We would Never Do That
Research for Online Investors

by John Dalt

11/11/10

A little love spat has broke out in the closed fraternity of bankers.  Alan Greenspan wrote an opinion article in the Financial Times pointing out that China has become a major global economic force, “But it has not yet chosen to take on the global obligations that its economic status requires.”  This comment was welcome as the U.S. presses China to let its currency increase in value.

Greenspan’s problem was he didn’t stop while he was ahead.  It seems “The Maestro” has been reading galtstock, he continued, “America is also pursuing a policy of currency weakening.”  What had been obvious to most; suddenly was on the front page for all to see.

Turbo Tim Geithner responded, “We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy.”  What?  The Fed’s stated intentions are to increase/maintain employment at a sustainable level and manage the money supply for constant inflation.

How do you increase employment without seeking a competitive advantage?  What is the result of managing the money supply with a constant inflation target of 2% or greater?

Geithner told the Financial Times that the decline in the dollar was because investors were moving back to other currencies.  These investors had sought the “safe haven” of U.S. dollars during the financial crisis.  Does he mean these “safe haven” investors now realize the dollar is not safe?

The G-20 has not resolved currency or balance of trade issues.  The U.S. floated an idea two weeks ago when the finance ministers met to place restrictions or targets on exports for some developing countries (China, Germany) that depend on exports to power their economy.

Robert Zoellick, the World Bank president, suggested governments should consider using the gold price as a reference point for their currencies.  Some policymakers floated the idea of using Special Drawing Rights (SDR) issued by the International Monetary Fund (IMF).

The IMF special drawing rights idea was first floated over a year ago by China and Russia.  This is a bad idea.  It is squarely aimed at the U.S. dollar.  The discipline it will place on the U.S. is to lose the reserve currency status the dollar enjoys.  We hope President Obama and Ben Bernanke understand the importance of a strong dollar.  So far, they are flunking the test.

The Tax Foundation has their State Business Tax Climate rankings out for 2011.  Guess which states rank last?  If you are thinking of moving your business, I would not consider New York and California.  Check out the rankings; see where your state rates compared to others. This is the yardstick state governments should we gauged with.

The founders of our country set up the Federalist system of states to compete against each other for population and resources.  The states that do not understand this basic economic and political truth fall at the bottom of the rankings.

To the mailbag:
Thanks for yesterday’s article on the Marines.----subscriber D.A.

Nice article on the Marines and Worcester Wreaths.---subscriber D.B.

You’re a good man, John Dalt.---paid up subscriber J.P.

Too many people confuse Veteran’s Day with Memorial Day.  Veteran’s Day is for those with us that served our country.---paid up subscriber R.A.

Editor’s note:  Thanks for the response to our article yesterday.  I hope all enjoyed it.  If you missed it, catch it Saturday in our “Roundup.”  My mind wonders to those who never came home, thus the mention of Worcester Wreaths.  It is almost time to think of nice gifts for Christmas season.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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