Dollar policy dunces?

Trevor Manuel, South Africa’s finance minister and the G20 meeting host, said delegates did not play a blame game but made clear the dollar’s weakness had been hotly debated. “We didn’t give Ben Bernanke [Fed chairman] or Hank Paulson [Treasury secretary] lines to write or make them stand in the corner. That’s not the way these things work,” he said.

Sorry, but there is a lot of blame going around. The Fed and Treasury have just not been interested in a strong dollar. The cutting of interest rates is a reflection of a domestic policy focus and not a concern about the dollar. The Treasury has been involved in the credit crisis and has not commented about the dollar decline with any fervor.

The global imbalances have not been resolved from any action by the United States; therefore, the dollar has trended down. Most of the actions that would solve the imbalances would have included higher rates and slower growth. In fact, we would argue that the administration likes the lower dollars because of the strengthening of exports. A dollar decline was how the current account balance was to be reduced.

Policy dunces – hard to argue that they made a mistake except if you are a foreigner holding dollar assets.