Time for the US Treasury to Offer Some Straight Talk

Time for the US Treasury to Offer Some Straight Talk

Pacifica Partners’ Financial Post Weekly Column – Nov 12th 2009


It seems that every time US Treasury Secretary Tim Geithner goes overseas, he ends up being ridiculed by just about everyone. This time it comes about because of his comments while in Tokyo in which he once again stated that a strong US dollar is in the interests of the United States.

This is not the first time that he has made these sorts of comments only to have the markets simply shrug. While in China several months ago, he was laughed at by his audience. This time, the markets are doing a lot worse than laughing. They continue to sell the US dollar at full speed and pile into gold. The US Dollar Index is now sitting at 15 month lows.

Geithner US Treasury Secretary

US Treasury Secretary Tim Geithner

The reason that nobody pays any attention to the comments of the Treasury Secretary is that quite simply – nobody believes him. Put another way, he has a credibility problem. The markets know that the United States government is not too bothered by the decline in the US dollar thus far because it is solves two problems for the American economy.

The first solution is a little more obvious in that a low US dollar makes US exports cheaper. By having exports rise, the US administration is trying to give the economy a helping hand. The problem with this solution is that Europe and Canada are finding their exports are suffering as a result. But the second solution that the US government is hoping for from a weak dollar is not so obvious. Perhaps hidden from mainstream view is the idea that the US is hoping that the nations of Asia and Europe will adapt their economies to rely less on exports to the US and instead begin to lean more on domestic demand in their own countries. The export driven growth model of these nations is being challenged by the US.In short, the US is saying that it is high time that these countries begin to shoulder more responsibility for world economic growth.

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Pacifica Partners are weekly columnists for the Financial Post

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This report is for information purposes only and is neither a solicitation for the purchase of securities nor an offer of securities. The information contained in this report has been compiled from sources we believe to be reliable, however, we make no guarantee, representation or warranty, expressed or implied, as to such information’s accuracy or completeness. All opinions and estimates contained in this report, whether or not our own, are based on assumptions we believe to be reasonable as of the date of the report and are subject to change without notice. Past performance is not indicative of future performance. Please note that, as at the date of this report, our firm may hold positions in some of the companies mentioned.

Copyright (C) 2009 Pacifica Partners Inc. All rights reserved.

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