Presidential Politics and the Falling Dollar

The tumbling greenback may be a sleeper issue in the race for the White House.

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It's been a long time since the dollar was a big presidential campaign issue. Probably not since Bryan vs. McKinley in 1896. And I've noticed that whenever CNBC's Larry Kudlow brings up the possibility that the tumbling greenback—or the "U.S. peso," as he likes to call it—may return to political prominence in 2008, the political smarties on his show always scoff, like Americans are rubes or something and don't "get" the fact that their national currency has become a global joke.

But who can forget TV images of celebrating Canadians when their "loonie" hit parity with the dollar last year? And guess what, Americans make some 30 million trips out of the country every year. Those folks sure know what the dollar is doing. The state of the dollar has even invaded popular culture. Comedians are making jokes about it, like this one from Stephen Colbert:

Anyway, it's official, the troops will be in Iraq until Bush leaves office. And that is not passing the buck to the next president. That is ridiculous. With the current state of the dollar, it's more like passing 85 cents, tops.

And then just the other day, I saw a McDonald's commercial that also made fun of the dollar as it promoted its "dollar menu." But the falling dollar isn't really too funny, not when you consider how its decline is driving oil and other commodity prices higher. Indeed, one recent analysis says that oil would be $65 a barrel today instead of closer to twice that if the dollar had stayed strong.

Is the dollar helping exports? Sure, but depending on a weak dollar to boost gross domestic product numbers is a shortsighted policy, because you are simultaneously reducing your own purchasing power. In the long run, a currency reflects economic fundamentals. The falling dollar is flashing a worrisome warning sign the presidential candidates should pay attention to—since I am guessing that more and more voters already are.