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.
@Dave
First, my issue isn’t with CBO numbers. They are merely a snapshot of what todays numbers will look like carried out over a period of time, assuming no other variable is changed. My issue is with how those numbers are interpreted and manipulated, and then used to justify those “radical solutions”. While you say that I can’t have it both ways when looking at the CBO numbers, I am saying the same thing about the left. You pointed out that Bush doubled the national debt in eight years, but Obama’s spending plans promise to do that yet again, in even less time. And don’t forget, the largest years of Bush’s spending increases happened while the Democrats controlled congress, including Obama.
I argue that doing nothing would have been better than what Obama has done. Economic circles are fickle, and have a tendency to find balance. What we have had is an artificially induced economic imbalance created by a housing bubble and price fixing of oil by the middle east, exacerbated by the doom and gloom congressional campaigns of 2006 and 2008 and the hellfire and brimstone doom and gloom presidential campaign of 2008. Had we let the wave run its course without Obama’s “radical solutions”, I believe we would have forged through the recession by the middle of this year without the destructive devaluation of the dollar and the coming risk of hyperinflation.
@Dave Noble:
You bring up a fair point; but do yourself a disservice by outright rejection without researching. Read the book. Take issue with the message rather than the messenger. Discover for yourself whether he is cherry-picking his facts or misrepresenting them; or if he’s presenting to you information that rectifies versions of history that you’ve embraced as the defacto correct ones to believe.
Credibility is earned, and I think Medved is head and shoulders above most pundits. We all cite journalists and other researchers quite often in a similar spirit that we cite from academics. Some of it has to do with lack of time to pour through hundreds of pages of legislative bills ourselves; so we rely upon those we trust to do it for us, then give it to us in bite-size digestible talking points. In other cases, I simply don’t know enough to read legislative material and know what it is that I am reading about. I simply do not have the time to become an economic historian on FDR, so I rely upon the information and research of others to do that legwork.
But even academics and so-called “experts” get it wrong. Perspectives change; historical interpretation can be fluid.
Simply because they have that PhD by their name doesn’t mean automatic credibility. Take Howard Zinn, Juan Cole, Ward Churchill, for instance. Is it right that Noam Chomsky is read in college history courses? Why them?
Medved’s book is aimed at the layman, not academia. He’s bringing the information of academia and presenting it in a format that has popular appeal. Perhaps you’re right about the title, and he should have titled it in more dry terms. After all, Howard Zinn titled his book “A People’s History of the United States”, rather than “An anti-American history of the imperialist United States”.
In some cases, Medved does one better, and does the job of academic researchers and reads from the same documents, journals, diaries, and sources that scholars base their interpretations and knowledge from. Ward Churchill is a professor. On the issue of (re: slander) infecting Native American Indians with small pox who has more credibility: Churchill or Medved? Will you reject Medved and accept Churchill’s view because one you dismiss as a mere “movie critic” while the other has the academic doctorate? Medved’s not the one making things up out of thin air.
For this matter, why listen to anyone about anything when we’re speaking outside our field of expertise in terms of tenure, profession, or professorship? Why should I listen to you regarding FDR? Why should you listen to me? Why read FA regarding what the Phase II final Senate Select Intell Committe’s report on prewar intell says? Why trust what a journalist says about it when the journalist probably is only regurgitating a list of bullet points- if even that? Whereas Scott (FA author) has the non-doctorate, non-certified expertise of spending an inordinate amount of time pouring through intell reports, and probably knows more about the subject matter on pre-war intell and the run-up to war than anyone else?
What I’m getting at here, is don’t dismiss Medved because you only see him as a movie critic. Read his book and judge for yourself. Look at the list of resources cited in the back of his book.
If Medved is wrong more often than he’s right, then yes, I’d be more skeptical than trusting of anything else he says. Again: Credibility is earned. Which is why the image of so many newspapers has been damaged over recent years.
And once again: Credibility is earned. Not automatically given. It does matter that “he footnotes other more credible sources”; because if what he says is baloney, then so are those so-called “credible sources”, unless he’s misrepresenting them.
Whose facts, Dave? What I’m saying is don’t reject before you research. Take a look at the “economic and historical facts” cited so that you know exactly what it is you are rejecting. You haven’t even bothered to peruse the pages of Ch6 in Medved’s book, have you? Why reject the views of the economists Medved is looking to for his knowledge because he isn’t the economists themselves?
And from what I recall, you were just as wrong then. 😉 But what do I know?
China is simply flexing its economic muscle before the G20 meeting.
http://pacificgatepost.blogspot.com/2009/03/chinas-weak-gambit-on-currency-shift.html
The U.S. Dollar is not about to be replaced, regardless what China’s wishes might be.
BTW, thanks for the note on Obama’s lying.
He seems to tell some huge lies on a fairly regular basis … something that perhaps comes with moving into the White House. No one in the MSM is even close to breathing a word about it. Sighhh.