The Rising Dollar and the Market's Decline.

Last May in The WSJ, I noted that despite commodity inflation, supply-side guru Robert Mundell predicted “a return to recession later this year when QE2 ends and the dollar begins its inevitable rise. Deflation, not inflation, should be the greater concern.”

Mundell has since noted he sees little threat of substantial US inflation because M1 money velocity has collapsed by half and is likely to stay down.



In the Journal article, I wondered how Mundell could be concerned with deflation when commodities including gold and oil were rising sharply, and explained his answer came from the exchange rate between the dollar and the euro, which Mundell calls “the most important price in the world.”

According to Mundell, the financial crisis of 2008 was set off by the dollar's rapid fall versus the euro from summer 2007 to spring 2008, followed that summer by an historic 30% dollar rise within three months, the largest major currency appreciation in peacetime history. (The dollar's rise is represented by the steep decline in the euro:)





The rising dollar caused gold to drop sharply:



Oil plummeted from $140 to below $40:

And the consumer price index plummeted from 5.5% to 0% that December, then to -2% in early 2009:



This rapid dollar appreciation caused liquidity to become tight in the midst of the subprime mortgage solvency crisis, freezing the financial system and causing the near-systemic failure.

Despite radical actions by US monetary authorities in the years since, in Mundell’s view, the gravitational pull on the dollar has been back to its strong position versus the euro.

In winter 2009, the Fed initiated its first quantitative easing program (QE1), which pushed the euro/dollar rate down, easing the liquidity crisis. When it ended in late 2009, the dollar rose sharply again, weakening the recovery. QE2 was initiated in summer 2010 and the dollar declined again, improving prospects for recovery.



Now, QE2 has ended, and there is talk of monetary easing from the ECB. These factors, perhaps combined with Europe’s mounting debt crisis, have pushed the dollar up versus the euro, with the euro falling from $1.45 in late August to $1.31 yesterday, a decline of about 10% in one month:
 


Confirming the stronger dollar, commodities have sold off impressively in recent weeks. Gold is down about $250 since its September high above $1,900:



While a rising dollar is usually a bullish signal, it may be that the Dow’s recent decline is due to investor memories of the last two dollar surges which coincided with tighter money, debt crisis, and contractionary pressures. Today’s market weakness may be due as much to worry about a soaring dollar as to other factors.

Time will tell, but so far Mundell’s unconventional analysis is holding up. Exchange rates -- the relative value between major currencies -- are as important as the absolute value signaled by gold in any discussion of stable money.

Thursday items: The WSJ reports the dollar's rise; Woodhill on the auto industry; Pento sees gold emerging as the world reserve asset.

The WSJ reports the dollar is beginning to rise.

At Forbes, Louis Woodhill explains how regulation and dollar volatility has hurt US automakers.

In The WSJ, Sen. Rob Portman (OH) advocates dollar-for-dollar deficit reduction for every debt ceiling increase. 

On The Kudlow Report, David Malpass discusses Italy’s possible default and its effect on world markets:




At Forbes, Bill Frezza discusses the end of Bretton Woods with George Shultz.

From the archive, Jude Wanniski explains why Nixon left gold.

On Forbes, Michael Pento suggests the current crisis calls for a return to gold as the international reserve currency.

In The WSJ, Charles C. Johnson notes President Coolidge beat recession with tax and spending cuts.

But "nothing" seemed to work. With the tax cuts in place, luxuries of the rich quickly became middle-class, as affordable cars and radios rolled off the assembly line. Industrial titans (and Coolidge-backers) like Harvey Firestone and Henry Ford made unheard-of fortunes. Real annual per-capita income rose 37%, to $716 from $522.

The "Coolidge prosperity," denounced as ephemeral after the 1929 crash, was real for those who experienced it. Coolidge knew this well, telling reporters that "If you can base the economic conditions of the people on their appearance, the way they are dressed, [and] the general appearance of prosperity, I should say it was very good . . . I noticed most of the ladies had on silk dresses and I thought I saw a rather general display of silk stockings."

On RCM, John Tamny reviews Bryan Caplan’s Selfish Reasons to Have More Kids.

