Thursday, September 4, 2008

Welcome to the party, Wall Street Journal!

I've blogged previously about how the United States in general benefits greatly from a strong dollar. To me, this seems fairly obvious. A strong dollar means that it is worth more, which means that it buys more. We all benefit. That simple logic seems to have escaped the powers that be in Washington, however, and we have been subjected to (as the Journal describes it) years of "malign neglect" of the dollar: http://online.wsj.com/article/SB122048621675397153.html?mod=djemEditorialPage. This is so true and SO dangerous. Look at these basic facts: As the dollar was in freefall earlier this year, we saw commodity prices in general and oil prices in particular rise to previously unseen levels. That's when gasoline rose above $4 a barrel, and the cost of living went up for everyone. Fuel prices were just the most visible example. However, the collapse of the dollar also caused a spike in food prices (just to cite a prominent example).

The greenback has come back somewhat in the past few months--and, surprise surprise, commodity prices have fallen commensurately--but it's still a long, long way from what could be considered to be a healthy range. The next President, be it John McCain or Barack Obama, NEEDS to make sure that the dollar is strong. If they don't, the voters may very well be looking for a replacement come 2012.

1 comment:

ogden said...

It's a complicated world. Here's a story about how the U.S. economic downturn has lowered the price of gas. I agree that a strong dollar is better than a weak one, but there are weird consequences, similar to this gas story, that are unexpected. For instance, if the dollar is stonger, we lose on the export side. If we lose on exports, how do we do more than sell to each other? It's a different world than the 50's and 60's when we could sell to the rest of the world and they had to buy from us no matter what. When our Russian "friends" say that a world in which only one power is dominant won't work, they speak
a certain pragmatic truth. The question is, how we navigate this more complicated world so that we win.

_http://money.aol.com/news/articles/_a/bbdp/gas-reserves-send-oil-prices-down/
158116_
(http://money.aol.com/news/articles/_a/bbdp/gas-reserves-send-oil-prices-down/158116)