Obama under fire over falling dollar

[frawin]

There is a limit to how much debt you can incur, even if you are the UN-United States of America, all of the reckless spending that our government is doing is going to take us down.

Obama under fire over falling dollar

By Edward Luce and Krishna Guha in Washington

Published: October 7 2009 19:37 | Last updated: October 8 2009 00:3



The falling US dollar is giving ammunition to the critics of the Obama administration and fuelling broader concerns about the potential erosion of America's reserve currency status.

Republican politicians have highlighted the dollar's slide as evidence of waning US power.

Sarah Palin, the former vice-presidential Republican candidate, on Wednesday sought to link the dollar decline to rising US indebtedness and dependence on foreign oil. "We can see the effect of this in the price of gold, which hit a record high today in response to fears about the weakened dollar," she wrote on her Facebook page.

With other nations also expressing concern about dollar weakness, the administration is at pains to emphasise that it understands the responsibilities that come with issuing the world's reserve currency and will live up to them.

"It is very important to the United States that we continue to have a strong dollar," Tim Geithner, Treasury secretary, said at the weekend. "We recognise that the dollar's important role in the system conveys special burdens and responsibilities on us and we are going to do everything necessary to make sure we sustain confidence."

Angst about the dollar – which has fallen 11.5 per cent on a trade-weighted basis over the past six months – extends beyond ideological conservative political circles.

Last week, Robert Zoellick, president of the World Bank, warned that "the United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency."

Much of today's debate echoes the traditional political response in the US whenever the currency depreciates. But it is now accompanied by warnings from America's creditors, many of which are widely rumoured to be eyeing large purchases of US real assets such as property and companies.

"The dollar has always been a testosterone issue among America's political classes," said Norm Ornstein, a veteran analyst at the conservative American Enterprise Institute.

"This time there may be a legitimate debate to be had over the dollar's reserve status, but Sarah Palin is not qualified to participate in it."

While the latest swoon in the dollar is attracting attention, analysts say that it needs to be put in context. In trade-weighted terms, the dollar is essentially back to where it was at the start of the financial crisis on August 9, 2007, according to Federal Reserve data.

While the price of gold has gone up, financial market measures of inflation expectations have not. The yield on the 10-year note was trading at 3.18 per cent on Wednesday. Indeed, analysts say that the dollar's slide stems more from investors' growing appetite for risk and the prospects of interest rate rises elsewhere.

"The first order reason for the decline in the dollar has been the normalisation of markets," said Ken Rogoff, a Harvard professor and former IMF chief economist. "The financial crisis probably has brought forward the day when the dollar is no longer dominant – but maybe from 75 years to 40 years."

[pamsback]

 He should be blamed for not reining it in but to say HE is totally responsible is a bit of a stretch. This has been comin for aWHILE, every party in our government is responsible, every person in Congress for the last 30 years at least.