Posted March 15, 2009
The US dollar fell against the euro as the banking crisis appears to have hit bottom. The G-20 met and did not agree to the US suggestion European countries need to increase their stimulus spending.
An art history lecturer recently discovered a history book with a handwritten notation made by a monk in 1460. It basically said Robin Hood, with his accomplices, infested Sherwood with continuous robberies. This notation creates such a fine opportunity for a metaphor it cannot be passed over.
In the US, President Obama is looking a lot like Robin Hood as he suggests one tax after another and one stimulus plan after another. Then he sent one of his merry men to the G-20 summit meeting this past week with a message for the law abiding world leaders. US Treasury Secretary Tim Geithner told the group they needed more government spending in their perspective countries to generate a coordinated response to the recession.
They weren’t buying this argument and the message to the US was loud and clear: We can decide for ourselves what is right for our respective countries. The German Finance Minister, Peer Steinbrueck, said, “It makes no sense to pump more and more money in our economy when we haven’t restored the confidence in the financial market.” Toxic assets continue to sit on bank balance sheets muddying up the credit and currency markets.
The UK Chancellor of the Exchequer, Alistair Darling, pointed out his country had already injected a lot of money into the economy. The UK economy is continuing to contract despite the stimulus spending to date. The UK pound fell against the US dollar to $1.4002.
It had to be difficult for the G-20 members to listen to Geithner try to tell them what to do when he represents the country that began this economic crisis. Many currency traders are questioning whether the US dollar will be able to sustain its strength as record deficit spending begins. The US dollar is currently at a 3 year high when viewed on a trade weighted basis, but it is not clear if this is sustainable.
The US dollar fell against the euro as banks like the troubled Citigroup indicated it had turned a profit in January and February. This has led currency traders to turn away from the safe haven US dollar and towards riskier assets. The US dollar fell to $1.2928 per euro. It also fell against the Swedish krona to 8.6241 krona per dollar and the Japanese yen to 97.95 yen per dollar.
The Swiss central bank began selling the franc and buying other currencies to slow the franc appreciation. It fell a record amount against the euro to reach 1.5320 francs per euro.
The US stock market rallied on Friday, 13-March-2009, by 53.92 points which represented an increase 4 days straight. It is this 4 day trend that is giving hope some confidence is returning to the financial markets, but the recession is still deepening in the US making it difficult to know for sure. As the DJIA rose, so did the NIKKEI by 371.03 points. As noted, the yen rose against the US dollar, but it fell against the euro to 126.65 yen per euro.
As the G-20 summit leaders promise “sustained effort” to restore global economic stability, pressure is increasing on the US to quickly deal with the toxic assets on balance sheets. Geithner keeps saying details on planned actions are coming but after almost 2 months of such vague talk there are still no details. The patience of the American people and the global leaders is wearing quite thin.
As UK housing prices continue to fall; as countries like Hungary ask for large IMF loans; as Japan battles a depression; and as US joblessness continues to rise, it is clear to see a true economic recovery will not occur until the original source of the problem is handled – mortgage backed securities with falling values.