Wall Street Weekly | 10/09/2009 12:45 pm

Sinking Dollar Fair Warning to Obama, by Liz Peek

Image: WhiteHouse.gov

Bears, Bulls, Chickens and Pigs: wOw’s Wall Street Weekly with Liz Peek (Week of 10/5)

Editor’s Note: Liz Peek is a financial columnist.

The New York Times ran a story this week about the art that the Obamas have chosen for the walls of the White House. Featured in the piece was a painting by Ed Ruscha. The chosen canvas has a red background with the words "wait a minute," "maybe yes" and "maybe no" floating across the space. What an appropriate choice for our young president, who is suddenly irresolute about Afghanistan. Having once pronounced Kabul as central to the war on terror (oops! make that the Overseas Contingency Operation), the president is now angling for a Goldilocks position: not too little, not too much, responding to polls that show waning support for our activities in that desperate country.

President Obama is uncertain not only about our military options, but also – dangerously – about economic choices. He recently affirmed while addressing a Wall Street crowd that "I’ve always been a strong believer in the power of the free market." That was good to hear, because almost none of his proposed programs suggest a love affair with capitalism. Instead, he has offered up one measure after another that substitutes government fiat for market economics – most notably in autos, health care and energy. The newest entry is the proposed Consumer Financial Protection Agency whose czar will be empowered to decide on "the manner, settings and circumstances for the provision of any consumer financial products or services." Moreover, he has revved up his antitrust department, sanctioned pro-labor policies burdensome to American employers and started a trade war.

This litany of business-unfriendly stances is taking a toll, not only on the president’s popularity, but on the dollar. The dollar took a sizeable hit this week (and gold soared) when the Australians boosted their key interest rate, signaling a recovery in that country. While earlier this year global investors drove the dollar briefly higher in their quest for safety, they have since had second thoughts. The euro, for instance, has gained 18% in value compared to the dollar since March. You don’t have to read the tea leaves to find reasons to sell the dollar – you can simply delve into the budget projections.

To put things in perspective, note that budget deficits in the U.K. are about to sink the Labour Government. The IMF puts the U.K. budget deficit this year at 11.6% of GDP and at 13.2% next year. The net public debt of Great Britain is expected to amount to 92% of GDP in 2014, up from 58% today and 38%in 2007. (The Obamacare folks should note that the IMF has called for the U.K. to rein in their health-care program, a leading budget-breaker.) The Brits are alarmed about this state of affairs, which is why they are about to junk their existing government. David Cameron, the Tory leader most likely to take over as Prime Minister, has warned that the country is in for tough times – severe cuts in social spending and higher taxes. That is not the usual campaign rhetoric, but the country is looking the future square on, and does not like what it sees.

Here’s the sobering news for the U.S.: we’re not that far behind the U.K. Our budget deficit will total 12.5% of GDP this year according to the IMF, and our national debt will soar to 85% of GDP by 2014. These figures are spurring talk that the dollar will no longer be the world’s reserve currency and that oil producers may move to price their product eventually in a basket of currencies.

249 Reader Comments (so far…) Sign In or Register to comment

Marjorie C, great answer! It is Obama’s version of what’s in the best interest of the Americans. I listened to Steve Wynn this morning CEO of Wynn Resorts in Nevada. He was stellar and right on the mark. He insisted that nothing will get better until people have jobs. Obama has not laid out a foundation in which to create jobs. As Wynn stated, he needed to take care of our small businesses the day he was in office. Wynn further stated that had he given an incentive to the small businesses to earn tax cuts by hiring new people and expanding we would not be in the mess we are in now. Jobs have to come first so that the unemployment goes down a point or two. When he goes down it gives Americans the confidence to spend again knowing that they have a job. We never needed all of these experimental bailouts. Obama didn’t save the country from disaster. He enhanced it by his wreckless spending. Why President Obama is continuing to ignore the most important element of a turnaround in a recession is mind boggling. It’s as if he doesn’t want the economy to turn around.

By deber B on 10/11/2009 11:25 am

e-mail alert

deber - you are so right! We can’t just continue to extend the unemployment payments in lieu of new jobs. Jobs definitely must come first. The economy should be, and should always have been, the #1 objective of this administration. Do they think they might have more control over people if they keep them unemployed and not working. Possibly a way to keep people under government control. After all, they took over banks, cars companies, why not throw the unemployed in there also. It would establish submission to the government for your daily needs as in unemployment checks.

