Strong dollar? Weak dollar?


Allow me to begin by admitting that I have had a great deal of trouble with the two sides of the argument on whether we are better off with a strong dollar or a weak dollar. Several Asian nations “pursued” weak currencies following the financial collapse of 2008. Indeed, they were competing to see which nation could end up with the most worthless currency in order to spur exports (their principal source of foreign currency). As well, there was discussion at the time as to whether the US dollar should remain the world’s reserve currency.

So I am offering the words of three of the economists I trust the most.

[Source: Trump Needs a Return to King Dollar, by Lawrence Kudlow, Arthur B. Laffer, and Stephen Moore]

The Trump Administration and the Republicans in Congress have passed one of the best pro-growth tax bills ever. The Tax Cuts and Jobs Act ranks in the all-time hall of fame along with Reagan’s 1981 and 1986 Tax Acts and President Kennedy’s posthumous tax cuts of 1964…

But there is still a missing pillar of prosperity in the Trump economic agenda and that is a sound dollar strategy. The dollar weakened in 2017 and we want it stabilized.  There’s little in this world that can bring our economy to its knees faster than a weak dollar in the foreign exchange markets. Just ask people who served in the Nixon, Ford, Carter, Bush 2 administrations and Barack Obama’s first term – all of which were undone by a weak and depreciating dollar, surging inflation, spiking interest rates, plus financial or commodity bubbles… Meanwhile, under Reagan the U.S. dollar increased by 67% in value in the foreign exchange markets through 1985…

Or go back further in time. In May of 1962, President Kennedy’s Revenue Act was passed and President Kennedy reaffirmed that the U.S. dollar was as good as gold thus launching the incredible boom called the ‘Go-Go Sixties’. A strong dollar is an essential pillar of economic prosperity with minimal inflation, but we worry that the White House has not adopted this strategy.  So we urge the Trump administration to return to the successful King Dollar policies that worked in the 60’s, 80’s and 90’s.

Devaluations and weak currencies do not create U.S. jobs. Instead, weakened currencies are accompanied by relative price changes leading to inflation in the devaluing country…

We also worry that the recent widening trade deficit numbers will further tempt the Administration into a weak dollar strategy. The trade gap – imports over exports – widened by 12 percent last year to $566 billion. This was the highest level since 2008. But the widening trade deficit is actually a symptom of Trump’s pro-growth tax and deregulation policies that are working. The last time the trade deficit fell sharply was in 2009 and 2010 because of the steep recession… trade deficits are nothing more than the flip side of large capitals inflows from around the world.  This is a good thing.  Before long, the trade gap will narrow, as the US becomes more competitive and the most hospitable investment environment in the world.

A return to King Dollar will bring a lot more jobs, wage increases, and investment flows back into the United States. It will confirm that, as Mr. Trump told the world’s leaders and CEOs in Davos, Switzerland, “America is open for business again.”

Okay. I trust these men. However, I cannot say that I understand the situation much better. Hopefully, however, my readers have improved their understanding of this complex issue.

Roy Filly

 

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About Roy Filly

Please read my first blog in which I describe myself and my goals.
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