I don’t believe that “jawboning” or “moral suasion” works - especially not more than a day or two. Besides - the jawbone powers of President Bush or Chairman Bernanke or Secretary Paulson aren’t quite comparable to Samson - the real “strong man”.

When President Bush tried to jawbone OPEC into increasing oil supplies to reduce oil - how did that work out and for how long?

When Paulson said “strong dollar” policy over and over for the past several years, we got continuous devaluation.

So forgive me if I am more than skeptical about the jawboning powers of Chairman Bernanke in his attempts to fight inflation or lower oil prices via strengthening the dollar by uttering a few words.

Actions….not words. Evaluate the actions for the past few years - they have not created confidence and directly led to dollar destruction and inflation. Now, in their infinite wisdom, the guys who contributed heavily to this mess with failed monetary and fiscal policies and who cheered the wonderful impacts of a weak dollar to support our exports, have decided that a crumbling dollar isn’t good for our economy. BRILLIANT!

On June 2nd, Bernanke said the Fed was going to be “attentive” to strengthening the dollar. One whole day after Paulson had definitively stated (for the gazillionth time) that he “strongly favored” a “strong dollar”. I am sure he had a “strong” look on his face as he “strongly” pounded the table and used “strong” volume in his voice. No one “strongly” cared about Paulson’s promises in the past or June 10th on Bloomberg when he said he would tell his G-8 buddies this week that the “strong dollar” would be representative of “strong” economic fundamentals. Okay. Got it.

But as for Bernanke - his jawboning appears to have worked. On June 2nd - it worked for about 3 days. The dollar went up, oil went down and commentators were convinced that he and the Fed would singlehandedly jawbone the oil / inflation into submission. OOPS. That failed so this week on June 9th, Bernanke stepped it up again and said “The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing from growth as well as inflation.” That has worked too - at least 4 days so far.

Actions…not words. Evaluate the actions he is taking now and opening his mouth does not qualify as an action. Do you really think that currency traders are bidding up the dollar because they believe what Bernanke says is true or will be true? I don’t. I think they just look at his jawboning as an opportunity to make a trade that they can undo when it fades in a few days.

After all the jawboning - the dollar has appreciated about 1% since June 2nd and oil is up $10 per barrel. As for expectations of inflation - mine haven’t changed despite Bernanke’s words. They have changed because of his actions. Actions…not words.

Before getting excited about Fed Funds rate hikes being good for the dollar and for the fight against inflation, please consider the rationale for the rate cuts and whether they worked. Monetary theory says that all the easing since last fall should have boosted the economy. Last time I checked - wages are declining, unemployment is rising, consumer confidence is dropping, etc. etc. I missed the part where the Fed’s prior actions have solved much of anything other than contributing to inflation and a weak dollar. As you may have gathered from my prior posts about the Fed (and Central Banking in general), I don’t feel it is effective and it can be very counterproductive. More importantly, I am increasingly concerned about the reliance on Central Banking decisions to dictate the sentiment of market participants.

As for all this jawboning about the strong dollar - it is a lame attempt to “strongly” convince people that oil will go down if we can just “strongly” talk it down through “strong dollar” talk. Actions…not words.