In IBD, Mark McKinnon reports the President’s allies hope to spur a third party challenge from Ron Paul in order to split anti-Obama votes.

At The Atlantic, Keynesian Jared Bernstein blames supply-side economics and laissez-faire policies for recent economic troubles but omits the dollar from his analysis.

Wednesday round up: Woodhill notes the weak recovery; Feldstein cites obstacles to recovery; The WSJ applauds Pawlenty.

From Forbes, Louis Woodhill contrasts the current recovery with the Reagan Boom and notes the weak dollar as a factor.

In The WSJ, Martin Feldstein argues the President’s proposed tax cuts and incoherent dollar policy, along with deficit, is holding back the economy. For the record, Feldstein has long supported a lower dollar.

The WSJ applauds Tim Pawlenty’s call for higher growth via flatter tax rates and a stable dollar, but is concerned by his support for a balanced budget.

On The Kudlow Report, John Carney discusses J.P. Morgan CEO Jamie Dimon’s critique of federal policy towards the financial industry:




At Forbes, Brink Lindsey notes the difficulty of measuring economic growth.

On Commentary, John Podhoretz rebuts claims that the stimulus spending package was too small.

In The WSJ, Seth Lipsky suggests a constitutional scholar would be a positive addition to the Federal Reserve board.

Back in March, when Chairman Bernanke testified before the House Financial Services Committee, Congressman Ron Paul asked him for his definition of the dollar. Mr. Bernanke made no mention of the Constitution or any law passed by Congress. Instead he replied that his definition of a dollar was what it will buy.

That isn't how the Founders thought about the dollar. They thought about it as a measure of value. They gave Congress the coinage power in the same sentence in which they also gave it the power to fix the standard of weights and measures. When they twice used the word "dollars" in the Constitution, they had something specific in mind—371¼ grains of silver. They made reference not only to silver but to gold.

My guess is that the Founders would agree with Mr. Diamond when he writes that "[w]e need to preserve the independence of the Fed from efforts to politicize monetary policy." This is why they defined money in terms of silver and gold, the latter in particular being the measure of value that is hardest to politicize. Wouldn't it be nice to have among the governors of the Fed someone who thinks about money not in terms of theories but in the constitutional terms in which the Founders thought?

The Washington Times notes that QE2’s end may mean higher interest rates.

At Fox News, Charles Krauthammer explains the economy’s weakness and confirms the 2012 election will center on economic stewardship:




Pew Research reports more Americans blame the deficit on war than on tax cuts or domestic spending.

The NY Sun notes the debt limit debate puts Republicans in an unwinnable political position.

Reuters reports a Chinese official speculating about further dollar weakening.

Weekend update: Lewis on the gold standard; Moore on red/blue state taxes; Coburn on budget talks.

From Forbes, Nathan Lewis explains why, if the gold standard is so effective, the world left it.

At The WSJ, Stephen Moore notes that taxes are rising in blue states and falling in red states.

The NY Sun advocates that Robert Zoellick be considered to lead the IMF.

On The Kudlow Report, Sen. Tom Coburn (OK) discusses his withdrawal from Gang of Six budget talks due to insufficient Medicare cuts:




At Forbes, Reuven Brenner likens the U.S. economy today to 1970s Canada.

In The WSJ, Seth Lipsky opposes selling the U.S. gold supply.

James Grant, editor of Grant's Interest Rate Observer, believes that "a resumption of gold convertibility is not politically impossible. . . . Is it not a historical fact that gold-convertible currencies did yeoman's service for 100 years and more?" He is with Mr. Lehrman, who stressed on National Public Radio this week that the gold standard is ripe for American leadership: "We have all the grounding and the basis for the United States taking the lead in establishing the convertibility of the dollar today."

Surely Mr. Lehrman is right that if we are to return to an era of sound money, America would be the logical leader. That was my takeaway from the interview with Mr. Poehl in 1986. The point on which he was most clear was that if there was to be monetary reform, "the U.S. would certainly have to take the lead. That just goes without saying, because the U.S. is the strongest country."

From the Independent Institute, Jeffrey Rogers Hummel suggests the Federal Reserve has become the economy’s central planner.

The Mellman Group releases poll data on the economy, indicating substantial room for an upbeat, pro-growth message.

