Treasury Sec Snow Laughs Off Collapse of Dollar

U.S.'s Snow Laughs Off Dollar's Drop to Record: Mark Gilbert

Nov. 17 (Bloomberg) -- ``The history of efforts to impose non- market valuations on currencies is at best unrewarding and checkered,'' was U.S. Treasury Secretary John Snow's response today to a question about whether the U.S. might join with other countries in a bid to arrest the dollar's decline.

The currency market quickly parsed Snow's comment, made in London at a briefing on global economies, and came up with its own translation: ``Sell the dollar.''

Down it went, dropping to a record $1.3048 against the euro and slumping to 104.29 against the yen. When Bloomberg reporter Edie Lush told him his comments were driving the dollar lower and his alleged ``strong dollar'' policy wasn't working, Snow chuckled. ``The policy is the policy,'' he said.

Snow, looking scarily like Jack Nicholson in his role as the Joker in the ``Batman'' movie, is laughing all the way to narrower deficits. His lips said, ``No-one ever devalued their way to prosperity.'' His eyes seemed to be saying, ``There's no way I'm bailing out a bunch of cheese-eating surrender monkeys who can't even lick their trade unions into shape.''

The U.S. currency continues to disregard every piece of good news that would typically drive it higher. It ignored yesterday's figures showing U.S. producer prices jumped 1.7 percent last month, their biggest surge in 14 years. It ignored U.S. Treasury figures showing international investors bought a net $63.4 billion of U.S. assets in September, the most since June.

Moving to Higher Ground

And it ignored the latest comment from the Federal Reserve flagging its intention to keep pushing the benchmark U.S. interest rate higher. ``There is certainly more ground to cover,'' Chicago Fed President Michael Moskow told his local chamber of commerce yesterday.

In contrast, there's little prospect of an interest rate increase from the European Central Bank in coming months, with growth slumping to 0.3 percent in the third quarter for the 12 nations that use the euro. The Fed has doubled its overnight target rate to 2 percent this year, so the benchmark rates in the U.S. and Europe are level for now. Even with the prospect of a widening gap that should promise higher returns on dollar deposits, the U.S. currency isn't rallying.

Room to Raise Rates

That's because currency traders are growing more convinced that the Fed is as happy as the U.S. government to watch the dollar drop. ``The issue for the Fed is getting the Fed funds rate back up, so they can cut it again in future if they need to,'' says Steve Major, global head of fixed-income strategy at HSBC Holdings Plc in London. ``A weaker dollar allows them to do that.''

Asked by Heidi Crebo-Rediker of Bear Stearns Cos. how he expected overseas holders of U.S. Treasuries to react to the losses the dollar will inflict on their investments, Snow segued into a long joke, the punch line of which was ``no comment.'' That's not funny when international investors own $1.9 trillion of the $3.8 trillion of marketable U.S. Treasury securities.

So far, the U.S. government has been able to feed its $55 billion-per-month addiction to the foreign capital needed to fund the current-account deficit by relying on overseas purchases of its bonds. Yesterday's figures showed international investors bought $19.2 billion of government debt in September, up from $14.6 billion in the previous month.

The figures also showed that Japan dumped Treasuries for the first month since October 2002, with net sales of $1.5 billion.

A Chorus Line

Maybe Japanese investors have been listening to the chorus of Fed officials warning that U.S. economic policies threaten the health of the Treasury market. Yesterday, it was the turn of Philadelphia Fed President Anthony Santomero to caution that ``the issue of how a cyclically balanced budget will be restored introduces another element of uncertainty in the outlook.''

Tim Bond, the global head of rates strategy at Barclays Capital in London, says it's ``an odd time'' for the Fed to embrace a weaker dollar as a means of slimming the current-account deficit, given worries about the government's enthusiasm for more tax cuts.

``A suspicion lurks that the renewed emphasis on the current account position betrays an attempt to remove the source of temptation -- ultra-cheap foreign financing -- before the politicians manage to enact some truly disastrous policies,'' Bond wrote in a research note yesterday.

With every grin, every shrug of the shoulders, every elusive response to perfectly straightforward questions, Snow told Europe and Japan that a weaker dollar is just fine by him. Strong growth, he said, is what will narrow the U.S. trade gap from last year's record $496.5 billion, and the current account deficit from the $166.2 billion reached in the second quarter.

What he meant was, the U.S. is happily devaluing its way to an improved deficit position.
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The most inept administration in the history of our republic is steadily guiding us to third world status. Years from now, you won't be able to find anyone who will admit she or he voted for Bush.