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CNBC Guest Blog
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Busch: Rookies Making Rookie Mistakes
Yesterday, we had some questionable reporting on US Treasury Secretary Geithner's comments on the US dollar. Geithner was commenting on a Chinese proposal to develop a new world reserve currency. Appearing in Congress on Tuesday, Geithner said he didn't think it was a good idea to replace the US dollar as a reserve currency. Both Ben Bernanke and Barack Obama said the same thing. Yesterday, Geithner said he was quite open to China's suggestion of moving toward a SDR-linked currency system. He added that the dollar's role in global financial system depends on establishing sustainable fiscal position.
The US dollar immediately lost 2% of its value against most major currencies. Then Geithner back-tracked and said he that the US dollar would remain the world's reserve currency and that a strong dollar was in the US's interest. The US dollar quickly recouped most of its losses.
Unfortunately, this reflects a lack of dexterity when it comes to providing information to the markets. This occurred on February 9th when Obama/Geithner announced their bank rescue plan. Had they said, "We are working on a plan and today we'll give just an overview of what we are doing", then the markets would likely have not aggressive sold financial stocks due to the lack of details. Instead, Obama told the world in his first primetime press conference that Geithner would release a detailed plan and the rest was history.
Imagine what would've happened yesterday if Geithner had said, "We have no change in our US dollar policy and we believe the US dollar will remain the world's reserve currency. Now, the Chinese plan is interesting, but we'll have to study it." Nothing, nothing would've happened. Now, we have tremendous uncertainty created yet again by the US Treasury and this will make foreign investors nervous.
For an administration that has an extremely effective mainstream media campaign on the budget and the need to fix the economy, it's perplexing that they do such a poor messaging job on critical financial market issues.
Apparently the WSJ agrees. In their Op-Ed entitled, "China and the Dollar", they make the point that the markets don't like Treasury talking down the dollar's status. "Hu Xiaolian, a vice governor of the (Chinese central) bank, said Monday that "investing in U.S. Treasury bonds is an important component of China's foreign currency reserve investments." She added: "We are naturally relatively concerned with the safety and profitability of U.S. government bonds."
"Ms. Hu isn't alone, and we only wish the Treasury, the White House and the Fed were equally as concerned. The dollar's status as a reserve currency gives the U.S. enormous advantages, and it should be protected ferociously by our public officials. It means we don't have to repay our debts in foreign currency and that our borrowing costs are cheaper. To the extent that the rest of the world follows a dollar standard, it also gives us far greater global sway."
"....And it means that when the U.S. falls for the temptation to debase its currency, it sends shocks through the entire global trading system. The dollar's sharp but needless gyrations during this decade are in our view one of the major causes of the housing and commodity asset bubbles that led to the financial panic and global recession."
As the new guys in DC get settled and get more of their staff confirmed, I expect this volatility of commentary to be reduced. In the meantime, US Treasury Secretary Geithner speaks at US House of Representatives today......
Read what others are saying on CNBC.com including:
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