How did the authors of the ''strong-dollar policy'' think it would end?


4:22p ET Friday, May 23, 2003

Dear Friend of GATA and Gold:

Once again Insight magazine's Kelly Patricia O'Meara
has done the basic reporting that America's vaunted
financial press won't do. In a new article in Insight, she
asks: Just what is that "strong-dollar policy" that is
always cited but never explained? She finds that if
there is such a policy, those in charge of it aren't
telling what it is. O'Meara quotes at generous length
the explanation provided by GATA Chairman Bill
Murphy: The "strong-dollar policy" is actually the U.S.
government's policy of surreptitiously suppressing
the price of gold.

Please forward this article to any contacts you have
in the news media and to any mining companies in
which you are invested.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

'Strong Dollar' Hides Weak Policy

By Kelly Patricia O'Meara
Insight Magazine
May 23, 2003

Royalty bows and curtsies, nations tremble and financial
institutions begin to stammer when threatened by three
words: "strong-dollar policy." For a phrase that has risen
from the swamps of the dismal science only within the last
decade, it nonetheless has taken on a kind of Godzilla
status in the global economic community. And while the
worlds of pundits, technocrats and economic seers have
held their breath awaiting official support for such a
"policy" by each successive administration, there are
many who believe the phrase is nothing more than the
federal equivalent of "Gesundheit!"

Having failed to turn up an official definition of
"strong-dollar policy," and on the barest chance that
the policy spells out steps to keep the dollar strong,
Insight sought out the great and near great to clarify
what the phrase might mean. Alas, it immediately
became clear that the economists, politicians and
managers most likely to be responsible for any such
"policy," if there is one, make it a black-letter policy
never to discuss, well, the "policy."

Take for example Robert Rubin, who was Treasury
secretary under President Bill Clinton. Now a board
member of Citigroup and a bazillionaire, Rubin is
credited widely with being the key architect of the
strong-dollar policy. Keenly aware of the dollar's
recent slide against other world currencies, Rubin
apparently could not be bothered with this slight
question and did not return Insight's calls to inquire
how this "policy" for which he is famous might actually

Lawrence Summers, now president of Harvard
University, followed in Godzilla's footsteps by taking
over as Treasury secretary upon Rubin's departure.
Summers did not depart from the strong-dollar policy,
and Federal Reserve Chairman Alan Greenspan
raved about Rubin's replacement. Greenspan made
it clear that the strong-dollar policy was here to stay,
and said Summers "is a person of extraordinary
talent and judgment who will continue the important
work Bob Rubin initiated." But when Insight requested
an interview to discuss the "policy," even to request a
definition of what it might be, Summers too was

Given that the top bananas of the strong-dollar policy
were unwilling even to discuss this weighty verity,
Insight's reporter reasoned that even a standard-reference
definition of "policy" might be helpful. According to the
American Heritage Dictionary, the word "policy" came
out of Latin through the tortuous trials of the Middle English
and Middle French to mean "a plan or course of action,
as of a government, political party or business, designed
to influence and determine decisions, actions, and other

Seems simple enough, but what about the rest? While
everyone gives lip service to supporting the strong-dollar
policy, and the world is acutely aware of that support
because it routinely is touted as the core of U.S. financial
practice, no one who knows would say what it is. So Insight
rephrased the question, asking: What is the official course
of action, the plan or design, to make the dollar strong?
Put that way, current Treasury Secretary John Snow
responds: "There has been a consistent policy on the
dollar going back the better part of a decade, which I
support. I favor a strong dollar. A strong dollar is in the
national interest. A strong currency provides a reliable
medium of exchange and serves as a stable store of
value that people choose to hold. Sound pro-growth
economic policies and a commitment to free and open
markets are the foundation for a strong dollar."

Uh-huh, but what is the "policy" that ensures all or any
of this? Is it possible that any administration might not
be committed to free and open markets in the interest
of stability? Is a closed and manipulated market a
policy option?

While Insight is not into economic gnosticism, and
does not claim to specialize in the arcane secret
knowledge of monetarism, Secretary Snow's "policy" still
seemed a little oblique. Asked to clarify the secretary's
explanation of the strong-dollar policy, a spokesman for
Snow tells this reporter: "The secretary has said that a
strong domestic economy, an inviting investment climate
and competitive markets are the best way to achieve a
strong dollar." Huh? That's the "policy"?

Well, it isn't sexy, but it's an answer. The problem is that
it appears to have a strong similarity to the explanation
that "Wet streets cause rain."

Determined to find someone in officialdom who actually
might explain the mechanics of the strong-dollar policy,
Insight determined to pore through statements on these
matters by the top money manager of all time, a man so
open in his deportment and so filled with libertarian
principles that for years he lectured on economics to
the devout followers of the late Ayn Rand. Whole
nations are at risk of collapse when the master of the
Federal Reserve Board speaks, so every word he
utters is examined with the greatest of care. But when
it comes to the strong-dollar policy, Fed Reserve
Board Chairman Greenspan has been quiet as a
church mouse. This apparently is so, according to a
spokesperson, because "the Federal Reserve does
not comment on the strong-dollar policy. We defer to
the Treasury Department on that."

Been there, done that and bought the T-shirt.

