Wednesday, February 3, 2010

Obama: U.S. Must Address Currency Rates

Hail the Forex Trader in Chief!

On China, Obama says US must address currency rates
(Jeff Mason, 2/3/2010 Reuters)

"WASHINGTON, Feb 3 (Reuters) - President Barack Obama said on Wednesday China and Asia would be a huge market for U.S. exports going forward but it would be important to address currency rates to ensure American goods were not facing a disadvantage.

""One of the challenges that we've got to address internationally is currency rates and how they match up to make sure that our ... goods are not artificially inflated in price and their goods are artificially deflated in price," Obama told senators from his Democratic party.

""That puts us at a huge competitive disadvantage.""

In other words, Obama wants U.S. dollar to depreciate vis-a-vis Chinese yuan and other Asian currencies.

How is he going to achieve that? Chinese yuan is currently pegged to the U.S. dollar. Barring catastrophe (natural or man-made), U.S. dollar would continue to decline as long as Obama and his government are intent on spending out of recession. But since Chinese yuan is pegged to the US$, Chinese yuan would depreciate in tandem with the dollar.

So how is he going to force China to abandon the peg?

By lecturing the Chinese officials? By slapping tariffs on Chinese imports as a penalty until they abandon the peg?

The former would be scoffed at by the Chinese, the latter would probably damage the U.S. more than China. I'll keep thinking of other ways, but this administration has so far shown little understanding of how things work in the reality-based world, which doesn't quite work by decree. In order to figure out what this administration may do, I would have to think like them...

Maybe Mr. Obama could ask Mr. Chavez and ask him how his currency reform is doing. He could also learn from Argentina's Ms. Kirchner about how to raid people's retirement accounts and grab reserves at the central bank.


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