Trump’s Weak-Dollar Temptation

Reagan and Clinton presided over a strong currency—and success.
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Donald Trump doesn’t have many firm policy convictions, but one of them seems to be a mercantile faith in the virtue of a weak currency. The U.S. dollar “is getting too strong,” Mr. Trump told our Journal colleagues on Wednesday. “That’s hurting—that will hurt ultimately.”

Someone should tell him that weak-currency politicians tend to be losers.

One irony of his comments is that for weeks Mr. Trump had been celebrating the boost in economic confidence since his election, which has included a rise in the dollar. When investors have confidence in a country, they tend to put money into assets denominated in that country’s currency. The “Trump reflation” in the dollar and stocks, which has since ebbed as the prospects for pro-growth reform seem more uncertain, was a good economic sign.

Mr. Trump’s dollar-bashing is also highly unusual because even Presidents who favor dollar devaluation typically say the opposite. Or they say nothing at all, leaving the dollar commentary to the Treasury Secretary, whose mantra usually is “a strong dollar.” And that makes sense. Why talk down the purchasing power of Americans?

A dollar-bashing President can also disrupt financial markets, as Mr. Trump’s comments initially did on Wednesday. The greenback recovered, but currency markets are volatile and sharp movements can do serious harm at delicate financial times or take firms under if they’ve made the wrong currency bet.

Above all, dollar bashing can complicate the Federal Reserve’s monetary policy. The Fed is currently in a tightening phase, which tends to support a stronger dollar, so Mr. Trump’s comments are counter-cyclical.

But Mr. Trump also told the Journal that he might reappoint Fed Chair Janet Yellen when her term expires early next year. Ms. Yellen is known as a monetary dove who kept interest rates low throughout President Obama’s second term. Most analysts interpreted that Yellen mention as a declaration that Mr. Trump wants the same treatment. But if Mr. Trump’s policies succeed, growth will be faster and the Fed might have to raise rates more rapidly. The Fed and financial markets don’t need a monetary kibbitzer on Twitter .

If economics doesn’t persuade Mr. Trump, perhaps modern presidential history will. Going back to Richard Nixon, the most economically successful Presidents have presided over strong-dollar eras.

Ronald Reagan’s pro-growth policies attracted capital from around the world, and the greenback soared along with U.S. growth. Bill Clinton also saw rapid growth and a rising dollar that sent commodity prices like oil that are traded in dollars crashing. Gasoline at 90 cents a gallon might have saved him after impeachment.

On the other hand, Richard Nixon encouraged an easy-money Fed and took the U.S. off the Bretton-Woods gold standard. One result was rising inflation and an explosion in oil prices. Jimmy Carter’s Treasury tried to talk down the dollar, and inflation grew worse.

George W. Bush didn’t seek a weak dollar but he did preside over one as the Alan Greenspan-Ben Bernanke Fed kept rates too low for too long. Oil and commodity prices rose, making for meager gains in real incomes, while runaway housing prices set the stage for the financial mania, panic and crash.

Much of Barack Obama’s tenure was also marked by a weak dollar as the Fed tried to steal economic demand from the rest of the world. But that policy never did raise growth much above 2% a year. The public’s frustrations with slow growth and stagnant incomes set the stage for the rise of Bernie Sanders and Donald Trump in 2016.

We aren’t saying that a strong dollar is the primary goal of economic policy. That goal is broad prosperity from strong and sustainable economic growth. Monetary policy should seek a stable dollar not “king dollar.” But the byproduct of better policies and faster growth might be a flood of capital into the U.S. and a stronger dollar. This isn’t to be feared. If a strong dollar were politically damaging, both Reagan and Mr. Clinton would have been one-term Presidents.

Mr. Trump’s policy challenge is coaxing faster growth from an economic expansion that is already long at nearly eight years and with relatively tight labor markets. The only way to lift growth above 3% for an extended period is by lifting business and capital investment. That requires deregulation and tax reform that boost supply-side incentives. Worry about that, not the dollar.

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