"I’m from the government and I’m here to help you". Scary words!!!!

By Glenda Glynn on 10/11/2009 3:20 pm

e-mail alert

Marjorie, how does your opinion differ from any other Administration?

By C jay on 10/11/2009 12:02 pm

e-mail alert

…Yes I feel the POTUS should take his time and make a wise decision about additional Troops in Afghanistan BUT he was approached with this 9 months ago - how long does it take. By C Hardy on 10/09/2009 1:37 pm

At least President Obama is ‘thinking’ about his decision rather than JUST jumping into a war which we never should have been in!!!!

By Ro H on 10/12/2009 6:25 am

e-mail alert

Liz,

You are all over the map on this. I personally hate the falling dollar, but it was just a few years ago that we heard how it was actually good for America. Afterall, a falling dollar means our exports are cheaper and can raise exports, and possibly help balance the trade deficit. It also makes our labor cheaper and possibly entices manufacturers to stay here and keep jobs here. It also devalues the value of our debt (we owe less to foreigners).

On the negatives, it also makes buying U.S. debt less attractive (perhaps a good incentive to keep our deficit down?), and decreases our world power in economic terms.

As for Obama’s take on business. So far he hasn’t done anything to undo the free market. The one are that he should have been focusing — banks and wall street — he has pretty much left alone. As for businesses boohooing, I don’t buy it. Let’s look at it this way. Conservatives are constantly looking at the "glorious" past (that never really existed anyway), but if we were to look at the period of time that the U.S. had the strongest economic influence it was during its most regulated era — 1940s -1980. True, the regulations had gotten out of hand and overdone. But, we also have seen what happens when the regulations disappear.

I have a challenge for you. What would happen to the U.S. if the only change to health care was to force businesses to stop providing employer based health care? Let everyone buy their own — like auto insurance. It is a true free market solution. I bet you that the vast majority of anti-health care reformists would be begging for "socialized" medicine. Now, I am giving you this challenge not because I want to embrace any of the current proposals but to illustrate that the free market may not work best in all situations. You know as well as I do that there are definitely large areas of economic growth that are considered market failures — maybe healthcare should be considered one of them.

By camb 94 on 10/09/2009 1:45 pm

e-mail alert

"Charles Krauthammer has an article in the forthcoming Weekly Standard that, to their great credit, the editors of that journal have now made available online here. Although it only says what should be obvious, Krauthammer’s article is nonetheless a piece that should be read in its entirety by every American.

Krauthammer’s point is simple and unassailable. There is, he argues, an intimate connection between the foreign policy being pursued by the Obama administration and its domestic policy. The work undertaken in the domestic sphere by what I have called "Obama’s wrecking crew" will, he points out, put a stop to the pattern of dynamic economic growth that made it possible for the United States to defeat Japan, contribute decisively to the defeat of Nazi Germany, contain communism, and ultimately defeat and prepare the way for the dismemberment of the Soviet Union.

It will produce economic stagnation of the sort that the Europeans have suffered from for decades, and it will eventuate in a collapse of the American dollar

This, as Krauthammer shows, Obama and his minions understand, and this they want — the elimination of the foundations for American hegemony and the crippling of this country. They regard the role that we have thus far played in the world as shameful; they are intent on dismembering the alliances that gave us our heft in the world; and they are not only appeasing our sworn enemies but openly, publicly embracing them and their agenda.

This explains the praise showered on President Obama by Vladimir Putin, Hugo Chavez, and Fidel Castro. This is the meaning of our attempt to install a dictator in the Honduras on the model of Castro and Chavez; it is the meaning of our recent betrayal of Poland — on the 70th anniversary of the Soviet invasion of that country.

It explains why Obama initially responded to the open theft of an election in Iran by professing his confidence in the Iranian government and why the State Department recently cut off funds for the Iran Human Rights Documentation Center in New Haven, Connecticut, which was collecting information on the imprisonment, torture, and murder of those in Iran who protested against the theft of that election (for the details see this post).

It explains the deliberate insults offered Gordon Brown of Great Britain and Benjamin Netanyahu of Israel, which I catalogued here and here. And, of course, this explains the speeches given abroad again and again by President Obama, apologizing for American behavior in the past. and signaling a radical shift in American policy.

