Will Obama devalue the dollar to save Democrats?
Economist David Rosenberg of Gluskin Sheff makes the speculative — and scary — case that high unemployment + 2010 elections = Obama will devalue the dollar to boost growth. Here is case:
1) The 2009 job market is terrible.
While more than 6 million jobs have been lost, what that number masks are the near 9 million people who saw their full-time positions eliminated. There were 3 million who were pushed into part-time work, and in fact, there are now a record 9 million Americans working part-time because of the weak economy, which is a 64% increase from a year ago. Against this backdrop of a growing part-time workforce, the private workweek was cut 2.3% this down-cycle to a record low 33.0 hours. We believe that we will actually see the jobless rate hit new post-WWII highs next year.
2) The 2010 job market will also be terrible.
It means that when the economy does begin to recover, when we finally get to the other side of the mountain, companies are going to raise their labour input first by lifting the workweek from its record low. Just to get back to the pre-recession level of 33.8 hours would be equivalent to hiring 3 million workers. And, the record number of people working part-time against their will are going to be pushed back into full-time, which will be great news for them, but not so great news for the 125,000 – 150,000 new entrants into the labour market every month. They won’t have it so easy because employers are going to tap their existing under-utilized resources first since that is common sense. Also keep in mind that there are at least 4 million jobs in retail, financial, construction and manufacturing jobs lost this cycle that are not coming back. In fact, the number of unemployed who were let go for permanent reasons as opposed to temporary layoff rose by more than 5 million this cycle. This compares to the 1.2 million increase in the 2001 tech-led recession and in the 1990-91 housing-led recession (when Ross Perot talked about the sucking sound of jobs into Mexico).
3) Obama and the Democrats know high unemployment is political death.
In other words, the unemployment rate could well stay on an upward trajectory for the next few years. As we said, 10.8% would be a headline-grabber because that is the post-WWII high, and what we do know with certainty is that 2010 is special because it is a mid-term election year. The last Democratic president with an ambitious health care plan was Bill Clinton and if you recall, his party was crushed in the 1994 mid-term elections and his agenda was derailed by Newt Gingrich’s ‘Contract with America’. We are convinced that President Obama is well aware of this, and more than likely well aware that a record unemployment rate (at least in the ‘modern era’) could well be a political hot potato for any incumbent, and it is debatable whether a year from now he will be able to continue to deflect the jobless rate problem onto W.
4) In a desperate act to boost growth, Obama drive down the dollar, the only policy option left.
In addition to knowing it is going to be an election year in 2010, we also know that we have a President who has, step by step, been taking feathers out of FDR’s cap in dealing with this modern day depression. The one item that has yet to be utilized is U.S. dollar depreciation, and if memory serves us correctly, FDR snuffed out the worst part of the Great Depression when he unilaterally devalued the dollar to gold in 1933 by 40% (and fixing the price of gold at $35/oz). We’re not sure that President Obama is going to re-price the dollar price of gold. Then again, can anything be ruled out? But we are sure that as the unemployment rate makes new highs and increasingly poses a political hurdle in a mid-term election year, that it would make perfect sense, for a country that always operates in its best interest — even if it may not be in everyone’s best interest — to sanction a U.S. dollar devaluation as a means to stimulate the domestic economy.
Rosenberg’s bottom line:
Remember, this is a premise. We are just conjecturizing. But it is interesting that the dollar is the only financial metric that is at the same level today as it was two years ago, and we are of the view that the risks are high that the greenback will be on a significant downward path by this time next year.