It was only six days ago I warned that the world had put the US dollar on a death watch. At that writing, a UN panel, backed by Russia, was pushing to replace the US dollar as the world’s reserve currency with a basket of international currencies instead.
In a not so surprising move, China joined the choir, advocating the dollar demotion, but with a twist. Bejing’s central bank governor, Zhou Xiaochuan, proposed creating a currency made up a basket of global currencies and controlled by the International Monetary Fund … saying it would help “to achieve the objective of safeguarding global economic and financial stability.”
Zhou did not mention the dollar by name. But in an unusual step, the essay was published in both Chinese and English, making clear it was meant for a foreign audience.
China has long been uneasy about relying on the dollar for the bulk of its trade and to store foreign reserves. Premier Wen Jiabao publicly appealed to Washington this month to avoid any response to the crisis that might weaken the dollar and the value of Beijing’s estimated $1 trillion in Treasuries and other U.S. government debt.
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To better insulate countries from the ills of one country or one currency, Zhou said the IMF should create a “reserve currency” based on shares in the body held by its 185 member nations, known as special drawing rights, or SDRs.He said it also should be used for trade, pricing commodities and accounting, not just government finance.
As of yesterday, Treasury Secretary Geithner and Fed Reserve Chairman Bernanke both stated they would renounce any any proposal to move towards a global currency. The top EU economist also added his support for the dollar.
UPDATE: Apparently not every EU official is thrilled with the US spending plans… news today of the EU President labeling the Obama spending plans “the road to hell”.
The head of the European Union slammed President Barack Obama’s plan to spend nearly $2 trillion to push the U.S. economy out of recession as “the road to hell” that EU governments must avoid.
The blunt comments by Czech Prime Minister Mirek Topolanek to the European Parliament on Wednesday highlighted simmering European differences with Washington ahead of a key summit next week on fixing the world economy.
It was the strongest pushback yet from a European leader as the 27-nation bloc bristles from U.S. criticism that it is not spending enough to stimulate demand.
During Obama’s press conference ( Transcript here) later that evening, Obama found himself caught in one outright lie, followed rapidly by pronouncing the dollar “strong”. This was in response to a question by FOX’s Major Garrett on the proposal to move away from the dollar as the reserve currency, and in the wake of the EU and G20 countries refusing to follow Obama down his government spending spree.
The first reponse right after the CNN question is the outright lie about asking other countries to spend…
Well first of all, I haven’t asked them to do anything. What I suggested is, is that all of us are going to have to take steps in order to lift the economy. We don’t want a situation in which some countries are making extraordinary efforts, and other countries aren’t, with the hope that somehow the countries that are making those important steps lift everybody up.
What a crock of doublespeak. As I pointed out in my post yesterday that Obama had penned an international op-ed to the masses, attempting to gin them up against their leaders who are resisting the call by both Geithner and Obama for their increased spending. And by doing so, he was setting them up to be the scapegoats if his lone ranger spending policies failed.
Obama then followed it up – using approx 2/3rds of his answer to justify and cite support for the global spending – the same spending he said he didn’t suggest – by like the minded, recently elected liberal leaders of Australia (Kevin Rudd) and Britain (Gordon Brown).
By dancing with words, Obama sought to deny his actions by backing up his actual intent – done so by “circling the wagons” in conjunction with other leaders.
Either Mr. Garrett was unaware of Obama’s op-ed plea, or he had no opportunity for a follow up question.
But the art of word parsing is this TOTUS’ specialty. In Obama’s language, because he did not specifically did not use the words “spend more” means he wasn’t telling them to spend more. Yet others don’t hear it that way. Time Magazine interpreted Obama’s statement: “It’s very important to make sure that other countries are moving in the same direction, because the global economy is all tied together.” as an insistence that the world’s top economies adopt aggressive, America-sized spending programs. And the EU countries have accepted his “global” ovatures as meaning the same.
After the two minutes of deny/redefine, Obama addressed the dollar’s health…
…. I would just point out that the dollar is extraordinarily strong right now. And the reason the dollar is strong right now is because investors consider it – the United States – the strongest economy in the world.. and with the most stable political system in the world. So you don’t have to take my word for it. I think that there is a great deal of confidence that ultimately, although we are going thru a rough patch, that the prospects for the world economy are very very strong.
Were that true, why are we having this conversation? Why is China, our largest investor, plus Russia and the UN floating the very serious proposal to knock the dollar off it’s lofty perch?
Well… that was then, and today’s a new day. And evidently the parsing of words means a great deal. Because Geithner does a 90% turn in a CFR interview chit chat, suggesting that he is “open” to the Chinese compromise proposal.
“I haven’t read the governor’s proposal. He’s a very thoughtful, very careful distinguished central banker. I generally find him sensible on every issue,” Geithner said, saying that however his interpretation of the proposal was to increase the use of International Monetary Fund’s special drawing rights — shares in the body held by its members — not creating a new currency in the literal sense.
“We’re actually quite open to that suggestion – you should see it as rather evolutionary rather building on the current architecture rather than moving us to global monetary union,” he said.
“The only thing concrete I saw was expanding the use of the [special drawing rights],” Geithner said. “Anything he’s thinking about deserves some consideration.”
The continued use of the dollar as a reserve currency, he added, “depends..on how effective we are in the United States…at getting our fiscal system back to the point where people judge it as sustainable over time.”
Apparently the absolute confidence in the dollar stated in the preceding hours has it’s caveats….
Despite all the Obama administration denials, everything they are doing – in conjunction with “Helicopter Ben” Bernanke, busy in the back room printing an overabundance of US currency in order to meet Geithner’s toxic asset buy up – is laying the foundation for the creation of a global currency. The dollar devaluation depends upon the bet that flooding the world with undervalued US dollars will result in the ability to repay that debt quickly with increased revenue from a rejuvenated US economy.
In light of much of the world’s vote of “no confidence” in the dollar… most especially that of our largest foreign investor… the gambling stakes are especially high. Obama and his economic team can mouth all the positive platitudes in the world, but it will still not “change” the course they have chosen to trod with unprecedented spending, instead of Congressional belt tightening.
Playing with the status of the dollar is a large gamble for Obama to take using the taxpayers’ earnings as the ante. And that is indeed “change” we can believe in.
Vietnam era Navy wife, indy/conservative, and an official California escapee now residing as a red speck in the sea of Oregon blue.