The Corner

Bush Whiffs on the Dollar

In his news conference today President Bush really didn’t get to the key point on soaring gas and food prices: The best short-term policy is to strengthen the dollar. Bring back King Dollar.

Whether it’s energy, wheat, grain, corn, or whatever, since these raw materials are priced in dollars on global markets, a strong greenback will reduce commodity prices. And that, in turn, will lower both consumer and producer inflation. This would help corporate profits and would boost the purchasing power of wages.

In other words, a strong dollar would relieve gas prices and boost the economy. But so far as I know, the president never mentioned the dollar. And I don’t think any of the media people asked him about it.

Right now Mr. Bush should order his Treasury Secretary to appreciate the greenback and work with the G7 for concerted action that would send a strong signal to commodity and currency traders that they better close their short positions on the dollar and stop speculating on higher and higher commodity prices. Mr. Bush himself should adopt new rhetoric on a strong dollar. He should make it unambiguous.

In today’s consumer confidence report, inflation expectations surged to 6.8 percent for the next year. One year ago they were 5.1 percent. This is not good. And of course, gasoline prices at the pump as well as supermarket prices for food are becoming huge political issues. Huge! Bigger than the war and bigger than the economy.

Additionally, the president really missed the ethanol questions. He acknowledged that ethanol mandates are contributing roughly 15 percent to rising food. But he didn’t indicate any interest in eliminating the ethanol subsidy (a subject on which Deroy Murdock has artfully written).

The president was dead right in opposing the huge $280 billion farm bill. But on ethanol and the greenback he whiffed.

This is too bad, because the Fed meets tomorrow and is likely to end its interest-rate cuts after one more quarter point. I would prefer the central bank not even make the last cut to 2 percent. Money-market futures are now predicting a higher fed target rate next year. And if that expectation pans out, it will give a boost to the dollar and reduce all these inflationary pressures.

But defending the currency should also be done by the commander in chief and his Treasury man. As the Fed begins to shift gears, now would be a great time to resurrect the dollar.

Truly, we need a return to King Dollar and an end to the U.S. peso. Senator John McCain, are you listening?

Larry Kudlow — Larry Kudlow is the author of JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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