The Asia-Pacific Economic Cooperation forum is also up in arms about the falling greenback, according to the Wall Street Journal. Policymakers are reportedly prepared to give President Barack Obama an earful when he travels to Asia later this week. In the words of one delegate:

“Nobody in Asia, and only some in Europe, will speak publicly about their worries, but they are worried … The world — not only APEC, but the world — needs direction and the only country that can provide this direction is the United States. This can only be achieved through a stable U.S. currency.”

But in a candid moment, the Thai Finance Minister Korn Chatikavanij admitted that his country has wasted $15 billion trying to keep the baht from appreciating against the buck. And he verbalized what currency investors all know about the sorry state of the U.S. economy:

“But there is not much you could do to correct what is reality. The fact is when you’ve got that much debt … the only effective way of repaying that debt is basically devaluing your currency.”

In other words, all this is talk. The U.S. likely won’t do anything about the dollar decline as long as it remains orderly … which virtually guarantees at some point that the decline will NOT remain orderly.

By the way, if you’re wondering why the dollar is being sold in so many carry trades, the answer is quite simple. It’s the cheapest currency on the block to borrow! Three-month dollar LIBOR rates were recently 0.27%. That’s less than the 0.32% cost of borrowing Japanese yen … the 0.61% rate to borrow money in pounds sterling … and the 0.68% rate for euro-based loans. In other words, as long as the Fed continues to keep the taps wide open, leveraged global investors are going to get drunk off of the cheap money.

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The unemployment rate spiked to 10.2% from 9.8%, well above the 9.9% forecast of economists polled by Bloomberg and the worst reading since April 1983. The “all in” unemployment rate that includes people marginally employed, those working part-time because they can’t find full-time work, etc., rose to 17.5%, the highest since they began tracking it in 1994.

Average hourly earnings were a bright spot, up 0.3% against a forecast for +0.1%. But average weekly hours held at 33, tying the worst level in U.S. history (the data goes back to 1964). The diffusion index, which measures how many industries are shedding jobs vs. how many are adding them, weakened to 33.8 from 37.5.

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Now I’ll be the first to admit that the market already “knows” the Fed and Treasury don’t care about the dollar. But using a plugged-in reporter to essentially communicate that view publicly, on live financial television, is pretty noteworthy. If the Fed does what I expect them to in a few hours (NOT signal any shift toward tightening) the buck could get creamed here. We’ll see …

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My take? The idea that the Fed will pull back proactively, or will stand up to political pressure, is a total joke. The Fed has become totally politicized, working hand in glove with the Treasury in the past year. There is no way in you-know-where they’ll stand up to pressure to keep supporting the housing market early next year, should that pressure be brought to bear.

More from Bloomberg:

“Federal Reserve Chairman Ben S. Bernanke is gambling that come March, he can stop the purchases of mortgage-backed securities that have propped up the U.S. housing market. Congress may have other ideas.

“The central bank says it must eventually withdraw its unprecedented economic stimulus to avoid a surge of inflation as a recovery takes hold. Plans to buy $1.25 trillion of housing debt are the centerpiece of its program to pull the nation out of the worst recession since the 1930s.

“Bernanke, who convenes a meeting of the Federal Open Market Committee today, is counting on private investors to fill the void left by the Fed when its purchases end. If he’s wrong, he may come under pressure from politicians to maintain support for housing or even extend credit programs for small businesses and consumers. That would threaten the Fed’s ability to conduct an independent monetary policy.

“The nightmare scenario for the Fed would be to see them try to sell their mortgage portfolio, and Congress steps in and tries to stop it on the grounds that the housing market hasn’t fully recovered,” said Ethan Harris, head of North American Economics at Bank of America-Merrill Lynch in New York. “The attempts to influence the Fed in the exit strategy will be pretty strong.”

“The Fed chairman has already come under pressure from lawmakers including Senate Banking Committee Chairman Christopher Dodd of Connecticut and Representative Paul Kanjorski of Pennsylvania, both Democrats, to aid car companies and provide more credit to commercial real estate.”

The second article is in the Washington Post. It talks about how the U.K. is trying to shrink the size of its “Too Big to Fail” banks, forcing them to sell off assets and reduced their overall footprint in order to get more aid.

Here in the U.S., though, our regulators continue to suck up to the TBTF companies. The Obama administration has essentially ignored the advice of Bank of England governor Mervyn King, former IMF Chief Economist Simon Johnson, and even one of its own advisers, former Fed Chairman Paul Volcker. They all think it makes sense to tame these behemoths before they blow themselves up again … and require even more taxpayer-funded bailouts.

