Today, Bloomberg published an article with a rather conspicuous headline: “Dollar Reaches Breaking Point as Banks Shift Reserves”. In it, the authors explain how rapidly central banks and international traders have turned against the greenback:
Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.
Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.
World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.
…Intercontinental Exchange Inc.’s Dollar Index, which tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell to 75.77 last week, the lowest level since August 2008 and down from the high this year of 89.624 on March 4. The index, at 76.104 today, is within six points of its record low reached in March 2008.
This issue has serious implications for the nation, as a weak dollar leads to higher oil prices, which in turn impede the forces of economic recovery. One cannot help but surmise that this bit of economic reality has played into the decision of the Obama administration to embrace a weak dollar policy for the time being (pricier oil leads to increased demand for the administration’s beloved alternative energies). Sadly, part of the blame for the dollar’s miserable situation lies with former President Bush (who hardly ever showed a propensity for a strong dollar policy), as the dollar’s value declined nearly 50 percent throughout his two terms. Also sadly, few prominent Republicans, with the exception of Gov. Palin (I apologize if I have forgotten any), have recently voiced concerns with the plight of the greenback. With this in mind, I would like to ask our Romney supporters if Mitt has made any recent public statements on the dollar. During his campaign, did the Governor advocate a strong dollar policy? And if so, can you provide specific policy recommendations or proposals he offered? I honestly claim ignorance on his performance in this area, so I feel curious.
Whereas Rasmussen has pegged Obama’s approval rating as more or less hovering in the 48-52 range for the past two months, Gallup has given the President a six-point jump in the past week, from 50 to 56. I know that the two companies poll different groups of people (likely voters for Rasmussen and registered voters for Gallup, if I’m not mistaken) and that Rasmussen weights their results to party identification, but what’s the deal? Does the Gallup bounce simply represent an outlier, or do their methods account for the wide discrepancy?
October 12th, 2009 at 10:28 am
I thought Gallup’s bouncing polls is because of the Adult population. But Pew polls adults too and has him at 52. Gallup’s daily polls bounces a LOT in one week. It can go from +17 half that in a week, rinse and repeat next week.
October 12th, 2009 at 10:55 am
Romney at the Value Voters Summit:
“The President’s spending and borrowing has also weakened the nation.
In the month of July alone, he added 330 billion dollars to the deficit. His plan is to add another trillion dollars in debt every year he is in office. He initially admitted that the cumulative deficit would swell by seven trillion dollars over the next ten years, but now he acknowledges that nine trillion is more like it.
He would double our national debt in just five years. These deficits, combined with our liabilities for entitlements, threaten to cause a global collapse of confidence in America and in the dollar, and to precipitate an even deeper financial crisis.
Putting such a spirit-crushing, back-breaking debt burden on our children is unworthy of our national character. That is why I believe that this spending and borrowing is not just economically irresponsible, it is morally wrong!”
I suppose Romney has spoken about the dollar in at least some of the many interviews he does, but I don’t have the time to look for it.
October 12th, 2009 at 11:39 am
Romney CNN op ed back in Feb:
“There is a real danger that with trillions of additional borrowing — from the budget deficit and from the stimulus — world investors will begin to fear that our dollars won’t be worth much in the future. It is essential that we demonstrate our commitment to maintaining the value of the dollar. That means showing the world that we will put a stop to runaway spending and borrowing.”
Just one of the many references I found where Romney has spoken about maintaining the value of the dollar.
October 12th, 2009 at 1:05 pm
With respect to Mr. Romney (and anybody else including my own camp leader) the weakeness in the dollar is nothing compared to the weakness in moral, consumer confidence and the fact that we as a people are losing our freedoms. Yes the economic consequence of the stimulus plan (and similar bail-outs) are bad, but the human costs too such Socialism is worse. We are losing our Constitutional freedoms and this is not right and it is worse than a weak dollar.
October 12th, 2009 at 1:51 pm
The next big political issue? The U.S. dollar
http://blogs.reuters.com/james-pethokoukis/2009/10/12/the-next-big-political-issue-the-us-dollar/
October 12th, 2009 at 1:52 pm
Don’t move the goal posts Joe.
October 12th, 2009 at 2:01 pm
TB,
Glad to see the dollar issue gaining traction. I consider it a debate that has become LONG overdue.
October 12th, 2009 at 2:05 pm
Another note: I think we have a great opportunity in two issues that could become huge in 2012: the dollar and the deficit. I just hope our candidates come up with credible proposals to cut federal spending (which would obviously become a whole lot easier with a Republican Congress). I see Palin and Romney gaining the most traction in these areas (my apologies to the other oft-mentioned candidates).
October 12th, 2009 at 2:21 pm
Mcon, if I am moving the goal posts, fine, I fear getting mixed up with concern over the dollar takes away from the more important issues. If we restore a bit of fiscal sanity, we would not have to worry as much about the dollar. The dollar would take care of itself so to speak.
