1115.org

Separated at birth?

“Board Member” in The Hudsucker Proxy and corrupt, inept U.S. Treasury Secretary John Snow

So other than the funny eyebrows, bald domes, requisite curmudgeonly demeanor, and lack of aptitude for the job of Treasury Secretary, what do these men have in common?

The fictional board member watched Waring Hudsucker (Charles Durning) free fall after jumping out a window. Snow pushed the dollar out a window and is watching it in free fall.

**This ends the humor section. Read on only if you care about economics.**

On Wednesday, US Treasury Secretary John Snow reiterated that the US policy was for a strong dollar. “A strong dollar is in US interest.”

So why is the dollar down 22% in the last year?

“The engine of the global economy, the U.S., is running not on gas but on fumes, on little more than tax cuts and borrowing,” Morgan Stanley chief economist Stephen S. Roach warned.

Foreign investors are now financing our economy, and as the trade and budget deficits (two separate things, Mr. Kucinich) increase the U.S. will be less and less attractive as an investment.

Most people only care about exchange rates when they travel. Imagine being an importer and having your business depend on a stable exchange rate to set prices. But instead you get (fake) tough talk about a strong dollar while the prices you pay (and have to charge) keep going up every time you order. With the rise of international trade, exchange rates affect ordinary Americans.

And why is our government allowing this to happen? A weaker dollar allows products made in the U.S. to be sold at lower prices abroad. This is good for U.S.-based multi-national corporations. For a time. But just like anything else, there is a steep price to pay later in the form of higher interest rates and slower growth. And if it isn’t managed perfectly, it can cause instability that is impossible to control.

This country is playing a dangerous game with the future. If Warren Buffett is joining the ranks of investors betting against the dollar, it’s time to start paying attention. For short term gain, the Bush administration is risking catastrophe. If the dollar continues to fall, the consequences could include global recession and massive defaults. But hey, as long as it happens after November 2nd, right?

When other countries (Thailand, South Korea, Brazil, Mexico, Russia, etc) had major economic problems in the 90s the U.S. demanded that they take steps to defend their currency and get their fiscal houses in order as a condition of loan packages needed to stave off default. U.S. Treasury officials had to beg congress for the approval loans even after these measures were taken. Yet now, Congress sits quietly and watches as the administration leads us down the path that led to near-ruin in the early 90s.

How will we be able to lead the next time there is a crisis when we are so cavalier with our own economy? Or is this just another example of “do as we say, not as we do”?