Bush and a Strong Dollar

Bush Pledges Strong Dollar Policy

This doesn't come as much of a surprise since we want to maintain the appearance that we keep the dollar at the same strong level that we've had it at during the 1990's. The problem is that we're now approaching 2005 and we've been running some pretty big fiscal deficits over the past couple of years. That means that President Bush needs to take a real stab at some fiscal responsiblity. And not just Democratic "let's raise taxes only" fiscal responsiblity. That means taking a hard look at what the government spends its money on and making some cutbacks. The only problem that nobody looks at is that alot of government spending is tied into programs like Medicare, which increase each year and there's nothing that can be done about them. So in order for spending to decrease, there needs to be a real commitment by the President and Congress to cut the pork. And that's not about to happen anytime soon.

(Although, there was this said by the President:

Bush said that the administration's efforts to support the dollar by reducing government borrowing levels would address the unfunded liabilities in the government's huge entitlement programs, Social Security (news - web sites) and Medicare.

"I told the prime minister that Social Security reform will be at the top of my agenda," Bush said, speaking as the White House kicked off a two-day economic conference designed to build support for Bush's second term agenda.

The problem with this is that Social Security reform should be meant to keep the program solvent, not just to save the government money. The real target should be Medicare reform, but apparently the President doesn't want to touch that with a 10 foot pole. That's not a good sign.

Then there's this piece of economic goodness that the President mentioned:

Bush told reporters that the trade deficit was "easy to resolve. People can buy more United States products if they're worried about the trade deficit."

I guess that's a decent enough statement, but it does ignore the core reason as to WHY people will buy more American products. The trade deficit occurs because the United States has a comparative advantage in services while the rest of the world has an advantage in producing consumer products. There would have to be a change in prices of inputs in order for that comparative advantage to change, so I don't see that happening until the U.S. enters some kind of recession. And there's other problems if the United States enters a recession.