October 12th, 2009 at 2:37 pm
9. You sound like a Romney man now~
October 12th, 2009 at 2:37 pm
Joe if you understood what Romney has been saying all this year, then you would know that he is talking about restoring fiscal sanity. Let me repeat the quote from Romney’s op-ed in February:
“There is a real danger that with trillions of additional borrowing — from the budget deficit and from the stimulus — world investors will begin to fear that our dollars won’t be worth much in the future. It is essential that we demonstrate our commitment to maintaining the value of the dollar. That means showing the world that we will put a stop to runaway spending and borrowing.”
The point here is Joe that if we don’t restore fiscal sanity, if we continue “with trillions of additional borrowing” and spend money we don’t have, then this is just another way it is going to hurt us because the world won’t have confidence in our economy or currency.
October 12th, 2009 at 2:51 pm
“The point here is Joe that if we don’t restore fiscal sanity, if we continue “with trillions of additional borrowing” and spend money we don’t have, then this is just another way it is going to hurt us because the world won’t have confidence in our economy or currency.” I cannot disagree, the whole (including ourselves) have already lost confidence in our economy. We will almost need drastic capitalist shock treatment to get back on track.
October 12th, 2009 at 3:54 pm
Ron Paul has actually done the best job of talking about fiscal responsibility, the Federal Reserve and the value of the dollar. The moderators in the debates did a disservice to the American people by not allowing Ron Paul more time to speak on this issue. Remember Ron Paul talking about the gold standard? And look where gold is right now. The American people would have been better off if they had been given the opportunity to hear what Ron Paul had to say on this very important issue.
October 12th, 2009 at 4:06 pm
It’s not all bad news for the dollar! It is gaining…
…on the Argentine Peso
Fortunately for them, their President is as much a big spender/no results as Obama and will be expelled for sure in the next election.
October 12th, 2009 at 4:12 pm
Any policy that involves a commodity (either gold or otherwise) based currency SEVERELY limits our flexibility on fiscal policy.
October 12th, 2009 at 4:24 pm
13. Paul goes from lucid to lunatic, hence he has no real credibility.
October 12th, 2009 at 4:44 pm
GALLUP: OBAMA BUMP WON’T LAST
October 12th, 2009 at 5:00 pm
I am inclined to believe Rasmussen’s numbers and to discount Gallup. I see a severe downward trend for the president’s numbers and if you strip away the superficial Democrat loyalty vote, his real index favor-abilities are down in the mid 30s – some of the lowest numbers ever for a President this far into his term.
October 12th, 2009 at 5:53 pm
Texasconserv,
How could I forget about Dr. Paul? Thank you so much for reminding me. You’re absolutely right, as he considers monetary policy his signature issue. I agree that the debate moderators should feel ashamed that they did not give him more time to speak.
WSU,
Would that be a bad thing? The government shouldn’t have the power to manipulate and debase the currency.
October 12th, 2009 at 8:20 pm
“13. Paul goes from lucid to lunatic, hence he has no real credibility.” He is no worse than Mr. Romney on banking. They are just both on opposite extremes.
October 12th, 2009 at 9:34 pm
OJ, I think you are referring to Romney’s support of TARP. I don’t find it problematic at all. We’ve argued it here before, and you know that most people agreed it was necessary to save the banking system from collapse.
The bigger problem was the stimulus – which your candidate lobbied for and accepted, BTW.
October 12th, 2009 at 10:12 pm
Anybody who understands the U.S. economy is terrified of what will happen if China, India, and other Asian countries simply stop buying our debt. And if they actually start selling their current holdings of dollars and government paper, we will never see the America we have been living in all of these years again.
There is no way the government can start running surpluses immediately. And if we have to finance our deficits ourselves, ‘Crowding Out’ won’t allow any growth in the private sector. It will be total financial meltdown.
I know that Romney understands this—but I’m not sure that any of our other candidates do.
October 13th, 2009 at 2:37 am
Romney had a great ad during the election called “Asian Tiger”:
http://vodpod.com/watch/449200-asian-tiger
October 13th, 2009 at 4:23 am
Well, I know that you will disagree Martha, but the fact that you find no problem with TARP is a problem in and of itself. Frankly, I think it was rather extreme to promote TARP at the request of liberal bankers when the majority of Americans don’t want it. At the other end of the extreme, Dr. Paul want to bring back the Gold standard and throw the baby out with the bath water. If Mr. Romney was serious about moderating his extreme position on banking, he would help Dr. Paul promote an audit of the FED (which all Republican Congressmen and many Democrats now support.) It is good that Mr. Romney want to give tax relief to the people, but when it comes to banking, he seems to take the side of the Liberal bankers against the people. That is why it would be good to have somebody like Mrs. Palin who is not a banking extremist and who would think outside the box when it comes to banking.
October 13th, 2009 at 2:41 pm
Ohio Joe, except for the little problem that Palin probably knows next to nothing about banking or financial markets.