King Dollar . . . . . .

Larry Kudlow over at NRO says we must make the dollar king again and make it strong. His argument is the dollar has been falling against the EURO and other currencies and this has lead to an increase in inflation in the US. It has also made imported commodities (read oil) more expensive since the countries that sell oil will demand more dollars to get the same purchasing power when the dollars are converted to their local currencies.

There is a problem with making the dollar king quickly.

You have to make people (foreigners) want dollars by giving them better returns on their investments. That means raising interest rates. Currently the US government is trying to head off a recession by lowering interest rates.

Kudlow says we should do what we did back in 1981-1982 to make the dollar strong. I'm not sure I want to see the government raise interest rates to 18% for US Treasury bonds. That will drive us into a deep recession for sure.

A longer but better way in my opinion is we have to decrease our imports and increase our exports. That means we have to cut spending so our government deficit is less (thanks to the tax rebates the deficit for the current fiscal year is expected to be almost $500 billion instead of about $100 billion). We also need to import less oil. That means drilling in Alaska and off the coast of Florida and California. We also need to promote more manufacturing jobs in the US so we do not have to import as much stuff but can export more. We can do all of this but it will be a slower process then just raising interest rates and will take more political capital. However in the long run it will make the US a stronger place.

If McCain (or Clinton or Obama) want to make the dollar king again, lets hear how they will do it in a way that will strengthen the country instead of hurt it.