Treasury Secretary Tim Geithner and former Federal Reserve boss Alan Greenspan are in a smackdown over the strength of the US dollar.
Yesterday, Greenspan accused the US government of driving down the value of the dollar — a strategy some say makes US exports cheaper and more attractive.
Greenspan delivered his verbal jab in an op-ed column that ran in Thursday’s Financial Times, in which the former central bank boss wrote that America is “pursuing a policy of currency weakening.”
Other nations, including Germany, have leveled a similar charge at the US, making Geithner’s job at the Group of 20 summit — an annual gathering of global economic leaders — more difficult as he seeks to ease tensions over currency exchange rates.
Greenspan’s comments prompted Geithner to come to the defense of current Federal Reserve Chief Ben Bernanke and the government’s monetary position.
“We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy,” Geithner said in an interview on CNBC.
“I have enormous respect for Greenspan. . .but that’s not an accurate description of either the Fed’s policies or our policies,” Geithner said.
The Greenspan-Geithner tussle came a week after Bernanke staunchly defended the Federal Reserve’s plans to jumpstart the stagnant economy — with employment hovering at 9.6 percent — by embarking on a $600 billion quantitative easing plan to buy up Treasuries and keep interest rates low.
Geithner’s backing of Bernanke comes as the debate rages over how much action, if any, the Fed should take to stimulate the sluggish economy.
Critics of the Fed’s strategy argue that the dollar has become collateral damage of so-called QE2, which has big implications for Main Street. A weaker dollar pushes up the price of commodities, translating into higher gas prices, more expensive food and pricier clothes.
“If you lower the dollar, that’s a tax on average folks,” said Joseph LaVorgna, chief economist at Deutsche Bank. “Right now, dollar weakness is a big risk to the economy, and I think the Fed is ignoring the risk because they think a weaker dollar may be a net positive.”
Yesterday, the dollar index — a measure of the value of the dollar against a collection of foreign currencies — reached its lowest level since the start of the financial crisis, at 78.17.