What to make of the Fed's Strong Dollar policy

All we have heard the past few months is how Hank Paulson wants a strong Dollar.  As the boss of the cartel Hank tells Ben Bernanke and George Bush what to say and when to say it.  GW has increase rhetoric lately to support a strong Dollar.  It’s hard to believe the oil magnate wants a strong Dollar because his friends will take a pay cut on the back of Dollar appreciation.  On the other side of the pond Jean Claude Trichet has been opposing the Fed consistently to prop his currency which he feels should be the reserve currency of the world.  I don’t know; the Euro?  Doesn’t have a global theme built into the name; first off, and furthermore it’s only 6 years old.  Let’s let the grade schooler earn a diploma before we put our wealth in it.

Why does Trichet oppose the Fed?  By talking up his Euro currency he lowers perceived inflation by the countries holding the Euro as their primary reserve.  As the Euro strengthens it can buy more oil compared to Dollars or Pounds.  What else is Trichet doing by opposing the Fed?  He’s pressuring the Dollar and the Fed to hike rates.  I don’t think he’s making a great case for this but it’s an angle he seems to be pressing.  By increasing the value of the Euro he is indirectly hiking oil prices which the USA can’t afford so the Fed will be forced to hike rates to strengthen the Dollar rapidly which will drop the price of oil rather quickly to <$100/ barrel.  If it’s so easy for the Fed to drop the price of oil why don’t they just do it?  The Fed has friends and family in most major banks in the world.  They just bought Bear Stearns through their other major US bank JPMorgan.  The Fed prints the money these banks buy and then sell to you and me.  Essentially the banks in the US have taken a huge hit in profits as the credit market has tightened and write offs plagued bottom lines.  The idea now is to give bank friends and family cheap money until their coffers are filled.  If bank friends and family don’t fill their coffers by September and the Fed hikes rates making money more expensive you and I will see tighter credit markets or at least as tight as they are now with much more expensive loans.

So we don’t really want the corruption extraordinaire Mr. Trichet talking up his Euro much more or the whole world minus Europe will feel the pain in the pocket book which is commonly in the back pocket hence pain in the butt.