U.S. Monetary Policy Does Not Make a Strong Dollar

U.S. Secretary of Treasury Timothy Geithner recently stated that: "Given the dollar’s role in the international financial system and the significant impact of the U.S. economy on global economic conditions, we fully recognize that the United States has a special responsibility to play... The policies of the United States are designed to lay the conditions for a strong dollar and more stability in the international monetary system."

Say what, Mr. Secretary?

There is a serious disconnect in Mr. Geithner's reasoning in this statement. Although it is true that the U.S. Dollar has been comparatively strong in recent days, we hazard to say that this is probably a temporary state of affairs. As ShadowStats.com shows, the Dollar has experienced a relative peak, but is is, as of July 6th, in a steep decline. Additionally, deflationary trends to the tune of about 2% has apparently developed, rendering every dollar in circulation slightly more powerful as time goes on.

However, we posit the exchange strength of the Dollar is liminal; the currency markets are probably changing their minds about the relative value of the Dollar. More telling, though, is the continuing growth of the M1 Money Supply - physical cash and currency in chequeing accounts. That section of the Money Supply is increasing at a whopping 18% annualised... and shows no sign of slowing.

It is that growth which will, eventually, kill the U.S. Dollar, and destroy the wealth of any holders of Dollar-denominated financial instruments (be they savings bonds or Treasury Bills). The Federal Reserve is desperate to prevent any deflation whatsoever, as deflation makes debts all the more painful to the indebited - think the U.S. Government. So, the Fed is pumping up M1 as fast as the printers can press new currency, in the attempt to stoke inflation and thus lessen the pain for the indebited.

We have faith in the Federal Reserve. They may be bumbling and rather silly, but we believe they'll get this stoking-inflation thing down pat. The question, in our minds, is not if, but when. When will the inflation rate rise to once again destroy purchasing power at a rate the Fed finds agreeable?

When that finally happens, and happen we think it shall, Mr. Geithner's "strong dollar" talk will at last be seen as the hot air it really is. We suspect that many investors in U.S. Government debt will see the handwriting on the wall at some point, but there will be many, many investors who will be horribly damaged by the looming inflation. We also suspect those investors will be none too happy with the United States, nor with Mr. Geithner. Hopefully he has his ranch in Argentina already bought and paid for...

This Week's Herbert Hoover Award

Today, we will give the Herbert Hoover Award to the individual most obviously lying through their teeth. Without further ado, onto this week's winner! Presenting (drum roll):

U.S. Secretary of Treasury Timothy Geithner

Recently in China, Secretary Geithner had the gall to inform the students of Peking University that he "believe[s] in a strong dollar," and that "Chinese [dollar-denominated] financial assets are very safe." Apparently the Secretary hasn't been informed that the term "strong dollar" is now a punch-line. Additionally, reviewing the excellent graphs of John William's Shadow Stats, we notice several disturbing things.

First is the value of the U.S. Dollar: it appears to be taking another little dip. We would like to draw your attention to the last high in the power of the Dollar, as it was in 2002 or so. The recent 'strength' of the U.S. Dollar only reached the purchasing power of 2006 Dollars... nothing to write home about.

Secondly, and this is the more damning graph, is the money supply; more precisely the M1 money supply (i.e. coin, paper money, and the deposits in chequeing accounts). As a general rule of thumb, increases in M1 usually correlate with inflation. So, if M1 is increasing at 16% or so, and the trend continues, one can reasonably expect inflation to be cooking along at a respectable 16% or so. We do hope the Chinese will do more than just laugh at the Treasury Secretary's bold-faced lie... perhaps they might use all their dollars to buy industrial and precious metals?

Congratulations, Mr. Secretary. Your trophy will be on your desk by Friday.

***

Runner-up in for the Award this week was Vice-President Joseph Biden, for stating the painfully obvious. "We know some of this money is going to be wasted," he said recently, referring to the Federal Government's bailout plan. Thank you, Mr. Vice-President, we already figured that one out.

As runner-up, Mr. Biden will receive a red origami crane.

Destructive Qualities of Stupidity in Government

Click here for part one of this topic.

Yesterday we wrote that we feel horrifyingly bad mis-investment has become the norm on the part of the U.S. Federal Government. As awful as that mis-investment is, at the same time, it only seems reasonable to assume that such activities can only go on for just so long before they cannot continue. When that end comes is anyone's guess, but we feel certain that the end will come.

