The latest media assault on President Bush has been on the current value of the U.S. dollar. Even the leaders of other countries have joined the chorus as they lament the higher costs of their goods to the American economy.
Gone are last year’s media efforts to attack high gas prices and budget deficits just before the 2006 Congressional elections since the Dems have obviously done little to resolve those issues since they took control of Congress.
The good news is that the budget deficit continues to drop notably thanks to record tax revenues from the Bush economy despite the Dems failing to curtail their government spending and getting ready to abandon their “pay as you go” rules which require cuts in one government program or higher taxes before increases are allowed in another program. And I am still waiting for the Dems to decrease the federal excise tax at the pump.
Despite my instinct to defend the President because of what I believe are partisan attacks on the value of the dollar, I will not defend him. Leading economists on both the left and right are very concerned about the falling value of the dollar and so should you.
Although the weak dollar is a boon to South Florida’s travel economy and may be a key ingredient in the turnaround of our area’s weak real estate market as Europeans and Canadians take advantage of bargain prices given the strength of their euros and Canadian dollars, the long term impact on the US economy will not be so beneficial.
In decades past, a weak dollar has provided tremendous boosts to our manufacturing industries. But as the world economy has become more integrated and many of our core manufacturing operations have moved to China, Latin America, and Eastern Europe, there are less U.S. manufactured goods to be sold to generate that windfall of revenues and income tax revenues from an increase in such exports.
Most concerning is that since we now import so many of our goods and raw materials – and a growing number of services – the cost of such items increase when our dollar becomes weaker. The end result is inflation. Part of the reason for our current high gas prices is because the cost of oil has increased to reflect the lower value of the dollar. Unfortunately, this process can quickly spiral out of control causing high levels of inflation with the resulting negative impact on the cost and quality of life in the United States.
Our federal government budget deficits are also, in part, being funded by borrowing money from foreign investors. Like any other investment, our treasury notes and bonds must offer attractive yields and values. When their interest rates are low and the underlying value of those instruments decrease in step with the value of the dollar, most international investors simply look elsewhere. And without those foreign dollars to fund our deficits, our economy could be halted in its tracks.
As I mentioned earlier, I will not defend President Bush for the current declining value of the dollar. But I also blame the current crop of Democrats and those Republicans who formerly controlled Congress. They have all allowed our federal government spending to grow out of control. They have increased entitlement programs without guaranteed funding mechanisms to pay for them. And they have allowed the Iraqi war to be funded by debt rather than by reducing other expenditures accordingly. The end result being unnecessary budget deficits and greater pressure on our dollar from reliance on foreign investment.
In order to strengthen the dollar, our country needs to prove to the world that our economy continues to be strong. But I am concerned about those prospects now that the economic contributions of the real estate industry and its multiplier effect on durable goods, home furnishings, and related goods have come crashing down.
I am extremely concerned and disheartened that the numerous economic benefits of the real estate boom of the past years may have been based, in part, on questionable loans to people who should not have been qualified to obtain them. The resulting non-performing loans have been the cause of the recent banking fiasco in which billions of dollars of such loans are being written off as losses. And as a result, banks are now tightening their lending standards for all loans further damaging the prospects for our overall economy.
So where do we go from here? I wish I could realistically hope that the Democrats in control of Congress and President Bush could sit down and map out a sustainable economic plan for our country which would provide confidence to the word that we have a financial plan that will bring back strength to the dollar.
Unfortunately, the Dems keep proposing expansions of those entitlement programs as well as partisan proposals to defund the war in Iraq. I hope that Senate President Reid and House Speaker Pelosi will finally present the President with a realistic budget for the next fiscal year. But with control of the White House to be decided next year, I doubt either side will be focused on the good of the country instead of the good of their party.
And so it will be up to the American people to ensure that they vote for Presidential and Congressional candidates next year who will get the job done. Are you ready?
