Wednesday, October 7, 2009

Currency Manipulation: Obama's Secret Plan to Win the Mid-Terms?

Newspapers are running rampant with stories of the weakening dollar, gold is at an all time high and, rightfully so, people are beginning to get concerned. While President Obama is drawing some fire over the dollar's plunge, it is a story on the Daily Beast which caught our attention.

According to the Beast's Simon Johnson, the falling dollar may actually serve Democrats well in the 2010 mid-term elections. While Johnson's article is appealing to economists and policy wonks, it is also a bit confusing. However, his general theory on how a weakened dollar is summarized here:

"...think what a weaker dollar does for the industrial heartland, where so many congressional seats will be in play and where today it’s easier to export or compete against imports because the same dollar costs convert into fewer euros, yen, or renminbi (this is what a “weaker” dollar means—foreigners can more easily afford our goods and their stuff is more expensive to us). If the dollar stays weak or declines further, our car companies, machinery makers, and turbine blade manufacturers will soon be rehiring and we’ll finally get some job growth as part of our sputtering economic recovery."

Now, macro-economics was not a favorite course in college, however, the professor was a kindly old retired Fed economist who was good at explaining theory and putting it into normal, every day terms. [Not that it always helped.]

In sum, here is how a weakened dollar may turn out to help Dems retain (or even gain) seats in the 2010 mid-terms:
  1. Fed prints a lot of money, driving down value of dollar on worldwide markets

  2. Weaker dollar means imported goods are more expensive, exported goods cheaper for foreigners to buy

  3. More foreigners buy American-made exported goods, more jobs are generated.

  4. More jobs means the White House can claim "we did it!"

  5. Americans never realize they've been manipulated (like the dollar) and vote to keep the manipulators in office.

Hmmm. Sounds pretty easy, doesn't it? So, the question then becomes, is Ben Bernacke and Tim Geitner purposefully devaluing the dollar on the global markets to help Democrats win the mid-term elections?

Does anyone else smell a trap?

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  1. Only one small problem, perhaps... if the administration continues slapping tariffs on foreign goods, our key trading partners may put on their own tariffs, obviating any net export gain for us. Nonetheless, the dollar has been so devalued, and our debt increased so much, that other countries don't want to hold dollars, and the longer-term consequences are scary... at least, one hopes the consequences are longer-term and don't become shorter-term.

  2. The price in dollars of a barrel of crude or a gallon of gas is a powerful factor in your equation. So..."US exports" (what the hell are they? Cadillac cars... Disney movies??) become less expensive, foreigners (assuming they have any wealth) buy and "jobs" come back. And oil consumption goes up world wide and gas is $6 a gallon. The weaker dollar hits clothes, consumer electronics, seasonal foods, tools, etc.

    MORE LIKELY is they are counting on the weaker dollar to mediate some of the huge debt to GNP ratio. It's survival of the Fed!

    WHAT to do to win the election? Oh, they'll generate a "Crisis" to get through that. Iran.. China.. the Balkans...Any of five places in Africa. "CRISIS, ONLY WE CAN SOLVE IT".. will be the cry in Nov 2010. Not "Happy Productive Workers" Get ready.


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