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President Trump he said yesterday that the drop in the dollar is extraordinary. No, it isn’t. It means trouble ahead.
You’d never know it from the declining value of the dollar, but the US economy is in pretty good shape, especially when you look at the rest of the world. But this increasingly beautiful economic picture will be fatally damaged if we don’t shore up the sinking dollar. A swing in the dollar means future monetary inflation. And that spells political disaster for President Trump and the Republican Party. The very definition of inflation is the fall in the value of a currency.
The devaluation of the dollar destroyed the presidencies of Richard Nixon, Jimmy Carter and George W. Bush. Rising prices undermined the Biden presidency.
So why is President Trump cheering the dollar’s slide? Because of the false but persistent and powerfully seductive belief that devaluing a country’s currency will stimulate its economy by making its exports cheaper and its imports more expensive. After all, the thinking goes, more exports mean more sales for domestic exporters. More expensive imports mean domestic buyers will buy more domestic products. Voilà, more prosperity!
In the real world, any such advantage—if it occurs—disappears quickly. At best, it’s a very brief equivalent of a sugar high. Prices—and buying patterns—adjust again. So is the cost. Devaluation turns out to be a hidden tax. Economies are suffering. Making money less valuable means less confidence in the future and less growth. Dollar devaluations led to the hyperinflation of the 1970s. The same happened in the early 2000s, culminating in the 2007–09 crisis.
Does President Trump want to limp out of the Oval Office in 2029 like George W. Bush did in 2009?
Don’t get carried away by the bull market. Stocks initially boomed when President Richard Nixon took the dollar off the gold standard. The economy expanded. Then it all came crashing down, leading to a nasty bear market and the worst contraction in decades. The same pattern was essentially repeated in the first decade of the 21st century. President Trump knows what kind of economy he inherited from Joe Biden, thanks in part to a less reliable dollar.
What most political leaders, military generals and economists fail to understand is that a stable, reliable currency is a source of national strength. Strong, reliable currencies were critical in enabling the small countries of the Netherlands and Britain to become world powers. The same thing happened to the once weak USA after we gained our independence and the dollar became as good as gold.
Instead of pandering to a weak dollar, President Trump could realize his desire for a strong US, both short-term and long-term, making the dollar the undisputed king of currencies. It would blast the claims of the BRIC countries, particularly China and Russia, to replace the dollar in international trade.
How; Overturn the destructive way the Federal Reserve operates. It believes that prosperity causes inflation, thus setting its policies with an anti-growth bias. This is destructive and unreasonable.
It is incredible that in setting monetary policy, the Fed ignores the value of the dollar and the impact that taxes and regulations have on economic activity. This is like ignoring the weather when flying an airplane. A stable dollar — one that doesn’t try to manipulate the economy by setting interest rates — should be the Fed’s goal. We already have a bleak global situation, with massive debt, very little growth and weak currencies everywhere, as evidenced by the price of gold.
The person President Trump chooses to lead the Fed must understand the need for a reliable dollar and how to achieve it.
