Our “What me, Worry?” Fed Chairman Ben Bernanke may not care about the falling dollar. But foreign central banks are getting seriously peeved about the strength in their currencies against the ever-depreciating dollar …
* The Bank of Canada released a statement today saying that “heightened volatility and persistent strength in the Canadian dollar are working to slow growth … the current strength in the dollar is expected, over time, to more than fully offset the favorable developments since July.”
* European Central Bank President Jean-Claude Trichet warned again about “excessive volatility” in exchange rates, while a French economic advisor said the current EURUSD exchange rate is a “disaster for the European economy.”
* In Brazil, the carry trade (borrow cheap dollars, invest the money in higher-risk, higher-yield assets) is so out of control the government just slapped a tax on foreign investors in Brazilian assets. A 2% levy will apply to foreign purchases of Brazilian fixed-income securities and stocks, effective immediately.
* Minutes of the latest Reserve Bank of Australia meeting showed that officials were very concerned about the side effects of recklessly easy money. The minutes suggested that a “very expansionary setting of policy was no longer necessary, and possibly imprudent.” The RBA surprised the world recently by becoming the first Group of 20 central bank to raise rates, albeit by a quarter point to 3.25%.
Bottom line: Washington doesn’t care about letting the dollar circle the drain. The Fed may want to keep U.S. rates at effectively zero until the next millennium. But Canada doesn’t much like the surging loonie, the ECB hates the euro surge, Brazil isn’t thrilled about the exploding real, and Australian officials are clearly firing a shot across Bernanke’s bow.
The problem is that unless and until Bernanke signals a policy shift in the interest rate market, they’re spitting in the wind.
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The Fed’s job is protect the big banks. The institution was started by big banks solely for big banks. The Fed doesn’t give a hoot about jobs, housing, or even the economy – as long as the big banks are charting a profitable course, the Fed is happy and Doing its Job. Rome is burning and many think the Fed has the fire hoses, when the Fed actually has the gasoline.