Peter said he sees the President-elect's recent comments to the Wall Street Journal about the overvaluation of the dollar as representing an unstated "falling dollar" policy - one that candidate Trump espoused his entire campaign.
"Donald Trump always talked about the overvalued dollar when he was a candidate. He didn't always say, 'the dollar is overvalued.' He would say, 'foreign currencies are undervalued,' which is basically like saying the same thing only using different words... If he wants foreign currencies to appreciate, then by definition, he wants the dollar to depreciate."
As expected, the dollar tumbled 1.2% shortly after Trump's statements. It's currently down nearly 1% against the Japanese yen and Mexican peso, according to MSN.
Trump's comments also targeted China's currency manipulation as the major cause for the dollar's strength. "Our companies can't compete with them now because our currency is too strong. And it's killing us," Trump said.
As Trump sees it, the US's trade imbalance with China stems from the valuation gap between the dollar and the yuan. Typically, the weaker a nation's currency, the cheaper and more competitive their exports will be. Nations like Venezuela are now fighting hyperinflation, after leaders made moves to devalue the bolivar for the same reasons. When mixed with huge trade deficits and artificially low interest rates, such a "weak dollar" approach could help create a similar currency crisis for the US.
Peter also took New York Fed President William Dudley to task for his recent entreaty to homeowners to leverage their equity for consumer spending. Sadly, the suggestion echoes those of Alan Greenspan's during the George W. Bush era before the housing bubble burst.
In March 2003, Greenspan admitted to a group of Independent Community Bankers of America that "the frenetic pace of home equity extraction last year is likely to appreciably simmer down in 2003, possibly notably lessening support to household purchases of goods and services."
- Source, Seeking Alpha