It is for this change of posture that our President has been awarded the Nobel Peace Prize. And if you think that the United States is the principal source of evil in the world, you should vigorously applaud. My bet is that in his acceptance speech Obama will confirm Charles Krauthammer’s worst fears and my own. "

http://www.powerlineblog.com/

By deber B on 10/09/2009 2:42 pm

e-mail alert

Deber B,

Charles Krauthammer is the best. I don’t miss him on TV or whatever he writes. Thank you for posting this. I’m waiting anxiously for him to be on in about 40 minutes. I bet it will be good. He is one not to mince words.

By Kathy Lee on 10/09/2009 5:12 pm

e-mail alert

"This, as Krauthammer shows, Obama and his minions understand, and this they want — the elimination of the foundations for American hegemony and the crippling of this country. They regard the role that we have thus far played in the world as shameful; they are intent on dismembering the alliances that gave us our heft in the world; and they are not only appeasing our sworn enemies but openly, publicly embracing them and their agenda."

This sums up the Obama White House and their far left leaning agenda. No wonder he snubbed all of our small businesses which would’ve turned the economy around. He didn’t want the economy to turn around because if he did, he would’ve done the right thing for Americans so that they wouldn’t lose those jobs.

By deber B on 10/10/2009 1:22 pm

e-mail alert

Deber B

First, this is an article about the economy and you are getting into foreign policy, but okay.

It is impossible for Mr. Krauthammer to know that Obama (and by correlation liberals/Democrats, etc.) "want" to destroy America. Did President Bush want to destroy world opinion of the United States by invading Iraq or was he just looking for regime change and WMDs?

Third, neoconservatives, like Mr. Krauthammer, love to wave the banner of patriotism and the beacon on the hill line of U.S. democracy and justice, while advocating military force with every country we disagree with. When Leo Strauss started the neoconservative movement in the 1940s and 1950s his belief was that if Americans didn’t focus on a fervent patriotism spurred on by fear, socially the seeds of democracy would be destroyed by wanton commercialism. What do you/we as a country really want? Do we want to be the world economic power — every other country be damned. Where we advocate coups and revolutions in any country that dares to disagree with us (see Guatemala 1954, Iran, 1956, Chile, 1973) while we preach democracy and morality at home? Or do we want to practice what we preach?

Before you accuse me of being some sort of liberal peacenik, I can assure you I am not. I just think that life is complicated. Look at it this way, in the late 1940s, the U.S. produced 40% of the world’s GDP!!! Unions were strong, industry was regulated and we produced almost half of everything produced in the world. There is no way to sustain that type of hegemony. So, now with deregulation, weaker unions, etc., we are barely hanging on the the 1st position in the world economy (and that may have fallen). As other countries gain economic growth they are going to be in competition with us. There will be inevitable conflicts (i.e. China — but 10 years ago it was Japan — in 5 years it may be India). If we want world growth, then there is an inevitable reduction of our relative position. If we don’t want world growth, then lets own that. I would love to hear a conservative come out and say what they really mean: "We like the U.S. the best because we live here, and yeah, Democracy is good, but only because it works for us, we don’t really care about the rest of the world. We are free to bomb, overthrow and exploit everyone else on the planet if that helps our economy." And if that isn’t what they are thinking, then how are they justifying our interference?

By camb 94 on 10/09/2009 9:45 pm

e-mail alert

camb 94, whoever you are, thank you for this intelligent response.

By phyllis Doyle Pepe on 10/09/2009 11:17 pm

e-mail alert

Thanks.

By camb 94 on 10/09/2009 11:39 pm

e-mail alert

Excellent post, camb 94! Even though I do not agree with all of your points this is a great rebuttal!

By deber B on 10/10/2009 5:25 am

e-mail alert

Excellent camb - more importantly, how is someone like Peek enabled to write on finance, much less the U.S. goverment, other than as a citizen with freedom of speech rights? That does concern me about this website.

By C jay on 10/10/2009 8:31 am

e-mail alert

C jay: That does concern me about this website.

This is a website of opinions. Theirs, yours and mine.

By Marjorie C. on 10/11/2009 11:05 am

e-mail alert

It’s mostly a sight for tabloid news, gossip, advice columns and the personal experiences of the mastheads. It is no longer a website for current news or anything negative about President Obama. Liz Peek brings information that actually stimulates intelligent conversation on our economy, unemployment, escalating deficits, Afghanistan, Iraq, Iran, Israel, the devaluing of the dollar, etc. all topics that are of utmost concern to Americans.

It is, indeed, a website of opinions.

By deber B on 10/11/2009 11:30 am