Dollar or Pound?

A relative wrote me to ask whether she should change pounds for dollars on the grounds that the dollar has weakened during the debt ceiling showdown and would likely increase in value once a compromise had been struck in Washington DC. This is what I replied:

“I am glad you are so confident that a last-minute deal will avert a technical default. I think a lot could go wrong before then. And if a deal is struck, it will be the two-part Reid-Boehner compromise that in effect will kick the can down the road and will merely delay the reckoning. In other words, this failure of mature government is to be repeated in a few months time.

On the macro-level, I agree with Mohamed el-Erian (PIMCO’s CEO) that long-term damage has already been caused to the U.S. and that international investor confidence has been shaken by what has been taking place in the past few weeks. It is quite likely that the rating agencies will downgrade the U.S., even if the Reid-Boehner compromise is agreed. That will knock the value of the dollar.

Despite the awfully slow economic growth in the UK the last quarter, I still believe that the Coalition is basically on the right track – UK debt reduction is essential and more necessary than debt reduction in the U.S.. For example, the U.S. deficit could disappear with an increase in government revenue, i.e. tax increases. That is off-the-table, alas, at present because of the economic illiterates in the GOP House caucus, who believe incorrectly that any tax increase will restrain economic growth.

In other words, I think the pound is a better bet than the dollar in the medium term. Could you make a small profit by buying dollars now and maybe in a few days time, if a deal is struck, see a dollar value rise and be able to exchange back to pounds beneficially? Maybe you could, but it is a risk and I am not sure that you should be risking your capital.”

And what happens if a deal is not done, even the Reid-Boehner plan? I know there is a temptation to risk but I myself would avoid it.”


Congress Gets Paid But the Military Won’t!

So if the government shuts down the military won’t get paid but members of Congress will! There is apparently a constitutional reason for this: Section 6. Clause 1. “The Senators and Representatives shall receive a Compensation for their Services, to be ascertained by Law, and paid out of the Treasury of the United States.”

It is automatic.

Even so this can’t play well outside the Beltway – especially with the 800,000 government workers who won’t be paid. Nor with the military and their families for that matter.

What is also shocking is that the House Speaker John Boehner was unaware that members of Congress will continue to receive their pay.

On ABC’s Good Morning America” he said: “Members of Congress are elected by their constituents. If there is a government shutdown, not only will Congress not be paid, but federal employees will not be paid.” Later he had to correct himself, saying that members of Congress should not be paid.

One lawmaker said they could not afford not to be paid. California Democrat Linda Sanchez said she had financial obligations. Hmm, tell that to military families.

Neither side of the aisle come out of this confrontation well. What we are witnessing is a lack of leadership from both the Hill and the White House. Shouldn’t they be able to debate the debt and the deficit without shutting down the government and causing massive disruption for ordinary Americans? And all this hoopla over cutting a tiny amount from the budget? What a lot of posturing!


Obama May Open a New Front But Needs Delicacy

The New York Times is reporting today that President Obama and his aides are weighing up shifting their communications tactics and to focus in the final weeks before the mid-term elections on the Tea Party. Among the ideas being considered is to launch national advertisements casting the GOP as having been taken over by the insurgency.

Speaking as a media adviser, this is, of course, exactly what they should be doing. Making out that Minority Leader John Bohener is an ogre is just not cutting it.

But if the White House does decide on this tactic it needs to be delicate.  The tone and focus has to be right. They should concentrate on some of the leaders, especially on some of the wilder social conservatives who have been successful in primary races, such as Delaware’s Christine O’Donnell. The tone has to be ridiculing and not blood-curdling. The ads also need to be understanding of the economic frustrations of ordinary Tea Partiers.

Boehner the Ogre?

What on earth are White House strategists thinking by seizing on the GOP”s House leader, John Boehner, as the Republican scary pin-up to attack ahead of the mid-term elections? The Republican Minority Leader may not be to everybody’s taste but he is “a hard man to demonize,” as The Economist has pointed out. He is a mild-mannered country-club-type Republican, who even back in the mid nineties when he aligned with Newt Gingrich wasn’t one of the trusted members of the praetorian guard.

Convivial and clubby, Boehner is sociable with Democrats in the Capitol Hill watering holes. His style is not dissimilar from Bob Dole’s, another Midwestern conservative able and willing when circumstances demanded to make deals across party lines. In some ways Boehner comes across as your dad’s genial brother, ready with a crack and the offer of a drink and a cigarette. He’s also not that well-known nationally. So painting him as the ogre moderate Republicans, centrists or independents should flee from at the polling booths is unlikely to secure the Democrats much advantage.

And if the the GOP does capture the House, as opinion polls suggest consistently the party will, then Boehner is someone the Whte House will need to be able to negoiate with – that is if there isn’t going to be another nineties-style government shut-down.

Targeting Boehner strikes me as another major misstep by the White House when it comes to strategy and thinking things through. Strategic and communication errors have marked this administration almost from the start. In the first summer of this administration, President Obama and senior aides neglected to sell the health-care reform – something that still hasn’t been sold to most Americans.

From the beginning they failed to focus on the economy. No FDR-style “fireside chats,” no trying to manage expectations and to explain that recovery from the financial crisis would not be speedy (as is the case always from recessions caused by financial crashes), no preparing Americans for the long haul and no cheering of them up.

Only belatedly has the President and his senior aides started to talk about the economy. Too little and too late.

So who should the White House target? Surely, they should be highlighting the civil war underway in the GOP, pitching Republican moderates and a new generation of Tea Party-aligned ideologues. Boehner is a small-government conservative while a lot of the likely GOP freshmen are more “no-government” and this, from a strategic point-of-view, is surely what the White House should be emphasizing. Earlier this week, I argued that the GOP primary results were a godsend for the White House and Democrats but they seem to want to throw away what the Republicans give them.