The Fed, Tax Rebates, and the Dollar

The Fed does not care much about the value of the dollar it seems to be more concerned with trying to control inflation. It seems to me that the devaluation of the dollar is something born of our ever growing trade deficit particularly with China which was at $177.5 billon last year and the American phenomenon of spending borrowed money and racking up large consumer debt. If anything the Fed appears willing to allow us to continue on with this imprudent spending spree, even if the long-term results create massive economic hardship further down the road. At some point if there is not a correction made to our current path the long-term economic reality could be a disastrous one. Think of the Federal governments own growing deficit, the massive off-balance social security obligations, and the nations chronically low savings rates. In the short-term these rate cuts are nothing more then an attempt to weaken the dollar to dull the pain of reality to make us feel good. I also view the upcoming proposal of giving massive tax rebate checks out to all Americans to “fight recession” more of the same. Sure it might give the economy a nice one time jolt, by lifting consumer spending when consumer spending appears to be down, but what does it really do for anyone in the long run? It certainly will not forestall a recession if that is what we might be heading for. To me it is bad economic policy. I have heard it called "feel good economics", because it’s only real effect is to make politicians feel good about themselves and buy re-election with public funds. Is it any wonder then that the international community is becoming increasingly skeptical of the long term viability of current U.S. economic policy? Is it any wonder that foreign investors continue to dump their holdings of U.S. securities by a record amount and are pouring money into global funds as global equities rise the more the dollar drops?

What is needed are “real measures” taken to strengthen our dollar. For the strength of our currency is a reflection of the perceived value of our country in the global marketplace. Maintaining and strengthening the value of our nation’s currency, would be in the best interest of American consumers, American businesses and investors in the U.S. economy. What this Country needs is a President and a Congress that is willing to take the steps necessary to curb government spending and work towards balancing the deficit. We need leaders willing to take measures to greatly simplify our nation’s tax code which would encourage greater productivity and achievement. We need a Washington willing to take a look at policies that they have created which have unnecessary and excessive regulations, which result in excessive artificial inflationary costs which are passed on to consumers. Of course you probably will not hear about any of this in this year’s Presidential race, nor is anyone in Washington likely to take any revolutionary steps toward this end. Unfortunately I think more gimmick economic plans will be tried and our path hardened before any real change is made, but what do I know?