I happened to be watching US Secretary of the Treasury Tim Geithner getting skewered on Capital Hill this afternoon and thought--if Keith weren’t on a plane right now he would be having a field day at “Timmy’s” expense.
Keith has said in the past that the “New Reality” is that we have a Treasury Secretary who has no qualms watching the Buck burn. In short, Keith has stressed that the long term credibility of the US Financial System has been eroded by flooding the system with dollars.
Ironically, on the day that Tim Geithner gets hammered the dollar stages a 0.5% rally and the market gets smoked. I suspect this will be a topic for the Early Look tomorrow…
Last week the Fed Chairman started talking about "watching" the U.S. dollar. While Geithner and Bernanke can sit back and watch all they want they only have two options for firming the dollar’s value: intervene or raise interest rates. Raising interest rates would be a fundamental shift the Fed will pursue sooner rather than later, but is not likely right now, given the fragility of the economy and the financial markets.
As the resident bear in the office, the most severe economic downturn in generations continues. At best, some key statistics such as retail sales and housing have bottomed out at lower levels, yet given the contraction in consumer credit and increased unemployment, the traditional avenues to renewed growth are just not available today to bail out the economy. Certainly, the current level of the S&P 500 does not reflect the underlying economic and financial-system reality.