USA Today reports continued weak job creation.

In The WSJ, Dick Armey and Matt Kibbe suggest entitlement reform is the key to national leadership.

At The NYT, Paul Krugman argues the weaker dollar has helped U.S. manufacturing.

Also in the Times, Christina Romer endorses the lower dollar.

The AP features James Grant saying it’s best to be in cash.

Mundell: Deflation Risk for the Dollar (WSJ).

The following appeared in The WSJ on May 23, 2011.

Mundell: Deflation Risk for the Dollar
The Nobel winner says a stable dollar-euro rate is the best economic medicine.

By Sean Rushton

Conservative economists have been raising alarms for months about the Federal Reserve's second quantitative-easing program, QE2. They argue it has lowered the dollar's value, leading to higher oil and commodity prices—a precursor to broader, more damaging inflation.

Yet the man many of them regard as their monetary guru—supply-side economics pioneer and Nobel Laureate Robert Mundell—says dollar weakness is not his main concern. Instead, he fears a return to recession later this year when QE2 ends and the dollar begins its inevitable rise. Deflation, not inflation, should be the greater concern. Avoiding the recession is simplicity itself: Just have the U.S. Treasury fix the exchange rate between the dollar and the euro.

Mr. Mundell's surprising statement came at a March 22 conference in New York sponsored by the Manhattan Institute, The Wall Street Journal and the Ronald Reagan Presidential Foundation. His economic predictions carry great weight because, unlike most economists of his generation, he is often right. His analysis of international economics has revolutionized the field, making him the euro's intellectual father and a primary adviser to China's economic policy makers.

Nevertheless, with gold around $1,500 and oil above $100 a barrel, supply-siders are scratching their heads: How can he possibly see deflation ahead? How can dollar weakness not be the problem?

The key to Mr. Mundell's view is that exchange rates transmit inflation or deflation into economies by raising or lowering prices for imported items and commodities. For example, when the dollar declines significantly against the world's second-leading currency, the euro, commodity prices rise. This creates U.S. inflationary pressure. Conversely, when the dollar appreciates significantly against the euro, commodity prices fall, which leads to deflationary pressure.

From 2001-07, he argues, the dollar underwent a long, steady decline against the euro, tacitly encouraged by U.S. monetary authorities. In response to the dollar's decline, investors diverted capital into inflation hedges, notably real estate, leading to the subprime bubble. By mid-2007, the real-estate bubble had burst. In response, the Fed reduced short-term interest rates rapidly, which lowered the dollar further. The subprime crisis was severe, but with looser money, the economy appeared to stabilize in the second quarter of 2008.

Then, in summer 2008, the Fed committed what Mr. Mundell calls one of the worst mistakes in its history: In the middle of the subprime crunch—exacerbated by mark-to-market accounting rules that forced financial companies to cover short-term losses—the central bank paused in lowering the federal funds rate. In response, the dollar soared 30% against the euro in a matter of weeks. Dollar scarcity broke the economy's back, causing a serious economic contraction and crippling financial crisis.

In March 2009, the Fed woke up and enacted QE1, lowering the dollar against the euro, and signs of recovery soon appeared. But in November 2009, QE1 ended and the dollar soared against the euro once again, pushing the U.S. economy back toward recession. Last summer, the Fed initiated QE2, which lowered the value of the dollar, allowing a second leg of the recovery to take hold.

Nevertheless, Mr. Mundell views QE2 as the wrong solution for the problem. Instead, the U.S. and Europe simply should coordinate exchange-rate policies to maintain an upper and lower limit on the euro price, say between $1.30 and $1.40. Over time, the band would be narrowed to a given rate. Further quantitative easing would be off the table.

With a fixed exchange rate, prices could move free from the scourge of sudden deflation and inflation, allowing investment horizons and planning timelines to expand along with production levels on both sides of the Atlantic. To supercharge the U.S. recovery, he also recommends permanently extending the Bush tax rates and lowering the corporate income tax rate to 15% from 35%.

Above all, he made it clear that the volatile exchange rate is the responsibility of the U.S. Treasury, not the central bank. Without a breakthrough on exchange rates, he predicted another dollar appreciation following QE2, resulting in a return to recession and a worsening of the U.S. debt crisis. This would likely lead to a third round of quantitative easing, continuing the dysfunctional cycle.

