Home News Obama is not responsible for the dollar

Obama is not responsible for the dollar

49
0

The greenback’s decline began long before the arrival to power of Barack Obama.

Many analysts will tell you that the dollar is doing badly. The various measures implemented to counteract the crisis have, in their view, had the effect of weakening the dollar. Officials designated the one hand, the Federal Reserve has reduced interest rates to zero, printed tickets, and largely inflated its balance sheet on the other, the Obama administration, which has generated a considerable deficit favoring a Keynesian approach to economic recovery.

In July 2008 (several months before the presidential election), Douglas Holtz-Eakin, economic adviser to McCain, Obama already accused of being responsible for the weak dollar. See this article site Conservative Daily News, which advocates (like many others before him) the argument that the U.S. administration weakens the dollar to boost exports. Niall Ferguson, author of This cover story declining and for anti-Keynesian NewsweekSaid in October that the dollar could lose 20% of its value against the euro in the years to come. John Paulson who made billions betting against the mortgage subprime type (read about the book by Gregory Zuckerman, "The Greatest Trade Ever"), Also put on the falling dollar.

But like so many political and economic theories recently advanced by the Conservatives, said the argument of "weak dollar" ignores current data, or recent history.

We can say that Bernanke, Bush and Obama had little choice they had to lower interest rates, ensuring the rear of the markets and bail out financial institutions. The most expensive of the rescue plan – the TARP, the redemption of debt of Fannie Mae and Freddie Mac, the rescue of AIG – were set up under the presidency of George W. Bush, not under that of Obama. The soaring deficit is as much due to the collapse in tax revenues as imprudent new government spending. Did you know? Public spending is down 4% for the first two months of the fiscal year, compared with the first two months of last year. (Unfortunately, their incomes are falling too: -4.3%).

Bernanke and Obama have for weakening the dollar? The first anti-crisis inaugurated in summer 2008 under the Bush presidency, they have lost its value to the dollar? Not really. The simplest measure of the dollar’s strength rests with the trade-weighted dollar "measure that assesses the weight of the greenback against the currencies of our trading partners. (For information, here is the list of our ten main partners: Canada, China, Mexico, Japan, Germany, the United Kingdom, South Korea, France, Taiwan and Brazil.) Here graphical analysis of long-term trade-weighted dollar index. By observing, we note first that since the crisis has settled for good (which I believe dates back to spring 2008, when Bear Stearns went bankrupt), the dollar has actually gained ground on currencies of our major trading partners. It reached its climax during the panic of autumn 2008 (when investors saw the dollar as a safe haven), before plunging back then, recently, to recover. His current position is higher (+7%) than it occupied during the trough in mid-2008, moreover, is almost identical to that of fall 2007 – before our troubles began, therefore. A graphical analysis over two years and show that money has not really lost its value.

Moreover, even when analyzing the performance of the dollar in the opponent of national currencies, there is no evidence that he has really lost its value. He has certainly lost ground against some currencies (Japanese yen, the Chinese Yuan), as shows this graph. (Of course, when the dollar against the yuan, its movements are always conditioned by the mercantilist policies of China, not by investors who bet on the relative value of currencies. Everyone or almost agrees on one point : the dollar’s interest to be weak against the yuan.)

Against certain currencies, the dollar has remained stable since the beginning of the crisis. Here graphical analysis of five years of the evolution of the dollar against the euro (collectively, the countries of the euro represents a trading partner of the United States to the forefront). The document tells us that his current position is almost identical to that of October 2007, and has reached its peak in July 2008. Same thing with regard to the U.S. dollar against the Canadian dollar. By comparing the dollar to currencies other key partners (the British pound, Mexican peso, the South Korean won), there is a significant resurgence of the dollar.

While the graphics are actually reported a decline in the long term. But it did not start in January 2009 (with the inauguration of President Obama), nor in March 2008, (when the Fed has launched to rescue the financial system by guaranteeing certain assets of Bear Stearns). Let us again Chart of trade-weighted dollar. Between the 2002 peak and the trough of 2008, the dollar has lost 27% of its value. If you believe this drop is attributable to the main monetary and fiscal authorities of this country (Reserve chairman and the president), then it seems that the culprits are well known to all: Alan Greenspan and George W. Bush …

The recent rise (and the relative stability) of the dollar could well be a mirage. If inflation gets carried away, or if economic conditions deteriorate, there is nothing unreasonable to imagine that the currency collapses.

The alternative is the following. Either one assumes that the U.S. economy will drag down the table for several years, and inflation will soar, in this case, a prolonged weakening of the dollar seems highly likely. Either you think the economy is taking a fresh start, and we can perhaps expect a growth rate of 3 or 4% for 2010 (the latest estimates of Macroeconomic Advisers gave an annualized growth rate of GDP of 5.4% for the fourth quarter) that the United States benefit from higher growth than the United Kingdom, the eurozone and Japan, and that inflation, which has increased only 1.8% in one year, will remain under control … And then, no doubt: the future of the dollar seems a bit rosier.

Daniel Gross