At that time, American Citizens will collectively realise they live in a blasted country, and they will probably decide that changes are in order. The nation will have to learn humility and discipline. However, we feel the United States will likely have no domestic vision left to rebuild upon more-realistic and sustainable lines. The only choice will be to turn to the greatest economic and social friend the U.S. presently has: Canada.

As the largest trading partner of the U.S., as well as a cultural ally, Canada has been in a very good position to study the American mindset; it isn't a stretch to say that Canada understands the U.S. better than it does itself. In the future, it will likely be Canada, as the impartial observer, which will both understand the problems in the U.S., and have the best solutions.

That is, of course, unless the United States distances itself sufficiently from its northern neighbour. Although we understand the high-level visit by President Barack Obama to Canada was a warm success, we've been noticing what we feel is a very cold undercurrent in the Obama Administration. Point and case are the recent comments by Homeland Security Secretary Janet Napolitano. Here are some of the highlights:

"Yes, Canada is not Mexico... Nonetheless, to the extent that terrorists have come into our country or suspected or known terrorists have entered our country across a border, it's been across the Canadian border." "The fact of the matter is that Canada allows people into its country that we do not allow into ours."

These are not the first blatantly untrue things the Secretary has stated (read our article here). It confuses us: Secretary Napolitano is supposed to be one of the most informed persons in the U.S. Federal Government. In her hands rest the administration of, well, homeland security. Nevertheless, her comments are hogwash. As the Canadian ambassador to the U.S., Michal Wilson, to comment:

As the 9/11 commission reported in 2004, all of the 9/11 terrorists arrived in the United States from outside North America. They flew to major U.S. airports. They entered the U.S. with documents issued by the United States government, and no 9/11 terrorists came from Canada.

Since Secretary Napolitano should know this, we are forced to conclude she must, in fact, be an idiot. Her powerful position in the Obama Administration makes her a dangerous idiot. If she is successful in her attempts to strangle the U.S./Canadian border, in a manner akin to the U.S./Mexico border, we fear she will be negatively impacting the ability of the United States to pull itself together at the end of the 2007 Depression.

Such a clamping-down on the U,S./Canadian border is the worst possible thing to do during the Depression. There is no other time when international friendship and cooperation more important than a Depression, and Canada is the nearest functional neighbour of the U.S. What Secretary Napolitano proposes to do is, in a word, madness. She is voicing a destructive, out-of-control obsession with 'terrorists' and 'national security,' and she does not have the wits to see what she is doing.

There are many more examples of this stupidity in the Federal Government, but we feel that Secretary Napolitano's personal brand does not get the attention it deserves. We frankly consider her as destructive as Treasury Secretary Timothy Geithner's incessant Goldman Sachs donations, or Federal Reserve Chairman Ben Bernanke's voodoo monetary policies. All three persons are working hard to destroy what hopes the United States has: Geithner destroys the wealth; Bernanke destroys the money; Napolitano destroys relationships with those who can help save us from the previous two.

U.S. Leadership: Innocent or Guilty?

In his weekly editorial on Monday, James Kunstler laid out his belief that President Obama is a man able to provide the leadership necessary to lead the United States to what he sees as the future of the country: de-industrialised regional agriculture. His view is that, although the President may or many not have an understanding of the situation, Mr. Obama will rise to the occasion when needed. To quote:

"I think, he is going along, for the moment, with a consensus of wishes to prop up life as we know it at all costs.... I also think that circumstances will force Mr. Obama's hand before long -- specifically that a moment will arrive when he goes on TV and tells the American public that things have changed way beyond the scope of what they even imagined when they pulled the levers last fall and voted for an uncharted future."

Perhaps Mr. Kunstler is right, but we think not. The actions of the Obama Administration do not seem to be the actions of a "team" working towards legitimate, rational solutions to the present economic catastrophe. For example, Treasury Secretary Geithner's latest brainchild is eeriely familiar; we think he might have just ripped off some notes that former Secretary Hank Paulson left in the desk drawers.

No, we fear that Mr. Kunstler is hopeful, and not in a good way. He accepted the rhetoric of President Obama at face value, and is perhaps unwilling to address the lack of corrolation between Mr. Obama's words and the actions of the Administration. We feel the President is not the great bringer of change... but, we could be wrong. For instance, we though Geithner's new plan would crash the markets, but lo! it went up! So much for our omnipotence...