Criticize the Fed all you like, Mr. Mundell says, but the key to recovery is to stabilize the dollar at a healthy level relative to the euro. Given his stellar track record, it's worth asking: Is anyone in Washington listening?

Mr. Rushton edits The Supply Side blog.

Do Oil Executives Understand Their Industry’s Economics?

On Thursday, CEOs from the five largest American oil companies testified in the U.S. Senate, ostensibly to defend $2 billion worth of tax write offs from Democratic attack. The hearing’s true purpose was to showcase senators getting tough on oil executives for high gas prices.

Watching the theatrics, one was left to wonder if the executives actually understand the economics of their industry, specifically the role the dollar’s foreign exchange value has on oil prices.

What a pleasure it would have been to watch senators respond to a CEO who, in discussing high prices and corresponding high profits, simply displayed two charts:

The dollar index:



The oil price:




Clearly, the oil price is a near-mirror image of the dollar's foreign exchange value, including the great dollar appreciation of summer 2008.

Instead, the executives discussed world markets, restrictive U.S. regulations, effective tax rates, and a dozen other issues which were relevant, but secondary. The bottom line is, oil prices are elevated because the U.S. government, including Congress, for a decade has ignored (or encouraged) a weak dollar.

The weaker dollar foreign exchange price transmits commodity inflation to the U.S., which is why the oil price today is above $100 per barrel. Oil companies should stress this point every time they get called out for high prices and profits.

Weekend items: Lewis on balancing spending cuts; Tamny on Japan's deflation; Perry on tax rates vs. revenues from the top 1%.

At Forbes, Nathan Lewis argues that tax rate cuts are necessary to offset the economic pain of large spending reductions.

From New World Economics, Lewis provides the new Russia chapter to his excellent book, Gold: The Once and Future Money.

On Forbes, John Tamny explains the roots of Japan’s deflation.

At Carpe Diem, University of Michigan’s Mark Perry charts tax rates vs. revenue from the top 1%:


In The Washington Post, AEI’s Arthur Brooks challenges the morality of raising taxes on the wealthy.

From The WSJ, John B. Taylor argues the President’s budget proposals would entrench spending at a much higher baseline.

On Forbes, Peter Ferrara recounts the enormous size of the American welfare state.

The Heritage Foundation features a brief interview on tax issues with Art Laffer:

My idea of tax reform is for Congress to enact a true flat tax, a la Jerry Brown's proposal in 1992. Congress should replace all federal taxes (except sin taxes, which are really designed to change behavior rather than raise revenue) with two flat-rate taxes, one on personal income and one on business net sales. This tax code would remove loopholes and almost all deductions, and the static revenue neutral rate would be less than 12 percent. Can you imagine what would happen to the United States economy if there were just two flat rate taxes of 12 percent?

On TGSN, Ralph Benko cites a book on rising living standards under the gold standard.

At NRO, Mark Steyn predicts the end of the dollar era.

From Reuters, Glenn Somerville and Tim Reid ask, what ever happened America’s strong dollar policy?

On Thursday, the dollar index, a gauge of the U.S. currency against six advanced country currencies, fell to 73.735, its lowest level since August 2008, setting up a possible run toward its record low of 70.698 touched in March 2008. The euro soared to a 16-month high above $1.46.

Geithner last year flatly denied he is pursuing a policy aimed at cheapening the dollar. "We will never use our currency as a tool to gain competitive advantage," he told reporters last November after a meeting in Kyoto, Japan, of finance ministers from the Asia-Pacific Economic Cooperation group. "I'm happy to reaffirm again that a strong dollar's in our interest as a country."

From Townhall, Mark Baisley describes a conversation on the Laffer Curve with the late-Sen. Edward Kennedy (MA).

At Fiscal Times, Bruce Bartlett suggests Rep. Paul Ryan’s budget plan is politically impossible.

In The New Orleans Time Picayune, a letter writer argues supply-side economics doesn’t work.

Thursday update: The WSJ notes global anger about the dollar; Woodhill worries about austerity; