James Pethokoukis

Politics and policy from inside Washington

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

Oct 28, 2010 15:02 UTC

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.

COMMENT

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

BRICs and the move to dump the dollar

Jun 15, 2009 14:18 UTC

Great, great stuff from the great Andy Busch of BMO Capital Markets:

According to the US Treasury, the two largest holders of U.S. debt are China with $768 billion and Japan with $687 billion.  Brazil owns $126.6 billion and Russia owns $138.4 billion.  Without question, markets were nervous over the actions by these players during the last auction period by the US government.  While it may seem that they are going to continue to buy US dollars and buy US debt, they are telling the world they are actively seeking alternatives.
There may not be many alternatives now, but over long enough time frames there will be.  More importantly, the BRICs are telling the world they want to find ways out of investing in a country that is fiscally irresponsible and unlikely (healthcare) to change their spending habits any time soon.  Eventually, they will find a way.

Asia, the dollar and gold

Jun 4, 2009 16:10 UTC

OK, so it looks like Rising Asia is trying to get on the same currency page. Now lots of people think rumblings of the region dumping the dollar are empty threats. Where are they going to go, right? The euro? Please. David Goldman of the fantastic  Inner Workings blog thinks he has it figured out bold is mine):

The Asian exit from the dollar will be turtle-slow and gradual. China and Japan between them have nearly $2 trillion worth of US Treasury securities and will do nothing to jeapordize their existing investment. But the collapse of governance in the United States and the Obama administration’s response have turned the US into a zombie economy, and the dollar into a zombie currency. The Euro offers no alternative. Demographically Europe is dying, and Europe’s economic misery is worse than America’s. … Apart from the problem of protecting a massive existing investment in the dollar, Asia has another problem in existing from the dollar: there exists no natural alternative. An alternative would have to be constructed.  … Asia may have passed a milestone in monetary cooperation, but China, India and Japan never will establish the sort of political rapport that allows for currency union along European lines. To link their currencies would require an agreement to employ an objective benchmark for monetary policy, and the obvious choice would be some basket of commodities. … This is a five, perhaps a ten-year project, to be executed very gradually and very carefully as the Treasury’s largest foreign investors gradually reduce exposure to the US market and create their own financial markets.

COMMENT

Nice post. Keep it up.

Cheers,
Sandy

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