Dollar Against The Wall
By TAN Kee
(MediaCorp 938LIVE’s Money Talks, Thursday, 24
September 2009, 7.50 am and 7.20 pm)
At last year’s Singapore
F1 Grand Prix, if you knew what was in the mind of Nelson
Piquet Jr, and made the bet that he would not complete
the race, you would have made money.
That’s because Nelson Piquet was ordered by two
of his Renault bosses to crash his car. They picked a
particular spot whereby removing his damaged car would
deliberately slow down the competitors.
This gave Nelson Piquet’s teammate an advantage.
For he went on to win the race that evening. Of course,
the incident has been viewed negatively in many
But if seen as a strategy by team Renault to win
the race, it’s not so bad. Sometimes a sacrifice has to
be made to achieve a certain objective. War-time generals
do this to trap their enemies.
US Fed Chief Ben Bernanke appears to be
sacrificing the US dollar to achieve a certain objective too.
For many months, the Fed’s policies have weakened the US
dollar. This looks set to continue after Bernanke said last
week that US interest rates would stay low for a long
This statement is significant because many
thought that once the freefall of the
US economy stops or slows down,
the US Fed would reverse course.
The Fed’s weak dollar policy has angered many
countries because the value of the greenback in their
reserves is shrinking. So Bernanke’s statement last week
was a disappointment to them.
Bernanke appears unconcerned by the weaker
dollar because he’s probably trying to address the US
government debt issue.
Right now, the US government’s debt and social
obligations are as large as US$100 trillion. It will take
decades of exceptionally strong US economic growth before
the debt can ever be repaid.
Since this is not possible, the only
way to pay off the debt, Ben Bernanke must be thinking, is by
printing more US dollars. It’s okay if the dollar weakens. That
is the sacrifice. So far, it has been a profitable sacrifice
because the dollar has not weakened as much as the amount of
Right now, a lot of people would really
like to know what’s in the mind of Ben Bernanke. Does he really
want to weaken the dollar to pay off the debt? Or is he just
about to shock the markets, reverse Fed policy and raise
If a policy reversal is announced, and
with the market currently so bearish on the dollar, higher US
rates would accelerate the dollar uphill faster than a Formula
1 car. Those who can read Ben Bernanke’s mind now, or can tell
him what to do, will make a lot of
Even if the Fed is not about to reverse
policy, the current weak dollar policy is extremely dangerous
and can have unintended consequences. One day, no one knows
when, investors could wake up, find a new global reserve
currency, and dump their dollars.
That’s when we will have a global
currency crisis that is as bad, or worse, than the credit
crisis we saw last year. Many innocent bystanders will be
When Nelson Piquet drove
his car against the wall last year, he showed that he was
not only very lucky, he was also an exceptionally skilled
driver, because he crashed his car in such a way that no
bystanders were hurt.
Ben Bernanke is now
driving the dollar towards the wall. If bystanders are
not to get hurt, it’s good to question whether he will be
as lucky and as skilled as Nelson