October 6, 2009

Why Strong Dollars Should Be Part Of The Republican Platform

When the dollar gets too weak, and stays weak for a long time, it becomes simply another currency out in the world market.  And other nations abandon using it as the preferred medium of exchange for international sales transactions -- meaning that the United States loses out on the free wealth transfer that is a consequence of having our national currency be the international medium of trade.  To be sure, the United States still has a propitiously large economy, but one of the props of that economy is the strength of its currency.  This is a signal of a decline in that part of our wealth -- an unwelcome piece of news indeed.


DaveBuck said...

How do we go about strengthening the dollar?

Burt Likko said...

Three ways.

1. We restrict the amount of currency in circulation. Note that "currency" is neither "money" or "wealth."

2. We reduce governmental deficit spending, and concurrently raise the interest that we pay on new governmental debt.

3. We set up our tax and infrastructure systems to encourage growth in the manufacturing sector of our economy.

Credit consumers will see rate increases in securitized credit, such as variable-rate home mortgages. Liquid credit rates are already close to maxed out anyway so that won't matter. Aside from that, typical consumers will not notice any immediate change to their daily lives -- what they'll like are the things that won't happen, like inflation.

DaveBuck said...

What's the catch? I mean, why wouldn't any rational person or politician support strengthening the dollar?

Burt Likko said...

Weak dollars create an incentive for foreign capital to invest here. Weak dollars also provide a degree of protection for existing manufacturing because foreign products become relatively more expensive -- which is part of why, in the long run, to keep dollars strong and the economy healthy, we would need to alter our tax structures to favor manufacturing. So if the need is for an immediate injection of capital into the economy, weak dollars are better. My thinking is, the price we pay for that investment incentive is not worth it in the long run. But there are those who disagree -- this Administration and its immediate predecessor included.