A great friend of mine recently admonished a competitor who exclaimed that the Dow Jones was rising! His response was incisive: what does it matter, the currency is shot! His thinking was grounded in sound fiscal, macroeconomic policy that is missing from the specialist’s that dominate either government or academia. Rising value is worthless if the currency backing it is worthless. He spent most of the afternoon explaining to me how currencies destroy themselves.
Strong or weak currencies are made by the political policies that dominate their value. This is the foundation to Adam Smith’s ‘invisible hand’. If the U.S. dollar is weak, we have only to look at the failed libertine policies that dominate a spendthrift Congress. If you wish to fix the U.S. dollar then you do it fiscally! But this requires political courage and fortitude, for how else are we going to reform intractable institutions.
The American economy is grounded in consumer spending. We are no longer a manufacturing based economy. Instead, we have become a digital economy based on innovation, spending, and services. Just look at Apple, IBM or Pharmaceuticals and healthcare. Those that provide high quality services thrive. The underside to this story is ugly, for our education system has not been informed from a curriculum based on innovation. A digital, decentralized economy borders on high supply, for the effort and space required is nominal. Since our housing bubble busted the U.S. has lots of supply but no demand. This scenario along with high imports from cheap regional labor contributes to a weakened dollar.
Most simply cannot understand that with high imports we are giving the Chinese our paper for goods. We are exporting our currency!
Congress continues to defend its confiscatory taxation in name of radical equality. High taxation means that working people keep less of what they earn, so as to subsidize non working people, all in the name of militant equality! What it cannot raise in taxation it finds through selling Treasury Bills! This destroys the purchasing power of our money.
If you want to fix the value of the U.S. dollar then return to the political and by extension, the macroeconomic policies that contribute to value. Low taxation, high exports, elimination of subsidies, a fiscally restrained Congress and reformed entitlements.
Get ready for November!