Save the dollar, not the day

Policymakers in Washington and in the Federal Reserve need to stop thinking about stimulating the economy in the short-run and start thinking about what’s right for the long-term. We need economic growth, not an influx of cash to stimulate consumer spending and financial lending. We’ve seen where a stimulus-oriented focus has produced: shady credit schemes, an unsustainable housing bubble, soaring energy and commodity costs, and a weakening dollar.

Want to know why the dollar keeps falling? John Chapman provides a solid explanation in a WSJ op-ed:

“But exploding fiscal deficits, the housing correction, protectionist threats and $200 billion in tax hikes scheduled for 2011 are fueling loss of confidence in the U.S. dollar.”

Want to know what this effect could mean for the U.S. consumer and investor? Chapman provides a glimpse:

“If foreign holders of dollars or dollar-denominated assets sell them, all the good effects of being the de facto international reserve currency start operating in reverse. Until fiscal and monetary policies change, all this implies future inflation and higher interest rates.”

Chapman notes that the Fed Reserve’s foundation for continuing to cut interest rates in spite of the rising inflation is flawed.

It’s time the Fed and Washington begin thinking about what’s in the long-term interest of the United States. Short-term measures for short-term relief are leading us in a dangerous direction.