Which raises several questions. For instance, is it
possible that the strong-dollar policy is not economics
at all but polemics, that it is in fact an upbeat phrase in
search of a policy? If not that, then what? Could there be
something nefarious about the "policy" that the
establishment economists and money managers are
determined to keep close to their vests? Given that the
men who created the "policy," and those who support it,
cannot or will not explain what it is, one hardly can be
surprised at charges that this emperor of economic
shibboleths may be naked as a jaybird.

Steve H. Hanke, a professor of applied economics
at Johns Hopkins University and a senior fellow at the
Cato Institute, tells Insight that the alleged policy is so
much yah-yah. "Officially," Hanke explains, "everyone
will run for cover. No one is going to be able to tell you
what the strong-dollar policy is because it is a rhetorical
phrase coming out of Washington that is meaningless.
Analytically it doesn't mean anything at all."

According to Hanke, "The strong-dollar policy became
the mantra of Treasury secretaries Rubin and Summers,
and the reason the press kept repeating it is that during
their tenure at Treasury the dollar was 'strong' relative to
other currencies. But we weren't doing anything in the form
of a policy, and Rubin and Summers knew it was an empty
phrase. The press heard Rubin say, 'Oh, yes, we have a
strong-dollar policy,' and then the dollar gets stronger
relative to other currencies, so they think there is some
policy -- that there's something in the shadows going on
that is consistent with this. No one ever thought about
asking what it was. The fact is that there's nothing in
those shadows, and no one was -- or is -- doing anything."

But Bill Murphy, chairman of the Gold Anti-Trust Action
Committee, a nonprofit organization that researches and
studies the gold markets and reports its findings at, claims to have taken a
good look into the shadows. He tells Insight that "asking
this question is important because the strong-dollar
policy isn't just an empty phrase. It started with a paper
written by former Treasury secretary Lawrence Summers
entitled 'Gibson's Paradox and the Gold Standard,'
which stated 'gold prices in a free market should move
inversely to real interest rates.'"

In other words, Murphy explains, "what has been
happening is that a policy to hold down the dollar price
of gold was instituted to keep the dollar strong. The idea
was to hide inflation, keep interest rates low and attract
money to U.S. markets. This kept the average investor
from getting any hint that something was wrong with the
dollar itself. The strong-dollar policy amounts to little
more than secretly using U.S. bullion and claims on it
to manipulate the gold market. By keeping the gold
price down, keeping it low, they made even gold
uncompetitive to the dollar, reassuring the world that
all was well."

Murphy asks: "If this administration supports the
so-called strong-dollar policy -- the same alleged
policy as Rubin and Summers -- why is the dollar
tanking? That is, how has the 'policy' changed? I've
been asking this for two years and no one has been
able even to tell me the mechanics of the original
strong-dollar policy. If they can't tell you what it is,
then how can they possibly tell you how it has changed?"

According to Murphy, "It's going to be quite a story when
this thing finally blows. Just look at the Enron mess. No
one knew what was going on there and how bad it was
until it blew up, and only then did everyone find out what
a fraud it was. The same will be true of the strong-dollar
policy. It's just a lot of nonsense."

Whether the strong-dollar policy is "nonsense" is yet to
be seen. What is clear, however, is that no one in
officialdom seems willing and able to provide a cohesive
explanation of what the "policy" consists of, or how it is
implemented, leaving the economists and pundits to
speculate and surmise. In the meantime, the "strong"
dollar has become "soft," down almost 26 percent
against the euro and 21 percent against the Swiss franc.

Currently, the United States has the highest trade deficit
in its history, totaling a whopping $503 billion. This means
the country has bought and imported $503 billion more in
goods than it has exported, flooding foreign capital
markets with dollars to invest in the United States or buy
more U.S. goods, the prices of which such massive
purchases naturally would bid upward. Perhaps even
more important is that the U.S. economy is dependent
on an estimated $1.5 billion to $2 billion a day of foreign
investment to stay afloat. The dollar is losing more of its
"strength" every day, and a decline in foreign investments
already has begun.

Having just the tiniest clue about the "policy" that made
the dollar strong might be helpful should it continue its
downward slide. Then again, maybe the strong-dollar
policy has been nonsense all along and what we have
here is a case of no one bothering to demand an
explanation from those who support it. Whatever it is.

In his most recent attempt to define or "redefine" his
terms, Treasury Secretary Snow has embarrassed
himself internationally by insisting there is a
strong-dollar policy, but denying its strength could be
measured against other currencies, saying "strong" is
only a matter of public confidence and assurance that
counterfeiting is under control. The secretary's remarks
immediately were read as a "change" in policy, which
was interesting in that he still had not defined U.S.
dollar "policy." Worse, that "strong means confidence"
explanation still was floating in the air when a Treasury
spokesman jumped in to declare that "there has been
no change in policy."

Considering that no one in the free world had been
found to explain the "old" strong-dollar policy, maybe
it's a good thing that no "new" policy was implemented.
In the meantime, however, word that the emperor was
buck naked and could not credibly define his policy
had spooked the currency exchanges, causing
confidence to plummet and the dollar to drop further
against most of the other major currencies. Res ipsa


Kelly Patricia O'Meara is an investigative reporter for


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