Obama's Credibility on the Dollar

" This is Decatur daily podcast for Wednesday November 18 2009. And give them -- the dollar is weak in all claims to the contrary aside the US is not serious about pursuing a strong dollar policy. Cato Institute senior fellow -- Driscoll evaluates the president's visit to China. Dressing down of Obama's policies toward the dollar."

" The advanced network doesn't seem to be done very well because. They have a big Chinese bureaucrat to announce that the policies of the of his administration. Well he's traveling to India and China. Is I think these slap in the face of the president. In -- most an Asian or Chinese way in which to me indicates the degree of concern. And impatient with what they see -- justifiably. Profligate US economic policy. So I think it was a very loud message. And it's really indicates. A weakness on the part of of this administration and the US on the global. --"

" Why are we on the cusp of a new dollar crisis."

" Well we're at -- cost because I don't think it's full blown crisis but it's looming. And it's really part of a series of rolling crises. That began in the sixties with the Lyndon Johnson got the water policy. Spending. Without being able to finances properly. And continued under the Nixon administration. And then all from the 1970s and so finally came to a head on the the Carter administration. And Carter was forced to appoint Paul Volcker he's found money conservative Democrat -- the Fed. And -- Titans in the face of international pressure tighten monetary policy. And which went to a major recession. The election of Reagan. As president and -- supported poker kept them on reappointed him. And out of the Reagan fiscal policy in the -- monetary policy we get. We've got the great you're prosperity. And that restoration of the dollar on the global stage is the preeminent currency. The first bush was kind of pick up. Not a major eruption. And then Clinton continues to Reagan policies and when Clinton left the office. We were running budget surplus we have what was called -- strong dollar we have a stronger economy. And that all began to slide under the second. And now it's like everything that the second bush did long Obama you'll be asked to do. More water if it's free more -- to whatever was being done."

" The parallels here of criticizing policy. Book in this between the sixties and seventies and today you make notes of Charles the goal complaining about the policies. Undertaken by Johnson and Nixon."

" Yeah but the goal complained bitterly that goal lead is chief economic adviser shock was a coal. Free market coal man who fights. The call that the -- US monetary policy was going to be to the -- nations of the world. And sold the school became critical when he began demanding gold for dollars with -- legal Brentwood system. Draining reserves of the US in the hopes that he was forced to either type of policy or at least he would be held you don't wind -- holding dollars. And -- continued -- Johnson into Nixon's. Nixon decided 1971. -- considered him one. To impose price complete control to close the gold window that is no longer will permit countries get gold for dollars. That really set the stage. For the system we have now. And and again it kind of continued down. Through the Ford administration to the Carter administration is finally. The crisis erupted in the court administration domestic inflation falling US dollar. Volcker after we reported August sort of went -- Finance ministers and heads to central banks around the world the -- of the evidence that he was. Lectured on the need to have -- US economic policies and came back in October. 79 and -- the implementation of what was then revolutionary markers monetary policy. Kind of monetary policies that open Friedman has advocated. And that was a shock treatment. But again it was the outcome of the world looking at the US not caring about the effects of its policies of the rest of the world and finally. Lecturing them. And -- that's what we've really seen now again today as recently over the weekend. In in Asia. And it is that Europeans pushing back association put."

" What has been Tim -- experience in in his visits to Asia."

" Clearly these sort of ran ahead of the president and -- fires Foreman. In this Singapore. And try to. To their concerns with the word that they didn't take is credible. You know he said he wanted to strong dollar and that's just laughable to vote no nothing built policy he presented. It would lead to a strong dollar in fact the policy discussed are going to lead to weak dollar. And the rest of the world currencies especially in -- many of the rest of the world currencies respectfully -- formally or informally as the dollar. And so has immediate repercussions on those of those -- Which China's the most --"

" What's the most serious repercussions."

" Well when you have currency paid. What it leads to. Is. Inflows of dollars as investment. And it's part of what's called carry trade where is the dollar has very low short term interest rates. People who want to speculate borrowed US dollars. And then depending on where they're speculating it's just speculating commodities they just use the dollars because Paula commodities are priced in dollars. If they want to buy a for instance. Local real estate or equities then they use the -- dolls convert them into the currencies that this fixed rate. Whether it's in trying to -- Singapore. Or Australia. And they've they create a problem like we just had in the United States that are helping market they're creating real estate bubble. Route Asia especially in Hong Kong and Singapore. Just unbelievable escalation -- of real estate especially you have residential real estate. In these countries in the -- fueled by easy money policies west of the Asian countries. At this bubble going on they know that it's bad. And they can't do anything about it because -- currencies are -- to the quality could break the tie but that it would have -- that we."

" Stereo Driscoll is a Cato Institute senior fellow and former vice president of the Dallas Federal Reserve. You can read more of his work at -- got to work."