Kudlow’s Money Politics

The GOP, McCain & the Economy

Recession or not, the economy is definitely in a significant slowdown. This poses a daunting challenge for the Republican Party. Not only could it make Senator McCain’s election tougher, but it’s going to affect House and Senate races as well.

The litany of economic woes continue to mount: falling jobs, decimated housing, the subprime credit virus, record gasoline prices (almost $3.20), $107 oil, a slumping dollar, and the march toward $1000 gold. Now I don’t to want create a pessimism bubble here, but standard-bearer McCain must come up with a strong, pro-growth message that has a significant reform element.

Take a look at the accompanying charts from the bond market. Inflation fears are rising, while real interest rates have fallen below zero. Prices are going up, and the economy’s going down.

This is one reason why my idea of a McCain dollar could be very important. A stronger greenback would reduce inflation. Cutting corporate taxes, as well as reforming the entire tax code, might also help. Spending restraint and earmark reform could work as well.

But the real eye-opener — a topic no one has tackled on the campaign trail, at the White House, or in Congress — would be the McCain dollar. Just as in President Reagan’s first term, and Bill Clinton’s second term, a strong U.S. dollar would bring down the cost of food and energy. It would also bolster real worker wages and family income purchasing power.

Right now, a simple gold/inflation forecasting model is predicting 5.7 percent CPI this year and 7.4 percent next year. This, after 4 percent in 2007. Yikes! The GOP has its work cut out for it.

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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