Mnuchin, Trump Retract Dollar Comments: Hypocrisy Everywhere
On Wednesday US treasury secretary Steven Mnuchin caused a quite a stir when he stated that a Weak Dollar is Good for Trade.
On Thursday, Mnuchin tried to distance himself from what he had stated.
Now Mnuchin says, "There are benefits and there are costs of where the dollar is, depending on which side of the table you are on."
Let's not beat around the bush. Exporters are on one side of the table, importers the other.
Then and Now
Peter Schiff Summed Up Things Nicely
Which is Better?
ECB president Mario Draghi Not Amused
ECB president Mario Draghi was not amused by this action. The Wall Street Journal reports ECB’s Draghi Criticizes Mnuchin’s Currency Comments.
European Central Bank President Mario Draghi criticized remarks by U.S. Treasury Secretary Steven Mnuchin that a weak dollar benefits U.S. trade, signaling a fresh economic policy rift between European officials and the Trump administration.
Mr. Draghi attributed some of the euro’s recent gains to “the use of language that doesn’t reflect the terms of reference that have been agreed.” He warned at a press conference that such language violated longstanding international agreements designed to prevent currency wars.
The war of words comes amid a surge in the euro currency, which has hit a three-year high against the dollar of $1.25.
Mr. Draghi didn’t identify Mr. Mnuchin by name, but he referenced the Treasury secretary’s remarks in Davos, Switzerland, on Wednesday—that a weak dollar was helpful for trade. Those comments sent the euro higher against the U.S. currency.
“The recent volatility in exchange rates represents a source of uncertainty which requires monitoring with regard to its possible implications for the outlook for price stability,” Mr. Draghi said. A stronger euro makes the ECB’s task of increasing the inflation rate harder because cheaper imported goods weigh on prices. Eurozone inflation has remained below the central bank’s target of just under 2% for five years.
Amazing Hypocrisy Everywhere
Draghi wants a cheap euro, but he blasts Mnuchin for wanting a weak dollar.
Apparently, you can want a weak currency. Actions to achieve a weaker currency, such as competitive QE to infinity, do not matter either.
You just cannot say you want a weak currency.
All in the Definition
US Treasury Secretary John Snow paved the way out of this mess way back in 2003 with his "Newly Defined" Strong Dollar thesis.
Mr. Snow said "strong" refers to such aspects of the dollar as the confidence it inspires in the public and its resistance to counterfeiting.
There you have it. A "Strong" dollar is one that inspires confidence and is hard to counterfeit.
Every county wants that.
The only problem is we need a good definition of "counterfeit".
Does printing money out of thin air coupled with competitive QE constitute counterfeiting?
Recall that The Economist nailed the exact top of the Dollar in December of 2016 with its "Mighty Dollar" cover.
Please click on the link for amusing details and other contrarian covers.
Mike "Mish" Shedlock