Courtesy of Pam Martens
Steve Mnuchin, U.S. Treasury Secretary in Davos, Switzerland, January 24, 2018
U.S. Treasury Secretary Steve Mnuchin opened his mouth at the base of the snow-covered mountains of Davos, Switzerland yesterday during the World Economic Forum and sent an instant chill through currency markets around the world. After Mnuchin made the highly inappropriate remark that a weak dollar would be good for U.S. trade prospects, the U.S. Dollar plunged to a three-year low.
Anyone who knew in advance that Mnuchin was going to make such a comment could have cleaned up in currency trades yesterday. Two U.S. banks (JPMorgan Chase and Citigroup) and two foreign banks (Barclays and RBS) were charged with felony counts on May 20, 2015 for their roles in rigging foreign currency markets. Mnuchin is a former 17-year veteran of Goldman Sachs and should have known better than to make such a remark at an event covered by 500 journalists from around the world.
After being roasted by the media on Wednesday for his imprudent statement that “Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin sought to walk it back in a forum sponsored by CNBC this morning in Davos. During that forum he said: “In the longer term, we fundamentally believe in the strength of the dollar.”
There are important reasons that it is considered bad form for a sitting U.S. Treasury Secretary or sitting U.S. President to comment on the trading level of the U.S. Dollar. While a cheaper Dollar is good for U.S. exporters because it makes their products more competitively priced in foreign markets, a cheaper dollar is decidedly not good for U.S. consumers who have to pay more for imports from foreign countries with a stronger currency. (Go to the apparel department of any department store in the U.S. and try to find an item of clothing made in the U.S. and you’ll see what we mean. Or go to Lowes or Home Depot and try to find a lighting fixture made in the U.S.; or go to an electronics store and check the ratio of foreign made goods to U.S. made goods. You’ll quickly get the picture.)
Purchases made by consumers in the U.S. represent approximately two-thirds of total Gross Domestic Product (GDP). A steadily weakening dollar presents a hardship to the working class of America where the bulk of their income goes to the necessities of life. As the dollar weakens those costs increase while wages stagnate.
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