The Dollar’s Race To The Bottom

On Monday, in a Silicon Valley speech to businessmen, Treasury Secretary Timothy Geithner said the following:

“It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to be competitive. … It is not a viable, feasible strategy, and we will not engage in it.” He went on to say;  the US needs to “work hard to preserve confidence in the strong dollar.” And when asked if the dollar would lose its status as the world’s reserve currency, he said, “Not in our lifetime.”

Does this mean Timothy Geithner has become the protector of hard money at a time When Ben Bernanke is discussing Quantitative Easing or QE2 for short? Last year during QE1 when the Fed printed money the dollar fell 17 percent from peak to trough. The last thing the Fed needs to do is put 1 trillion new dollars into circulation and push the greenback into an additional downward spiral. So with the falling dollar comes inflation, the cruelest tax of all. Nobelist Robert Mundell explains there is a one year lag between a sinking dollar and a higher inflation rate. He goes on to say low tax rates and currency stability are the key to prosperity. The White House remains silent…