Cool Video: With Rick Santelli on CNBC

I was invited to Rick Santelli’s Exchange on CNBC earlier today.  There is a 3.5-minute clip of the interview that can be found here.

Despite being a dollar bull for nearly a decade (since around the time of my first book–Making Sense of the Dollar–), I do not think a strong or weak dollar is desirable.  It is about the level that is appropriate depending on business conditions and the economic cycle.  If the Fed is easing policy, as it is now, and the dollar strengthens, it works against the thrust of monetary policy.  

Rick wanted me to say that the dollar’s strength and the squeeze in the repo market reflected the same macro forces, but I am reluctant to connect the two.  Consider that during the Great Financial Crisis, the Fed did not intervene in the foreign exchange market but made dollars available through swaps to other central banks.  Access to dollars was more important than the price.  Similarly, now, the distinction is between access to dollar funding and the foreign exchange value of the dollar.  I realize that many investors and observers see the Fed beginning to buy bills and expand its balance sheet and see Quantitative Easing.   We accept the Fed’s distinction between the two.  Bill purchases will not impact the overall financial conditions like QE did.  In QE, the Fed’s goal was increasing its balance sheet.  Now its purpose is to increase the excess reserves banks hold. QE was a tool to conduct monetary policy as the zero-bound was approached.  The bill purchases are not about the conduct of monetary policy but ensuring the transmission mechanism of its policy. I could not get into all that in the interview, of course, but that is the underlying rationale.  

In the interview, I was able to suggest that I continue to believe that the roughly decade-old bull market for the dollar is coming to an end, but it needs better news from Europe and Japan and not only disappointing news from the US.  


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