I have been saying for a while now that it is NOT about the taxpayer - it is about the bond seller(s). Remember folks, the basis for the economic "recovery plan" is built upon a debt engine - an engine where the consumer taxpayer is already in the hole for $50 trillion or so, a government addicted to red ink deficits, and an insatiable military-industrial complex.
US officials talked up the dollar this morning in a desperate attempt to deflect Chinese and Russian criticism of American fiscal profligacy. Secretary of the Treasury Geithner even managed to strike a vaguely conciliatory tone in his latest diplomatic communique w/the Chinese - at once defending the dollar but also acknowledging China's concerns.
This was an abrupt change from his tone yesterday when he refused to consider the idea of the Chinese SDR "Super Reserve Currency." Dollar bulls like Obama and Geithner have been astoundingly arrogant in their defense of King Dollar. Their assertions rest on the assumption that China is too economically tied to its mercantilist trade policy of cheaply manufactured goods for Treasuries.
Well, Rome did not fall in a day but eventually collapsed due in part to currency depreciation. US leverage has been slowly dwindling due to a decline in Chinese exports. Similarly, once past a certain point in consumer purchases have been reached, Chinese officials see no further benefit to continue subsidizing America's deficits.
But perhaps I am being too kind to Geithner.
Kathy Lien, forex commentator, had this to say:
Even though President Obama said that the dollar is strong and there is no need for a reserve currency, Geithner suggested this morning that the U.S. is “quite open” to China’s suggestion of moving towards a Special Drawing Right (SDR) linked currency system. But just as quickly as he made those comments, he retracted them probably because an aide told him that the U.S. dollar is tanking. Minutes later, Geithner said there is “no change in dollar as world’s reserve currency and likely to remain so for long time.”
These contradictory statements are clearly the act of an amateur Treasury Secretary that is forced to eat his words.
=DJ UPDATE: WORLD FOREX: Dlr Off Lows As Geithner Clarifies Remark
By Riva Froymovich Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The dollar, which fell to session lows against the euro and yen Wednesday morning after U.S. Treasury Secretary Timothy Geithner said he is open to considering a new global reserve currency, came off those lows after Geithner clarified his remarks.
The secretary said the U.S. will act to keep the dollar the key reserve currency.
"The dollar remains the world's dominant reserve currency. I think that's likely to continue for a long period of time," Geithner said. "As a country we will do what is necessary to make sure we are sustaining confidence in our financial markets" and economy, and that will support the dollar.
The issue of a new global reserve currency to replace the dollar has built up steam lately, after both China and Russia proposed expanding a Special Drawing Rights, or a unified basket of currencies issued by the International Monetary Fund. An independent expert panel convened by the United Nations is also expected to recommend an expanded SDR this week.
Geithner earlier Wednesday said he hasn't yet read China's proposal, but that he was "open" to considering expanding an SDR. He also said he believes the market may have gotten ahead of itself in interpreting the Chinese proposal as a move to unseat the dollar as the world's primary reserve currency.
This contradicts comments he made Tuesday, when along with Federal Reserve Chairman Ben Bernanke, he denounced the idea of a new global reserve currency. President Barack Obama also reaffirmed his belief in the strength of the U.S. dollar at a prime-time press conference at the White House Tuesday night. Obama said that global investors still looked upon the dollar as a safe investment, and the U.S. economy as more stable than others around the world.
-By Riva Froymovich, Dow Jones Newswires; 201 938-5063; email@example.com
(Michael S. Derby in New York contributed to this report.)
(END) Dow Jones Newswires
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