Thread: Administration Does Not Rule Out Currency Intervention

Administration Does Not Rule Out Currency Intervention

Monday, June 9, 2008 6:30 PM

WASHINGTON -- President Bush's forceful call on Monday for a stronger U.S. dollar in the world economy may be coming a little late for Americans fed up with gas prices topping $4 a gallon and steadily rising costs of other imported goods.

As he left for Europe, the president said the U.S. is committed to keeping its currency strong, a point he clearly felt needed to be made after the dollar's long slide against the euro and other international currencies.

Bush's words signaled his administration's concerns about the economy. The sinking greenback is one reason that fuel prices are at record levels, and the run-up in energy prices is battering consumers and worsening the risk of recession.

"A strong dollar is in our nation's interests. It is in the interests of the global economy," Bush said outside the White House.

Bush and Treasury Secretary Henry Paulson appear to be easing away from their hands-off approach to managing the value of the dollar. While a strong dollar has long been stated U.S. policy, that usually has amounted to no more than rhetoric unbacked by specific steps.

The government has limited options for propping up the greenback, especially in an election year with rising unemployment, slumping consumer confidence and the worst housing market in decades.

Paulson declined to rule out direct intervention _ the buying by the government of dollars in currency markets _ as a way to influence the currency's value. Another way to shore up the dollar is for the Federal Reserve to raise interest rates _ seen as an unlikely prospect given the current state of the economy.

For seven years, the administration has refused to intervene in currency markets, even though the dollar has been sliding in value for most of the time Bush has been in office. The administration has insisted that currency levels should be set by free-market forces.

Bush, in an interview with the Times of London as he flew across the Atlantic, added to his earlier comments, saying, "We want the dollar to strengthen."

A weakening dollar has some economic advantages. It reduces the cost of U.S. goods sold overseas for instance, helping American manufacturers who depend on foreign markets. But it's also been a major factor in the rising gasoline prices.

European allies have urged the Bush administration to speak up more aggressively in defense of the dollar. And the president's unusual comments on Monday seemed to be an attempt to ease their concerns.

Since oil worldwide is priced in dollars, Europeans blame some of their own inflation on the weakening dollar.

Departing from the White House for a weeklong trip, Bush said he would discuss the state of the U.S. economy with European leaders.

"A lot of Americans are concerned about our economy. I can understand why. Gasoline prices are high; energy prices are high," he said.

The change in tone on dealing with the value of the dollar showed the pressure the administration is feeling to respond to soaring gasoline prices, which rose to a new nationwide average of $4.0233 on Monday, according a survey by AAA and the Oil Price Information Service.

While rising global demand for crude oil and market speculation are partly to blame for the price surge, the weak dollar has also played a role. Global oil producers are demanding higher prices for crude oil, which is priced in dollars, as the greenback has fallen to record lows this year against the euro and other currencies.

The comments by Bush and Paulson on Monday followed remarks by Federal Reserve Chairman Ben Bernanke last week that the dollar's steep decline had led to worrisome inflation. He stressed that the Fed was paying close attention to the situation.

All the talk about the dollar is being viewed as a coordinated effort at trying to "jawbone" the currency to a higher level. By hinting at possible government action such as direct intervention in currency markets or Fed actions to raise interest rates, it could make currency traders think twice about continuing to bet that the dollar will fall.

However, the campaign ran into trouble just as it was getting under way when Jean-Claude Trichet, the head of the European Central Bank, speaking the day after Bernanke last week, said the ECB might need to start raising interest rates because of inflation concerns.

Higher European interest rates could further drive down the value of the dollar because it would encourage foreign investors to gravitate to Europe where they could get a higher rate of return.

Asked Monday about Trichet's comments, Paulson said in an interview on CNBC that he believed America's strong long-term economic fundamentals "are going to shine through" and provide support for the dollar.

Asked if the administration would consider selling other currencies and buying dollars to support the greenback, Paulson said, "I would never take intervention off the table or any policy tool off the table. I just can't speculate about what we will or won't do."

The last time the United States intervened in currency markets was the fall of 2000 in the final year of the Clinton administration when the U.S. government sold dollars in an effort to support the weak euro.

http://moneynews.newsmax.com/financenew ... 03072.html

here we go!
The rollercoaster ride is now begining.
Make Americans finances a disaster and alot of Americans lose everything, then raise the rates to catch the rest of them that got away the first time. This administraition is the most incompetent bunch I have ever seen.

Was the dollar falling when rates were high before this mortgage fiasco?
Was the dollar falling when credit card companies were charging 26+% and still are?
Was the dollar falling when mortgage companies were charging 8 and 9% before this mortgage meltdown?

Yes, to all three. This isn't about interest rates, its about the cutting of government spending, not consumer spending. On one hand the president says we need consumer spending to keep the economy strong and cuts stimulas checks, then 2 months later he wants to increase interest rates which stiffle consumer spending. Now which is it Mr. Bush?
Remember when Americans that work for their money spend money, it is good sound money. This is the good money with real value we need to keep around. The government spending is bad and you always get less for the money when the government spends it, yet the goons in Washington want to keep the cronies in jobs that don't produce a thing other than debt.

The only way to keep a government workforce economy going is to keep the government money coming in. Raising interest rates will help the dollars value but the thing is, we're about 20 years behind the curve Mr. Bush. 2 months ago you said the dollar was strong, your administraition said people need lower interest rates to stop a serious economic downturn and therefore we needed stimulas checks. Mr. Bush, your a complete idiot.

The problem we have here is government spending plain and simple.
Cut the trillion dollar spending and that will help the dollar. Instead they prefer to cut our spending and what better way to do that than with a rate increase, and like always, the American people get the brunt of the butter knife when in reality, the big wigs and corporate subsidies get everything they want. The common American citizen loses yet again.