“There was a common understanding that all of us should promote a pro-growth economic policy.”  So rides George W. Bush to the world’s rescue, yet again.  If it weren’t for such strong leadership, lord knows what consenses finance ministries across the world be lacking.  Thankfully, the still-president gathered the G20 in Washington and made sure that no one had an anti-growth policy, or perhaps a growth-neutral policy.

This weekend, two major facts were made clear:  (1) Congressional Democrats are waiting for George W. Bush to finally leave the world stage before passing a major stimulus package and (2) world leaders are waiting for George W. Bush to finally leave the world stage before starting major international talks on policy coordination.

The man may not be an idiot, but if he’s not, he’s definitely a nihilist.  It’s one of the other.

At any rate, the delaying of a large stimulus package is hopefully this president’s last major act  of mis-governance, and his last chance to harm the US dollar’s forex standing.

The major sticking point to a smaller, stop-gap stimulus bill right now is the potential bail out of the auto industry.  Republicans are pushing back against a redirection of roughly $25 billion from the TARP to the auto industry.  They are aiming to force GM and other Detroit makers into official bankruptcy in order to sideline the United Auto Workers union, one of the nations most progressive and politically effective major unions.

Few analysts outside the halls of Congress can say for sure what will happen, but it seems likely that a Detroit bailout-less stop gap stimulus measure that is a little more than half the size of the $61 billion bill the House is going to pass this coming week will become law during the lame duck session.

After that, look for a huge stimulus measure to be passed in the first week of the next Congress.  The overall size will be an important matter.  The range being debated right now seems to be $300-600 billion.  The larger the bill, the better for the economy – in both the short and long term – and the better for the US dollar, especially vis-a-vis the euro.

A $300-400 billion bill would provide a slight bounce to the dollar, especially if action in Europe is constrained even partially by the ECB’s desire to stick to its debt ceilings.

If truly good news actually comes out of Congress, though, and political leaders choose to actually respond appropriately with a $500+ billion stimulus, look for the dollar to rally against every major currency in a significant, if fleeting way.

Much will depend on how the news breaks – and on the remaining Senate races.  Regardless, expect the psychological impact of a $500+ billion stimulus bill to give it an effect on the forex markets above and beyond what will be priced into the markets in the days prior to the publication of the final details of Congressional agreement on the size of the bill.

This entry was posted on Sunday, November 16th, 2008 at 9:01 pm and is filed under Politics, US Dollar. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.