What is a Geithner to do!?

I have watched with amusement, as Tim Geithner has been berated by the Republican (and a couple of Democratic) Senators and Congressmen on his policy decisions, and the state of the economy. I watch people accuse him of being soft on the dollar--as if he has a choice. I just want to ask those people calling for his resignation this question: What would you have him do?

Geithner doesn't set the Fed policy on interest rates, nor does he control the Fed's money supply--that's Bernanke's job. Timmy doesn't set fiscal spending policy, nor does he set tax rates--these are Congress and the President's jobs. He can put forth policies to improve both the regulatory review and oversight of the banks, as well as help devise the policies of the treasury, administer TARP, and other such things, and, despite all news to the contrary, this has not been the complete disaster that it has been portrayed as in the press.

Certainly some decisions of the President (bailing out AIG, GM and Chrysler, for example) have been costly, and returns have ranged from incomplete (AIG), to poor (GM) to just foolishly bad (Chrysler). If people want to point to this as the reason to jettison Geithner and bring in someone like Jamie Dimon of JP Morgan, I can't totally argue that this position isn't valid.

But to think that we can blame Geithner for a weak dollar is a little like blaming the Jews for killing Jesus. It may feel good to find an easy scapegoat, but history, and facts on the ground show that things are far more complicated.

Let's try to understand why the US Dollar is in free fall, and sinking fast. For starters, we as a country don't produce what we consume, we don't export any goods or services, and we don't have any fiscal discipline to show that we can support the debts that we service, with dollars that will be worth what they are worth today, in 2, 5, 10, or 30 years. We are in a HUGE fiscal deficit each year, and have a large debt to show for it. I'm not suggesting we shouldn't have done the stimulus (although I can think of a couple of wars that we shouldn't be in!), but it's silly to think that we can continue to run deficits and people will continue to buy dollars for security and strength purposes. Why should they?

For that matter, why the heck should you or I do it!? I'm all for patriotism, but I still want to be able to have a job, and feed my family too. After all, countries such as Canada have shown far greater fiscal discipline, have lower business taxes, great natural resources, and export goods and services at a tremendous rate. Why shouldn't I invest in a Canadian dollar, or Canadian based ETF? Look at the financial services sector. Is it any wonder that large Canadian companies own pieces of America's Investment and Insurance houses? John Hancock? MFS Investments? Putnam Investments? All Canadian owned now. This trend will continue. In about 10 years, each of the major financial institutions we see as American Icons will become foreign owned subsidiaries. Why?

Because it's too cheap for foreign banks and financial institutions to resist. I will grant you that Europe has its own house to put in order, but the Euro is at $1.50:1. It used to be about $0.95:1. What that means is that America became about 60% cheaper than it was 10 years ago. So if I had a Euro, and it used to get me 95 cents, it now buys me $1.60 in the same real dollars. Take a look at Australia, Canada, or Singapore's conversion rates sometime. They are all moving in the same direction. It's not that they are stronger, but rather we are weaker.

So to those of you arguing that it's China's fault, and that they've pegged their Yuan to the dollar, causing an unfair trade imbalance, I ask you this. Do you think we'd be in better shape if they allowed the Yuan to float?

I'd suggest to you that it would be catastrophic. All of the "cheap goods" from China would be 20% more expensive overnight. We'd see inflation here instantly. Since we don't make anything in the US anymore, all of our "trade imbalances" would remain, we'd pick up some jobs, but we'd lose far more in the wreck of hyperinflation, and soaring interest rates, to try to quell the debasement of currency. I can only imagine the billions of dollars that any foreign government would want to invest in our dollar-backed government bonds. "buy US Bonds! They'll be worth 50% less in 2 years!" There's a winning slogan...

So I get back to the question--What's a Treasury Secretary to do? If I were Timmy, I'd be socking money away in Swiss Francs, Silver bullion, and golden eagles. Perhaps an Australian gold mine or two shouldn't be far down the list either. Who knows? Maybe it is time to turn over the keys to the chicken coop to the foxes, let Dimon run treasury, and we can be done with Sarbanes Oxley, and party like it's 1999! Worked for Enron...for a while, anyway...