This weekend's G8 finance ministers' meeting in Lecce, Italy revealed their disagreements about bank stress testing, which is, of course, far from being constructive.
In the meantime, while the Europeans are waiting for the Americans, and the American are waiting for the Chinese, and the Chinese are waiting for the rest of the world to generate growth, and even the blind can see this policy is simply not working. Russia's Finance Minister Alexei Kudrin, who has lately made persistent public complaints about the U.S. dollar, changed his attitude this weekend, and stated out of the blue, that the dollar was in "good shape," that "it's too early to speak of an alternative" reserve currency, and that "it is hard to say that in the next few years this system will change significantly."
This is happening at the end of a six-month period that has seen repeated Russian criticism of the dollar that started in January this year, when Prime Minister Vladimir Putin commented in Davos at the World Economic Forum that "the pride of Wall Street investment banks doesn't exist anymore."
It seems that Mr. Kudrin's meetings with U.S. Treasury Secretary Timothy Geithner and Japanese Finance Minister Yosano on Friday have had their impact on his way of thinking about reserve currencies.
Coincidently, we also had this morning Sergei Prikhodko, a top Kremlin advisor saying: "We will hardly be discussing the new reserve currencies … As far as practical issues are concerned, we will speak more about the possible ways to reform international financial institutions."
At least we can say this is interesting breaking news coming from the BRIC (Brazil, Russia, India and China) summit.
By the way, the four BRIC countries produce 15 percent of global gross domestic product.
As you know from my earlier comments, these verbal dollar supports and reversals shouldn't come as a surprise. We now have evidence that, following Secretary Geithner's visit to Beijing at the beginning of this month, China has definitively changed its dollar comments. We could say it seems they've come to the logical conclusion it was not in their best interests to continue shooting themselves in the foot by making statements that undermine further the already beleaguered dollar.
Remember the recent Chinese comments stressing the partnership they are in with the United States, and Vice Foreign Minister He Yafei saying: "Nobody is talking about dumping the USD."
As such, the remarkable reversal of Russia's Finance Minister Kudrin this weekend seems to indicate that they have come to that same conclusion that there is very little to be gained by Russia talking down the dollar.
We could say, at least for the moment, that the U.S. Treasury has apparently had a successful campaign persuading other officials to provide verbal support for the dollar.
Japanese Finance Minister Kaoru Yosano also made a very strong statement on Friday: "We have complete trust in the fact that the United States views its strong-dollar policy as fundamental. So our trust in U.S. Treasuries is absolutely unshakable. … We have complete faith in U.S. economic and fiscal policy."
On Saturday the IMF's Dominique Strauss-Kahn stated: "I don't see today a weak dollar. … I don't forecast that we could expect many changes on this in the coming time."
So, the coordinated campaign of verbal intervention of support for the greenback has finally taken root, at least for the time being, and is already having its positive effect on dollar exchange rates.
I think the dollar could continue to climb in the days ahead should further support be provided by the leaders of the BRIC when they issue their communiqué at the end of their meeting in Russia this week.
Nevertheless, don't get me wrong. Notwithstanding that actual broad verbal support for the dollar seems to work for now, I'm still convinced it does practically nothing to alter the major problems the dollar will have to face for a long time to come.
The bottom line is investors should pay attention to what the big dollar holders actually do with their dollars, not to what they are saying.
We could have a nice opportunity in the offing because further dollar support comments could bring the dollar back up to levels where it becomes interesting again to move further out of the dollar.
Therefore, I remain short-term bullish on the dollar.
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