Tuesday, March 4, 2008

Personal Asides: Concern for the U.S. Dollar is Overdone but the Fed Should be More Worried About Inflation…Liberals Using Reagan to Batter Bush.


Too Much Concern and Too Little Worry.

Amidst all the hand-wringing concern about the diminishing U. S. dollar—and, indeed, a dire warning from none other than the Bush administration’s National Intelligence Director—there looms the reality…to my mind at least…that the issue is grossly overdone. The Fed’s broad trade-weighted index as well as the Atlanta Fed’s measure (which takes in 18 countries) shows that the greenback shrinking is nothing more than the simple unwinding of the gain it scored in the second half of the last decade.

The worry among some worry-warts is that with a weaker dollar, some global oil suppliers (Syria, Iran and Libya) have asked to be paid in other currencies than the U. S. dollar and notably Kuwait not longer pegs its currency to the dollar. Indeed, Russia’s Putin said he wants the ruble to be used more in energy trading.

But while Michael McConnell may know his stuff on national security, others who know more than he about economics say that the actions of Syria, Iran, Libya and Russia don’t have much to do with the weakness of the U. S. dollar—nor does the weakness of the dollar provide reason for such steps. These countries are not trend-setters with oil producers but are revolutionary states. Other oil producers, particularly Saudi Arabia, are sticking with the dollar and McConnell should concentrate on terrorism and not stray into economics.

What ought to dominate the worry field is the imminence of inflation. The slow rise of producer, consumer and import prices should trigger the notion that the purchasing power of the American worker is shrinking. During the year ending last January, consumer prices went up 4.3% to 6.8% in the past three months which constitutes the fastest 3-month hike since 1990 (and here we exclude the effects of Hurricanes Katrina and Rita). Last Tuesday January producer prices rose by 0.3% which would bring the total increase compared to last January to 7.7% the largest in any 12 month period since 1981. Import prices: up 13.7% since last year and even excluding petroleum, they are up 3/6% over last year. This worry is compounded by the fact that the Fed didn’t even mention “price stability” in its last two statements, a reversal from the 1990s when it argued correctly that increasing economic growth depended on price stability. That’s the thing to worry about in my estimation.

Liberals Using Reagan to Batter Bush but Bush Could Rank Higher.

The Cannons—Lou and his son Carl—have written a book called “Reagan’s Disciple” that blisters George Bush. Bush has used Reagan as his model during campaigns but the Cannons point out that Reagan was actually very abstemious in his use of military power. The point is well taken because Lou, the “Washington Post” White House correspondent under Reagan, wrote several definitive books on the 40th president that I agree with and are in my library.

However history will show that despite George W. Bush’s rhetoric, the two presidents are not similar—for which I congratulate Bush. Reagan was an ideal card player on our side during the agonizing last one-step-forward-and-two-steps-back days of the Cold War. Losing presidents were those like Jimmy Carter who emphasized gooey “understanding” and “accommodation” with the Communists; winners were Harry Truman and Reagan himself who stressed cold, unyielding determination not to seek peace at any price. Once he got the hang of the job—and convinced Khrushchev he was not a tousle-haired fop who abandoned air cover to back up the Bay of Pigs landing in Cuba—John Kennedy did all right but we had a devil of a time paying the bill, with the up-building of the Berlin Wall and JFK’s weak-willed agreement to pull missiles out of Turkey to settle the Cuban Missile crisis, all brought on by his earlier liberal mealy-mouthed approach to international affairs.

George W. Bush has a much tougher international job than Reagan had and he could very likely go down in history in retrospect as a greater president than Reagan because of the difference. Both men had to play the cards they were dealt. It would be tragically unfortunate for Reagan to initiate a fore-square armed battle against the USSR to accommodate his “evil empire” rhetoric. George Bush has a much tougher task. He is dealing with a world-wide phenomenon very unlike militant communism. His decision to list the Axis of Evil and to go into Iraq, warning that those nations that give sanctuary to terrorists will be viewed as our enemies was an historically brilliant decision and is responsible in great part for our not having another outbreak of terrorism on our soil.

Because terrorism was not an international phenomenon, Reagan could fund proxy forces like the Afghan majahedeen and the contras rather than dispatch U.S. troops. He could sign arms treaties with Moscow because the Russians were rational. He specialized in the cameo invasion of Grenada which freed it from its Marxist government and its Cuban ally. When a suicide bomber drove into a Marine headquarters in Lebanon and killed 241 servicemen, Reagan opted out, a correct decision at that early time. The one valid criticism that the Cannons make in the book is the tendency to overrule military experts as did Don Rumsfeld (a friend of mine whom I hope someday to listen to his side) when he punished Gen. Eric Shinseki for estimating that it would take several hundred thousand occupation troops to subordinate Iraq.

Not many will agree with my conclusion stated here that in the long reach of history, Bush will rank higher than Reagan but I welcome your measured response here.

I understand I will irritate old Reagan-nauts with this theory but Reagan’s place in U.S. history is secure. Bush does not have Reagan’s unique ability to sell his ideas—but his courage and inflexibility in the face of widespread criticism stamps him as one of the greatest presidents in my reckoning, one who should be used as an exemplar of standing up to criticism and not buckling. Mark my words George W. Bush will rival and even exceed Ronald Reagan as one of the greatest all-time U.S. presidents but Reagan will retain his high perch.

1 comment:

  1. Althogh I can agree that inflation is a chief concern, I disagree that the weakness of the dollar is insignificant. Go back to Germany or Ireland and see how far a buck goes Tom.

    To say that we recovered from TB but now have it again is not a sound arguement.