Could Obama’s re-election plan be to devalue the dollar?

October 28, 2010

Will President Obama get re-elected in 2012 if his party suffers a crushing midterm defeat? His political team likes to point to the example of Ronald Reagan. Congressional Republicans were crushed in the 1982 midterms, but the Gipper cruised to victory two years later.

Of course, the “Morning in America II” scenario depends on a fast economic recovery. Unemployment fell from 10.8 percent in November 1982 to 7.2 percent in November 1984. GDP growth was 4.5 percent in 1983 and 7.2 percent in 1984.

But most economic forecasts don’t anticipate such a boom in America’s near future. More likely is trend growth — about 3 percent or so — with unemployment still over 8 percent by the end of 2012. At best, those numbers suggest a very close presidential contest. And current polls show the president will have a tough time again winning such electoral-vote rich states as Ohio, Michigan, Florida, Indiana, Pennsylvania, Wisconsin and North Carolina.

Obama could try to emulate Reagan by proposing a massive tax cut, but that seems unlikely given the administration’s belief that America is under-taxed right now.

But there is another way, although it is amazingly risky. A Bloomberg story, using a simulation run by Macroeconomic Advisers predicts a 10 percent decline in the dollar in the first six months of next year would do the following:

1. Gross domestic product would rise 1.1 percentage points more than the St. Louis-based firm’s baseline forecast for next year, to 4.8 percent.

2. In 2012, growth of 5.7 percent would exceed the baseline forecast by 1.3 percentage points.

3. Unemployment would fall to 7 percent by the end of 2012, 1.4 points lower than the firm’s baseline forecast.

There you go, Morning in America II, thanks to the weak dollar — unless of course the dollar starts plunging out of control, boosting inflation and creating a panic.

Treasury Secretary Timothy Geithner says he supports a strong dollar — although he wants it to weaken vs. the yuan — but does the White House political team share that view? And what about Ben Bernanke? Here is an interesting bit from a recent Reuters story:

While U.S. Treasury Secretary Timothy Geithner reiterated that the United States supports a strong dollar at the G20 meeting, there were few takers for that. “It is one thing for the Treasury to say that, but then the Fed holds all the ammunition and when it is set to print more money, the dollar will remain a weakened currency,” said Jane Foley, senior currency strategist at Rabobank.

3 comments

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[...] I’m more concerned about things like this: because honestly, who doesn’t think a needy narcissist wouldn’t pull out any and all [...]

Anyone who has associated with Bilderberg Group does not get my vote. Research will show that Obama, the Clintons, Henry Kissinger, the Rockefellers, and others..worldwide..do belong and/or associate with this group..and many sadly vote for them.

Posted by mamaw707 | Report as abusive

[...] Pethokoukis quotes from a study that wonders what happens should the dollar be devalued by 10%: 1. Gross domestic [...]

[...] The End is Nigh! Comedy Central Grand Junction Free Press -Dubuque Telegraph Herald -Reuters Blogs (blog) all 113 news articles » Tags: English, Top StoriesPosted in World [...]

[...] Could Obama’s re-election plan be to devalue the dollar? (Hat Tip: Kim Priestap) [...]

I feel as though even though it has been through some rough times Obama should still be president because he is working hard on making proactive decisions to change America.

Posted by dathompson3 | Report as abusive

[...] And it’s likely going to get much, MUCH worse.  Because Obama is truly an enemy of a strong, stable America. [...]

Of corse Obama is trying to devalue the dollar, he said he wanted too before he was elected. He wants to bring us down to third world level, so that the world is more fair. It doesn’t matter to him, that we the people are paying for every cent he devalues the dollar by. It is the great hidden sales tax in the world, and Obama will try to ake credit for any phoney statistical improvements caused by what he and the fed are doing, while we all have and will suffer for it.

Posted by BaineSumpin | Report as abusive