donsutherland1

With respect to the just concluded G8 Summit, the Financial Times reported:

"We should begin by acknowledging that we are going through a tough period right now, but we have good fundamentals," Mr Paulson said, adding that these compared favourably with other economies.

Using this to talk up the dollar, he added: "I believe these fundamentals will be reflected in the currency."

These remarks reflect the continuation of a passive approach on the part of Mr. Paulson with regard to the valuation of the U.S. dollar on foreign exchange markets. He merely expressed his belief--which has consistently been at odds with actual developments in the currency markets--that overall economic fundamentals will boost the dollar. The Financial Times added, "Other finance ministers disagreed on whether there had been substantive talks on currencies at the meeting, but it was clear that no discussions regarding intervention took place."

In short, Mr. Paulson did nothing to address his longstanding credibility deficit on the dollar. The revelation that the G8's other finance ministers were not in consensus on whether a substantive discussion took place on the dollar further underscored Mr. Paulson's lack of credibility. Worse, what amounted to Mr. Paulson's indifference to the value of the U.S. dollar undermined the recent positive impact of Fed Chairman Bernanke's more robust statement on the dollar.

Mr. Paulson should have agreed to a G8 communique that specifically cited the need for a stronger U.S. dollar. He should have articulated a clear position that the U.S. seeks a stronger dollar and indicated a willingness of U.S. policymakers to consider fiscal policy changes that would improve some of the fundamentals responsible for driving the dollar lower. Instead, the G8's communique made no mention whatsoever to the value of the dollar and Mr. Paulson offered only insubstantial remarks on the dollar devoid of any express desire for a stronger currency. In terms of substance, the remarks offered an implicit reaffirmation of what amounts to a "Paulson weak dollar doctrine."

Not surprisingly, in the face of what amounted to little more than the kind of hollow rhetoric that has already been widely discredited in the marketplace, a weak New York area manufacturing report sent the dollar much lower in currency trading early on Monday. Furthermore, as the dollar tumbled, oil spiked.