The announcement of Snow's resignation from the Treasury and his probable replacement rates, in reality, as non-news. Snow was never a core policy making member of the government. While rumored to be an advocate of a "strong dollar", the reality is that there is not a single policy originating from Treasury which can be called a "strong dollar policy" under his watch - the dollar appreciation of 2005 was entirely attributable to the improvement in the US profit picture and the Federal Reserve raising rates as other nations held them steady.

No one should really care. And yet the dollar has taken a sharp drop and the markets are engaged in another sell off.

With the end of those effects - while US profits are still healthy, they are no longer suprising to the upside, and the Fed seems to be ready to pause their rate campaign as other nations are beginning to ready to raise rates - has come the end of the brief dollar revival, and a return to the dropping dollar against floating currencies, and pressure on those that keep a formal or informal dollar peg to either buy dollars or see currency appreciation.

Thus Snow leaving and being replaced by Paulson, a Bush pioneer, is simply an affirmation that this is an administration that is collapsing into to its core and circling the wagons. It has no monetary meaning, and yet, it seems to be the signal to both currency markets and equity markets, that the balance of risks has moved to a weakening dollar and rising oil.

Normally a Wall Street Treasury Secretary would be seen as a sign that the dollar was going to be defended and strengthened, however, the handwriting is on the wall.

It is not that Paulson is a poor choice for Treasury - since increasingly the problem the administration has is in placing the large volumes of bonds that the current federal budget deficit necessitates. Having a well respected figure from a premier financial institution such as GoldmanSachs is a strong step towards building confidence. Indeed, in other circumstances, appointing Paulson would be a welcome move - Paulson is well known as an environmentalist, and has been one of the motivating forces behind GS investing in new energy sources, such as cell-eth (cellulose ethanol).

However he enters the picture at a point where it is clear that this administration has played all of its cards, and has now new sources of stimulus, at the same time it is facing pressures on the wage and resource inflation front.

The weak dollar means rising oil prices, which puts pressure on companies such as Wal-Mart, and on homebuidling, which is already stumbling under oversupply, falling prices, rising interest rates and an exhausted consumer. While bulls hope this is "finding a bottom", the reality is that investment flows simply are not there for a sustained rally higher in the short term.

Europe in the mean time - and I remind people of my February bearish call on Europe - has not just sold off, but been taken a hit in a full scale retreat into correction.

The fear is that this short term pressure from a summer oil bulge and a hiring market which is just now beginning to see upward wage movement - will become a sustained drag on the economy in the second half of the year and going forward. This fear, in turn, means that the financial community is looking to the Federal Government for leadership. But leadership is precisely what is not allowed in the Bush administration. By not picking an individual who would have a mandate to press sharply for fiscal restructuring, and that would include revenue increases as well as massive spending reductions, and a restructuring of the US borrowing curve - Bush has presented an indication that he was merely looking for someone else's credibility to burn through. Having burned through Snow's - which never recovered after the dishonest social security proposals that were touted last year - and having not established credibility on issues such as trade or willingness to stand up to Republican protectionist interests, the administration must bring fresh credibility in to burn.

Paulson himself has credibility in the sense that he is personally wealthy, but also because has led Goldman Sachs through a turbulent time, and established it as the foremost seeker of alpha on the planet - that is investment advantage over others in the same sector. Goldman Sachs under Paulson has consistently invested smarter and gained more than its competitors in the same spaces. Some believe that this is luck, or aggression. But it is also Paulson's forward looking style of leadership, and ability to run a very tight ship. Not in the sense of micromanaging, but a very focused organization which pursued advantage.

This kind of individual, if he had been appointed early in an administration, or even during the peak of power during core policy establishment periods, would be taken as an extremely positive sign - to do for Treasury what he had done on Wall Street. It would have been seen as a Rubinesque choice - a sign that Treasury would be at the table and a focus of activity.

Coming in the waning days of an administration it has the reverse effect, it seems shallow and symbolic - putting someone in charge after Snow had carried all the water that he could carry. Which is unfortunate, because there are significant challenges that Treasury should be addressing, as the world monetary system is in the process of being restructured. While the shape of that restructuring will require a new executive, and an election to determine his or her mandate, there are numerous steps that must come in preparation for this, as well as the above mentioned short term pressures on the US economy and the global equity and currency markets. The Secretary of Treasury, by forcefully laying out a road map to US fiscal and trade sanity, and backing this with such measures as can be taken - including ending the mania for throwing tax cuts on an inflationary fire which the Congress and other parts of the executive are indulging in - could help give the global financial system time to work through the structural adjustments.

Paulson should be speedily confirmed, but also told that the Congress expects him to vigorously attach the same intensity to his new shareholders - the American public as a whole, as well as our allies and trading partners - as he did at Goldman Sachs.