Wednesday, November 3, 2010

Wednesday round up.

In response to yesterday’s large Republican electoral gains, John Tamny argues for sound money as key to political success:
Despite the undeniable good that will result from the Tea Party movement hopefully forcing the political class to show spending discipline wrought by strict constitutional limits, there’s seemingly a big hole in the platform. Specifically, it’s hard to discern any interest in stabilizing the value of the dollar.

This is important, and it’s also a constitutional issue. Indeed, the Constitution empowers Congress “to coin money, regulate the value of”, and this line in the document if properly read says that Congress must legislate the issuance of dollars that hold a specific value today, tomorrow, and ten years from now.

In short, the Tea Parties, to be successful, must demand that the political class get serious about redefining the dollar in terms of gold. If not, all their spending, tax, pro-Constitution and anti-bailout protests won’t mean a whole lot, and the economy’s full recovery will remain a distant object.
At NRO, Larry Kudlow makes a similar point:

The GOP needs a King Dollar policy, preferably one backed by gold. A depreciating dollar will drain cash from the U.S. and send it overseas; foreign investment into the U.S. will be stunted by a chronically weak dollar. And the inflationary consequences of the devaluing dollar will ultimately outweigh any low-tax-rate incentives.

As the dollar kept falling during the Bush years, it blunted the pro-growth effects of the 2003 tax cuts. There is a crucial lesson to be learned here: A strong and stable dollar is an essential complement to low tax rates.

Regarding Team Obama, it now appears that Tim Geithner’s protest that no country can devalue its way into prosperity was a lot of smoke-blowing. His credibility is going to suffer.

On The Kudlow Report, Stephen Moore analyzes the electoral results:

At CNBC, John Carney predicts Treasury Sec. Geithner is a goner.

On Bloomberg, supply-side guru Robert Mundell raises alarm bells that the falling dollar will create deflationary pressures in Europe:

In an earlier speech at a forum run by Bank of America- Merrill Lynch, Mundell, 78, said the Fed’s quantitative easing was “terrorizing” the world economy. In the interview, he drew parallels between a quantitative easing-induced dollar devaluation and the “inflation tax” of the 1970s, where depreciation caused by rising U.S. prices reduced the value of dollar holdings of governments and investors around the world.

“Dollars were depreciating in value, dollars were the major reserve, this was a tax on dollars held outside” the U.S., Mundell said.

On CNBC, David Stockman claims the U.S. Fed has destabilized the world economy and forces emerging markets to buy U.S. bonds:

At Politico, Cato’s David Boaz advocates Republicans focus on the economy, but makes no mention of the dollar.

On CNBC, Professor Mundell answers five questions about himself.

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