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Goldman Sachs Chief Executive Henry "Hank" Paulson was tapped by White House Chief of Staff and Goldman Sachs alumnus Josh Bolten as the new Treasury Secretary, replacing John Snow.  Paulson now awaits confirmation by the Senate.

Blah blah blah, right?

Does it matter than Paulson will soon be the leader of the federal agency that is responsible for economic and financial prosperity in the United States? 

Yes, but in a round-about kind of way.

According to the U.S. Treasury Web site, the role of the department is eight-fold.  You can read them all at the Web site, but the most important role of the Treasury is:

Advise on domestic and international financial, monetary, economic, trade and tax policy. 

So, in addition to being the guy whose signature is on your paper money, the Treasury Secretary is the principal economic advisor to the President.

Paulsen's predecessor, John Snow, was known to support a strong dollar and that was terrific for mortgage rates.  The reasons are pretty clear if you look at it like an investor: Wouldn't you rather invest in something that will keep its value over time?

When foreigners believe that U.S. dollars will not lose value, they are more likely to invest is U.S.-demonimated securities such as stocks, real estate and bonds -- including mortgage bonds.

Demand for these securities pushes their value up.  When demand for bonds increase, the yield on bonds decrease.  So, more demand creates lower rates all around.

If foreigners believe that U.S dollars will lose value, they will expect a higher return because the underlying asset will be inherently devalued.  Therefore, mortgage rates go higher to attract more investors.

So, John Snow tried his best to keep the dollar strong, and mortgage rates remained low.  Then, the effects of having a strong dollar began to take effect.  Americans bought foreign goods because they were "cheaper" versus U.S. goods and the trade deficit ballooned. 

How Hank Paulsen handles the dollar could portend your future mortgage interest rates.  Will he be strong on the dollar, helping to keep rates low?  Or, will he allow the dollar to weaken?  So far, he is staying mum on the issue.

Even though the Treasury Secretary does not make policy for the government, his opinions absolutely influence it.  So far, traders are reacting tepidly; mortgage rates are slightly lower in advance of the Fed Minutes released in a few hours.

Cliff Clavin Fact of the Day: The average length of tenure, dating back to Alexander Hamilton in 1789, is 2.97 years.

Source
Secretaries of the Treasury
United States Department of the Treasury

http://www.treasury.gov/education/duties/treas/sec-treasury.shtml

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Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.