Today, U.S. Treasury Secretary-nominee John Snow repeated the mantra of his
predecessors by declaring “a strong dollar is in the national interest.” Given
that the U.S. has a 500 billion dollar current account deficit to finance,
this may be the grossest understatement of the new century. Foreign confidence
in a strong dollar is vital to keeping the American service sector, borrow
and consume, economy going. But such self-serving statements of the obvious
mean nothing. It’s like a company’s CEO pursing a “strong stock policy” by
stating that “a rising stock price is in shareholders interest.” During
the dollar-bubble of the late 1990’s, when momentum not fundamentals powered
the dollar’s accent, then-Treasury Sectary Robert Rubin often invoked the “strong
dollar policy” by repeating “a strong dollar is in the national interest.” Such
statements, as well the lack of intervention to slow the dollar’s climb, comprised
the essence of the “strong dollar policy.” However, the busting of
the dollar-bubble has exposed the “strong dollar policy” as nothing
more than a figment of the collective imaginations of over-zealous currency
traders, who invented the “strong dollar policy” to help justify
the over-valued dollar much as internet traders concocted crazy valuation matrices
to justify over-valued stocks.

If we really do have a strong dollar policy how is it possible that the dollar
Index has fallen over 20% in the last 10 months? The answer is that there is
no “strong dollar policy” unless of course, you count the wishful
self-serving pontifications of government officials as a policy!. In fact,
though John Snow may justifiably be playing lip service to a “strong dollar
policy,” the Bush administration policies that he supports actually contribute
to the opposite. Running up large budget deficits, encouraging more consumer
spending on imported products, burdening domestic manufactories with cumbersome
regulations and excessive taxation, keeping interest rates ridiculously low,
and running the printing presses at full steam, weaken the dollar. So while
we may have a “strong dollar policy” in name we actually have a weak
dollar policy in action! It’s similar to my hypothetical CEO, who, while publicly
committing to a “strong stock policy,” continuously issues new shares
to finance ever increasing losses.