Dynamic Dollar Duo: Obama and Volcker
The decline of the dollar has been an MIA issue in the presidential campaign, even though the public is aware of it and doesn't like it. So I find this interesting: The Wall Street Journal praises Barack Obama this morning for a bit of gabbing he's been doing about the greenback.
Apparently, Obama—who has taken on former Fed Chairman Paul Volcker as an economic adviser—has acknowledged the obvious fact that a weak dollar is fueling higher oil and gas prices. (Thank you, Mr. Chairman!) He also said that strengthening the economy would boost the dollar. The WSJ thinks it's just the opposite.
I think it works both ways: A stronger dollar would help the economy, and a stronger economy would help the dollar. Now, a strong-dollar president would be great. I wish we had one right now. But I worry that Obama's strong dollar talk is code for "Let's jack up government spending to boost the economy and that will boost the dollar." If that happens, the dollar might have farther to fall. Here is how I would boost the greenback.
Tags: dollar | economy | Barack Obama | Paul Volcker
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Like you, I don't trust Obama's strong dollar talk because his other words (increased government spending) do not instill confidence that he will support a strong dollar. The easiest thing to start addressing a strong dollar is start by doing something that both Wall Street and the Fed are loathe to want/do which is raise interest rates. This will dry up some domestic spending, but I think that will be more than offset by the increased foreign investment that we will be able to attract. Besides, we also need to start providing consumers incentive to save money. Low interest rates and high taxes don't currently provide that.
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