Policy and Personnel Changes

Forex traders and investors are sure to watch the actions of the new Obama administration and how markets respond. Obama has inherited the worst economy since the great depression. With a new administration come policy and personnel changes. Obama’s cabinet selections are now being confirmed by congress. Obama’

s pick for Treasury Secretary, Timothy Geithner, had a confirmation hearing Wednesday before the Senate Finance Committee.

More Funding Necessary

Former Federal Reserve chairman Paul Volcker, testifying in support of Geithner, stated that “several trillions of dollars will be necessary” from the Federal Reserve to revive the U.S. financial system. Volker also said, “Obviously, commitments made of that magnitude raise very large questions, there are also risks of undermining confidence in the dollar and raising the fears of future inflation.”

Chinese Largest US Debt Holders

As any Forex trader knows, if foreign investors were to quickly sell their large holdings of Treasury securities, it would wreak havoc with U.S. finances and drive down the value of the dollar. At the present time, Chinese investors are the largest overseas holders of U.S. Treasury bonds with $682 billion invested. Japanese investors own $577 billion dollars worth of Treasury Bonds.

Dependence On Foreign Investors Growing

Many economists and Forex traders fear that a massive selloff of Treasury Bonds by foreign investors could affect the value of the US dollar and further damage the US economy. With a stimulus program costing $800 billion dollars, costly wars in Afghanistan and Iraq, and future obligations of social security, the dependence on foreign investors is growing.

Baucus Slams ‘Mutual Addiction’

Finance Committee chairman Sen. Max Baucus, D-Montana, noted what he called “this mutual addiction”

between the United States and China. Simply put, Americans buy Chinese products and in return Chinese investors fund US spending by buying US backed securities.

Geithner’

s nomination will be voted on next week so it is too early to tell just what actions he and the new administration will take in addressing economic problems. At present, the US dollar is strong on international currency markets and Forex traders and investors will be watching the new Treasury Secretary closely.