by George Gilder (from the Telecosm Forum today):
(Note: Bloomberg reports that "U.S. Treasury Secretary Timothy F. Geithner embarked on a previously unscheduled trip to China as the world's third-largest economy weighs letting its currency appreciate.
"Geithner is facing demands from Congress to label China a currency manipulator for keeping the value of the yuan at about 6.8 to the dollar, which some U.S. lawmakers say gives unfair advantage to Chinese exporters.")
This (policy prescription) is deadly for the dollar (and to all US assets, savings, and investments) if you believe that the Chinese will pay any attention to Geithner.
In any case, it is bad news because it reaffirms that the Administration, and many Congresstools, seek to weaken the currency. That is bad for the currency and bad for the country.
Simpletons always believe that a lower dollar helps exports. In fact, it temporarily helps commodity exports, such as fungible farm products sold on price. It hurts high tech products that use inputs from around the globe and are sold on unique functionality and design rather than chiefly on price.
Thus Geithner is moving us toward the Third World, where Obama may be more comfortable. The ultimate plan is to inflate away American debt burdens and thus avoid real economic disciplines and costly real productivity gains that require major reductions in tax rates and green regs.
(QUESTION: What will this future look like if the world stops buying our debt?)
The problem is not the world's view of the dollar. The United States economy as global leader, surrounded by equally improvident OECD powers, is beleaguered from within, not from without. The world wants a strong dollar and still respects the US currency. It is the world's support for the dollar that creates the trade gap and enriches the high tech economy. But the U.S. government wants a cheap dollar to balance trade, which means punishing the most profitable and competitive U.S. companies, import dependents all, and reducing the U.S. to indigent, but well balanced! equally distributed!, autarky.
Holding the most dollars, in the most tradable forms, the Wall Street-Obama axis is the chief factor in its price. Soros and Buffett are more alacritous sellers than the stolid Chinese. And myopic Wall Street arbitrageurs in general tend to like a cheap, volatile, liquid currency, which offers many arbitrage opportunities. But a cheap volatile currency will ultimately doom the U.S. to a role flailing around in third world commodity trading pits, imagining that gold and silver are national assets rather than merely personal protective buffers and baubles.