The Restoration of King Dollar
It’s time to add some meat and muscle to the greenback.

By Larry Kudlow


Sometime in the latter half of the 1990s I coined the phrase “King Dollar.” This was back in the post-Soviet collapse period when the U.S. greenback ruled the world currency roost. As the Berlin Wall came down, taking totalitarian socialism with it, global investors and businesses sought the U.S. dollar as their currency of choice. They also chose the American model of free-market capitalism — including supply-side reductions in marginal tax rates — as their economic reform of choice.

The result was the greatest world economic boom in the history of history.

From Eastern Europe to India and China, and points in between, the world has experienced an unprecedented prosperity boom, a story best captured by the unbelievable rise in global stock markets. But along the way, as the world moved toward growth economics and away from central planning, King Dollar began to slide. Not because the U.S. was faltering (as the doom-and-gloom pessimists see it), but more because the rest of the world has been doing better. In other words, the dollar hasn’t slumped because it is necessarily weak, but because the new euro and new market economies are so strong.

However, there comes a point in this transition when the U.S. must begin to stabilize the dollar. I believe we are at that point now. It is time to think about reviving King Dollar. If we don’t, there may well be negative consequences for U.S. inflation, the stock market, and economic growth. I’m not worried about too much foreign investment, but I am concerned about too little foreign investment. I do not want to see a collapse of the worldwide demand for dollars.

Although I have never been an advocate of currency intervention by governments, there are moments in market history when unexpected interventions have worked. Clinton Treasury man Robert Rubin, a canny trader from his Wall Street days at Goldman Sachs, undertook a few interventions to buy and support the dollar in the mid 1990s. He sent a signal to currency traders, and it worked. During those years, the Greenspan Fed generally maintained firm control over the creation of new dollars. So, with a restrained money supply, the Treasury dollar-buying actions proved very effective.

Treasury Secretary Henry Paulson is today standing at a similar crossroads. Wouldn’t this be a good time for Mr. Paulson to signal that enough is enough, and call a halt to the dollar’s decline?

Oil prices are rising. Gold prices are rising. And currency traders around the world have set up huge short-selling positions in the greenback. But a few strong words from Mr. Paulson, coupled with a few well-timed rounds of dollar-buying, could turn the U.S. currency story around.

Every time an international terrorist event occurs, like the al-Qaeda assassination attempt on former Pakistani prime minister Benazir Bhutto, the dollar falls. When the Turks threaten military action in Kurdistan, Iraq, with speculation that they might march toward the Kirkuk oilfields, the dollar falls. When comrade Vladimir Putin shows up in Iran, with mischief-making statements that support trade and nuclear partnerships with that terrorist government, the dollar falls. It seems as though any nasty international event leads to a dollar decline. This is not good. The dollar needs some propping up.

Ronald Reagan stated frequently that a great country should have a reliable currency. And it was the pro-growth tax cuts and counter-inflationary money of the Reagan era that ultimately reversed a 15-year dollar decline. In President Clinton’s second term, a similar policy was undertaken, and a dollar slide that began in the late 1980s under Papa Bush was reversed.

In recent news, Treasury man Paulson has in fact taken a strong-dollar step with his proposal to slash corporate tax rates. The former Goldman head honcho is working with House Ways & Means chairman Charlie Rangel to reduce the 35 percent corporate tax rate all the way down to 25 percent. This is a terrific idea. Studies have shown that 70 percent of the benefits of a corporate tax cut would go to the American workforce, boosting jobs and wages.

Right now, Wall Street is worried about the housing recession, a subprime credit hangover, and slowing domestic profits. But a big corporate tax cut would lift the animal spirits. In fact, cutting business taxes with the potential for better wage and investment returns is a much better economic stimulant than depreciating the currency. And business tax reform would add real meat and muscle to a steadier dollar.

King Dollar just might reign again.

— Larry Kudlow, NRO’s Economics Editor, is host of CNBC’s Kudlow & Company and author of the daily web blog, Kudlow’s Money Politic$.

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Liberals are people that will believe anything twice.

Just more tricle down bullshit and another excuse to give corporations more money, I guarantee you that the middle class and the poor workers will not see a dime of this...

I would think that a strong dollar would benefit all......

Agreed, but not through corporate taxcuts...

Please be specific, surfpunk. Which part of the article would you like to debunk?

Vi

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Liberals are people that will believe anything twice.

Our government is allowing the dollar to stay weak and get weaker so that when they push the Amero on us in couple of years, the citizens are begging to trade their worthless dollars in for them. How else would you get a proud country to give up it's historical currency for some new worthless brass coins?

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Buds,Buds, and more Buds: Purps + White Russian

Quote:

Originally Posted by surfpunk Just more tricle down bullshit and another excuse to give corporations more money, I guarantee you that the middle class and the poor workers will not see a dime of this...

So then, can we assume that "Trickle Up" would be more to your liking? Who would be the end reciepient of the spoils in a "Trickle Up" economy?

Vi

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Liberals are people that will believe anything twice.

ooo, is that some Judo? i think you just defeated his argument with his argument!

i do agree with the premise of the article. government is certainly suffocating our economy with taxes but we need to drop a couple very expensive, $0 return programs that we're paying for, my friend.






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"But even when you cease to be slaves, you are yet far removed from being placed on an equality with the white race."

- Abraham Lincoln, President of the United States of America, Hero to the servants of big government, Racist War Monger

Studies have shown that 70 percent of the benefits of a corporate tax cut would go to the American workforce, boosting jobs and wages.
And just who did these so called studies, the CEOs of the corporations. This is pure bullshit and you know it. Larry Kudlow is a very rich and successful stock trader and advisor. I have myself watched his rants on TV. Some of the article was making sense untill he decided to give the largest money makers a tax break, whoa big guy, that money has to come from somewhere, and guess where, you and I, the middle class will get stuck with the shortfall, and the rest will be passed on to our grandkids. Larry Kudlow be damned, he wont get hurt by that tax cut, you can bet your ass that he will make big bucks from it.

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Life is good, the water is sweet. The ground keeps moving beneath my feet.

a tax cut to the poor and middle class is what is needed for the health and moral of the not rich in this country. and i don't mean the $300 bush gave to us.

why is the solution to every problem: "cut rich people's taxes"?

i realize corporations and the wealthy make up a large part of the bulk of the spending power in this nation but what about the unfair burden on the middle and lower class.

i don't claim to know alot about economics. but i know the elite rulling class don't give one goddamn about the citizens of this nation...or any other for that matter.