.

But, as the price of the World’s reserve currency stoops to new lows, remember this:

Geithner says that he will never endorse a strategy which will weaken the Dollar.

But remember also this… it’s rude to laugh!