Saturday, April 12, 2008

G7 and Paulson Jaw-Boning About the Dollar

If Paulson's past statements are anything to go by ("The US believes in a strong dollar [snigger, snigger]"), you can bet the dollar is headed for lower territory.

According to this article in the Wall Street Journal, the G7 have decided to complain about the dollar's poor performance.

What neither the article nor Paulson tells us is that the Federal Reserve and/or Treasury Department and their agencies have been purposely trashing the dollar over the last few years, in a misguided effort to pump up the US economy a la Keynes, and more recently to reverse the trade deficit. (See this previous post for the details on the Peterson Institute's activities in this regard.)

Only problem is: (1) They keep stating simultaneously and hypocritically that America believes in a strong dollar, just as they trash it some more; and (2) the weaker dollar they wanted is not curing the trade deficit after all, because we're a nation of net importers and their dollar trashing is--*duh*--raising the prices of our imports.

So just because they've come out today bellowing that "that's enough! The dollar has gone down below out tolerance level" doesn't mean that they mean it. This jaw-boning will probably have limited effect. After all, they're not magicians.

[Thanks to for the photo.]

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