Did U.S. Treasury Secretary Mnuchin Give Dollar Shorts a Wink in Davos?

By Pam Martens and Russ Martens: January 25, 2018

Steve Mnuchin, U.S. Treasury Secretary in Davos, Switzerland, January 24, 2018

Steve Mnuchin, U.S. Treasury Secretary in Davos, Switzerland, January 24, 2018

U.S. Treasury Secretary Steve Mnuchin opened his mouth at the base of the snow-covered mountains of Davos, Switzerland yesterday during the World Economic Forum and sent an instant chill through currency markets around the world. After Mnuchin made the highly inappropriate remark that a weak dollar would be good for U.S. trade prospects, the U.S. Dollar plunged to a three-year low.

Anyone who knew in advance that Mnuchin was going to make such a comment could have cleaned up in currency trades yesterday. Two U.S. banks (JPMorgan Chase and Citigroup) and two foreign banks (Barclays and RBS) were charged with felony counts on May 20, 2015 for their roles in rigging foreign currency markets. Mnuchin is a former 17-year veteran of Goldman Sachs and should have known better than to make such a remark at an event covered by 500 journalists from around the world.

After being roasted by the media on Wednesday for his imprudent statement that “Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin sought to walk it back in a forum sponsored by CNBC this morning in Davos. During that forum he said:  “In the longer term, we fundamentally believe in the strength of the dollar.”

There are important reasons that it is considered bad form for a sitting U.S. Treasury Secretary or sitting U.S. President to comment on the trading level of the U.S. Dollar. While a cheaper Dollar is good for U.S. exporters because it makes their products more competitively priced in foreign markets, a cheaper dollar is decidedly not good for U.S. consumers who have to pay more for imports from foreign countries with a stronger currency. (Go to the apparel department of any department store in the U.S. and try to find an item of clothing made in the U.S. and you’ll see what we mean. Or go to Lowes or Home Depot and try to find a lighting fixture made in the U.S.; or go to an electronics store and check the ratio of foreign made goods to U.S. made goods. You’ll quickly get the picture.)

Purchases made by consumers in the U.S. represent approximately two-thirds of total Gross Domestic Product (GDP). A steadily weakening dollar presents a hardship to the working class of America where the bulk of their income goes to the necessities of life. As the dollar weakens those costs increase while wages stagnate.

These increased consumer costs lead to rising inflation which could force the hand of the Federal Reserve to raise interest rates faster than currently anticipated. This could cause the stock market to fall, delivering another blow to the working class as their 401(k) savings for retirement would take a hit.

Then there is the matter of the trillions of dollars that foreigners have invested in businesses and real estate in the U.S. If they made those investments when the U.S. Dollar was strong and try to repatriate their funds back to their foreign jurisdiction by selling these assets when the U.S. Dollar is weak, that could deliver significant losses to these investors. The same concept applies to foreign central banks who hold trillions of dollars in U.S. Treasury Securities.

For all of these reasons, previous U.S. administrations have prudently kept their mouths shut on the appropriate trading levels for the U.S. Dollar.

Mnuchin seems to invite controversy whenever he steps in front of a camera – particularly when it’s with his wife, the actress Louise Linton. In August of last year, as Hurricane Harvey left families homeless in Texas, Louise Linton was bragging about the designer clothes on her back as she disembarked from a U.S. chartered plane with her husband. In an on-line post, Linton touted her #hermes, #valentino, #roulandmouret, and #tomfordsunnies attire. When a female reader responded in a post: “glad we could pay for your little getaway,” Linton lectured her in a subsequent post for being “adorably out of touch.” Linton then proceeded to brag about how much more in taxes Linton and her husband pay. (Linton apologized after the story went viral and erased her Instagram post.)

Actress Louise Linton and Husband, U.S. Treasury Secretary  Steve Mnuchin

Actress Louise Linton and Husband, U.S. Treasury Secretary Steve Mnuchin at the Bureau of Engraving and Printing

Just three months later in November 2017 Mnuchin and Linton went viral again on the Internet. Linton had accompanied her husband on an official business trip to the Bureau of Engraving and Printing. Mnuchin was there to inspect the first run of new $1 bills with his signature as U.S. Treasury Secretary. Linton managed to get into photos at the event, helping her husband hold an uncut sheet of currency while bizarrely decked out in all black attire, including above the elbow black leather gloves and a black leather skirt. One Twitter commenter asked why she was dressed like Darth Vader while another suggested that she had become a cartoonish evil character.

Mnuchin’s perpetual swirl of controversy dates back to his Senate confirmation when he was confirmed by a stunningly slim margin of votes, 53-47. All Republicans voted for Mnuchin while all Democrats voted against him except for Senator Joe Manchin of West Virginia.

The bulk of the controversy centered on Mnuchin’s role as CEO and foreclosure king at a bank called OneWest. According to testimony during Mnuchin’s confirmation hearing, OneWest was found guilty of engaging in “dual tracking,” a system where one part of the bank tells homeowners to stop making payments on their mortgages in order to pursue a loan modification while another department within the bank files foreclosure papers against them.

In a press release following Trump’s nomination of Mnuchin for the Treasury post, Democratic Senator Jeff Merkley said:

“Donald Trump’s choice of Mnuchin is not only a fundamental betrayal of his promise to stand up to Wall Street — it is a punch in the gut to the thousands of American families who were thrown out of their homes by Mnuchin’s bank. The voices of these Americans should be heard loud and clear as the Senate examines his record and considers his nomination.”

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