Export Led Recovery Strategy Hits Major Dollar Roadblock
Posted by Michael A. Kamperman on December 19, 2009
It’s been a rough few weeks for the Obama Administration. Healthcare legislation hangs by a thread in the Senate. The President had to personally broker a non-binding deal with no specifics on global warming with the Chinese and then fly ingloriously home early in order to beat the largest snow storm to hit D.C. in years. Yet nothing may throw a fly in the Presidential ointment more than the sudden resurgence of the dollar. The Obama economic advisers led by Geithner and Summers have convinced President Obama that the best way to create jobs is to become more like China by consuming less and exporting more. The easiest way to mimic China is to devalue the dollar against all other major currencies, including the Chinese yuan. Yet China stiffed the President on his request to let the value of the yuan rise against the dollar. Now the markets are stiffing the Administration’s grand plans to let the dollar slide thereby juicing exports because of the realities of the global economic meltdown. Dubai kicked off a global re-evaluation of the fundamental soundness of sovereign debt and suddenly the dollar looks like gold compared to the euro, the yen, and the pound.
In Europe the situation in Greece is rapidly deteriorating. The costs of issuing new Greek debt is rising fast. The people have taken to the streets in the form of “demonstrations.” The credit rating agencies have just lowered the rating on Spanish backed mortgage bonds. Spain has over 1.5 million empty homes, the highest per capita ratio in the world. Ironically Spanish banks were one of the few to avoid saddling themselves with American subprime mortgages, yet have saddled themselves with their own Spanish mortgage nightmare. Austria has had to nationalize banks with deep ties to the troubled Eastern European economies such as Hungary. Suddenly the world is looking at the euro and they are not seeing Germany and France, they are seeing Greece, Spain, Austria, Italy, and Ireland. Japan is mired in deflation with an aging population and federal government debt close to 200% of GDP. The cost of issuing 10 year Japanese debt is suddenly rising as well. In Britain, for the first time ever tax receipts were less than one billion pounds over the costs of social programs alone leaving almost nothing for defense, infrastructure, and interest on the debt. Comparatively, the U.S. looks like the land of milk and honey.
The Obama Administration had better wake up. We need to re-ignite internal demand in the U.S. and not count on Spain, Greece, Britain, Japan, and Dubai to buy more goods and services from us. The latest word is the President is willing to use about $30 billion of unspent TARP funds to bolster small business lending. While this is a step in the right direction, $30 billion is but a pittance compared to the $2 trillion of capital cut out of credit cards and the constant closings of community banks that loaned hundreds of billions of dollars directly to small businesses. Never mind the too-big-to-fail banks allowed to escape the TARP so executives could be paid more while the banks lend less. Small businesses create 75% of all of the new jobs in America. President Obama needs to quit thinking small and start thinking big. For starters he should tell Geithner and Summers to not let the door hit them in the back on their way out. He should forget about deficit reduction. He should take all of the remaining TARP funds and create a Small Business Bank of the United States. This government owned bank could then leverage $300 billion into $3 trillion worth of loans to small businesses. Now that would be change we could believe in.