But seriously, the same questions we ask about the Administration are beginning to appear in more mainstream sources. Here is an article from, of all sources, the Rolling Stone - Mr. Kunstler's former employer - and from the pen of Mr. Matt Taibbi:

"The real question from here is whether the Obama administration is going to move to bring the financial system back to a place where sanity is restored and the general public can have a say in things[,] or whether the new financial bureaucracy will remain obscure, secretive and hopelessly complex."

We know which side we believe; it only remains to see if the Administration can put its actions in line with its rhetoric. Frankly, we don't think it ever will.

The Government is Flailing

It looks like an increasing possibility that Mr. Timothy Geithner, U.S. Treasury Secretary, may be the first major sacrifice on the Obama Administration's altar of Grand, Empty Gestures. The more President Obama has to say he fully supports Secretary Geithner, and that a resignation of the latter would not be accepted by the former, the more we wonder what is really going on. To put it simply, me thinks he protests too much.

Admittedly, Secretary Geithner's track record has not been stellar. The last time he announced a "sweeping regulatory change," the stock market promptly went into a nose-dive. The destructive qualities of what the Secretary is planning now is breathtaking: who knows what sort of vague, wishy-washy claptrap he might release? Who knows how badly the stock market may crash this time?

"Fix the markets!" the rabble cries. "Stop the corporate bonuses!"

We don't quite understand why, with all this free money bandied about, anyone is getting upset over such a little thing like bonuses. The amount of money concerned is pitifully small, compared to the trillions which the Government and the Federal Reserve is pouring out.

Still, the Government is putting on such a show over corporate bonuses. The U.S. House of Representatives has approved a 90% tax on that sort of thing, applying to "high-income employees by companies getting big government bailouts." The furor over the AIG bonuses is frothing royally, even as it becomes clear that the Treasury approved these bonuses. The solemn ritual of lip-service to oversight, Government thrift, and responsible bailout-ing continues...

It seems clear to us that both the pointless furor over bonuses, and the ongoing loss of confidence in the Treasury Secretary, is part of a larger problem in the U.S. Government: a complete, utter lack of planning and foresight. It's painfully obvious that the Obama Administration is simply throwing money around in bailout after bailout, on a completely ad hoc basis. For instance, the $9.7 trillion pledged to bailouts (and the like) would have paid off 90% of all mortgages in the United States.

But alas, such a simple, child-like solution is apparently beyond the Government's collective mental capacity. Instead, Uncle Sam stands out on the street-corners like a prostitute, hawking his wares to hedge fund managers and bank CEOs. "Hey, you! Yeah, you. You need money? Here, take as much as you want," he shrieks...

Trillion Dollar Welfare

We're certain that you have seen the recent flap about Ms. Nadya Suleman, from whose loins recently sprung a brood of eight premature babies. We extend our condolences to the people of California, whose tax-dollars will go toward the bill Ms. Suleman's fourteen children are piling up.

Honestly, we have to agree with the more negative views of Ms. Suleman's irresistable urge to breed: she is patently unable to feed and care for her previous six children, much less the additional eight. She should never have had any children, since she is unwilling or unable to work. If we were more impolitic, the term 'welfare queen' would come to mind. Thomas Malthus never seems quite so right...

But, we really must protest about Ms. Suleman's unfair treatment. Or rather, the unfair treatment of the bankers, the car companies, and the United States Government. Ms. Suleman's spawn will cost California tens of millions of dollars... but the unspeakable excesses of Wall Street and other scams are costing trillions, not to mention the integrity of the entire world banking system.

Let us be perfectly honest: Ms. Suleman is a leach, sucking money from productive people so that she can breed; Mr. Ben Bernanke, Mr. Bernard Madoff, Messrs. Timothy Geithner and Hank Paulson, Jr., and the rest of that lot... they are worse that leaches. They -- the Investorati -- are internal parasites, consuming everything of value from within, leaving only a dead husk behind.

Ms. Suleman rightly deserves the scorn she is receiving. But the Investorati deserve far, far worse than what she is getting. A sense of proportion must be kept in matters of welfare and bailouts; TARP and the $787 billion stimulus package is welfare of a grander scale than anything Ms. Suleman could ever absorb. American citizens should be rightly offended by Ms. Suleman, and frothing with pure rage at the bailouts.