Kudlow: Dollar Talk May Be Followed by Action

It might be time for the White House to prop up the greenback.


Wisdom worth considering from the outstanding blog of CNBC's Larry Kudlow after President Bush tried to talk up the tumbling dollar:

The mere fact that the president talked at some length about the greenback is significant. It could possibly reflect administration thinking that it's time to be more rhetorically aggressive on the greenback. Mr. Bush clearly is inferring that the dollar should be trading more strongly at a higher exchange rate. ... It would not be surprising if [Treasury Secretary Henry] Paulson soon delivers a beefed-up dollar support statement of his own at the G7 finance ministers meeting in Cape Town, South Africa. Nor would it be surprising if other G7 ministers echoed the U.S. view. ... Fundamentally, U.S. economic growth and inflation are virtually identical to that of Europe. Interest-rate differentials have narrowed substantially. A kind of trading bubble seems to have developed around the euro, probably because while the Fed acted wisely to reduce its target rate to settle down U.S. financial markets during the sub-prime credit turmoil, the Treasury failed to offer any official support for a steady greenback. Official support should begin with some stronger-dollar oratory, such as President Bush offered in the television interview. Such support could also develop into some coordinated dollar purchases by the G7 to back up the rhetoric. Additionally, President Bush may offer a sizable corporate tax cut in his next budget which will be buttoned down after Thanksgiving. That too would strengthen the dollar. Lowering corporate tax rates would promote economic growth, enhance U.S. competitiveness relative to already low corporate tax rates in Europe, and fatten worker wages.