More from the Post:

“The British government — spurred on by European regulators — is forcing the Royal Bank of Scotland, Lloyds Banking Group and Northern Rock to sell off parts of their operations. The Europeans are calling for more and smaller banks to increase competition and eliminate the threat posed by banks so large that they must be rescued by taxpayers, no matter how they conducted their business, in order to avoid damaging the global financial system.

“The move to downsize some of Britain’s largest banks comes as U.S. politicians are debating whether American banks should also be required to shrink. The Obama administration has maintained that large banks should be preserved because they play an important role in the economy and that taxpayers instead should be protected by creating a new system for liquidating large banks that run into problems. But Britain’s decision already is being cited by a growing chorus of experts, including prominent bankers and economists, who want the United States to pursue a similar approach.”

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* Pending home sales surged 6.1% in September. That was much better than the unchanged reading that economists were expecting. It’s also the eighth consecutive monthly rise.

* On a year-over-year basis, the pending sales index jumped 21.1% to 110.1 from 90.9. That’s the highest index value since December 2006.

* Regionally, pendings were relatively strong. They rose 4.9% in the South, 8.1% in the Midwest, and 10.2% in the West. Sales dropped 2% in the Northeast.

The existing home market continues to heat up, fueled by cheaper house prices and the first-time buyer tax credit. Pending sales have climbed for eight straight months, and contract signings haven’t been running this hot in almost three years.

Clearly, buyers were eager to get business done before the credit’s November expiration. So I wouldn’t be surprised to see some giveback in pending sales over the next month or two. But with Congress set to extend the credit through mid-2010 … and expand it to a broader pool of potential buyers … the market should remain fairly well-supported. In other words, the “three steps forward, two steps back” recovery in housing remains on track.

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* Existing home sales jumped 9.4% to a seasonally adjusted annual rate of 5.57 million units from 5.09 million in August. That was twice the gain that was expected and the rate of sales was the highest since July 2007.

* Single-family sales gained 9.4%, while condo and cooperative sales rose 9.7%. By region, sales climbed across the board. They were up 4.4% in the Northeast, 9% in the South, 9.6% in the Midwest, and 13% in the West.

* The raw number of homes for sale dropped 7.5% to 3.63 million units from 3.924 million in August. Supply was off 15% from a year earlier. The months supply at current sales pace indicator of inventory dropped to 7.8 from 9.3. Single family inventory dropped to 7.6 from 9, while condo inventory fell to 11 from 12.1.

* The median price of an existing home fell 1.4% to $174,900 from $177,300 in August. That was off 8.5% from $191,400 in the year-ago period.

September was a blockbuster month for existing home sales. The looming expiration of the tax credit, combined with stabilization in the broader economy and cheap home prices, drove sales to the highest level we’ve seen in a couple of years. The supply of used homes for sale is also steadily declining, an encouraging trend considering that new home inventory has already dropped like a rock.

If there’s a fly in the ointment, it’s concern about the “pull forward” effect. Clearly, some buyers purchased a home this summer because of the tax credit and the tax credit alone. Unless that credit is extended or expanded, we’ll see “give back” in the coming couple of months. I don’t think it derails the overall recovery. That’s being driven by true, fundamental forces, such as the dramatic improvement in housing affordability. But it will be noticeable nonetheless.

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* The Bank of Canada released a statement today saying that “heightened volatility and persistent strength in the Canadian dollar are working to slow growth … the current strength in the dollar is expected, over time, to more than fully offset the favorable developments since July.”

* European Central Bank President Jean-Claude Trichet warned again about “excessive volatility” in exchange rates, while a French economic advisor said the current EURUSD exchange rate is a “disaster for the European economy.”

* In Brazil, the carry trade (borrow cheap dollars, invest the money in higher-risk, higher-yield assets) is so out of control the government just slapped a tax on foreign investors in Brazilian assets. A 2% levy will apply to foreign purchases of Brazilian fixed-income securities and stocks, effective immediately.

* Minutes of the latest Reserve Bank of Australia meeting showed that officials were very concerned about the side effects of recklessly easy money. The minutes suggested that a “very expansionary setting of policy was no longer necessary, and possibly imprudent.” The RBA surprised the world recently by becoming the first Group of 20 central bank to raise rates, albeit by a quarter point to 3.25%.

Bottom line: Washington doesn’t care about letting the dollar circle the drain. The Fed may want to keep U.S. rates at effectively zero until the next millennium. But Canada doesn’t much like the surging loonie, the ECB hates the euro surge, Brazil isn’t thrilled about the exploding real, and Australian officials are clearly firing a shot across Bernanke’s bow.

The problem is that unless and until Bernanke signals a policy shift in the interest rate market, they’re spitting in the wind.

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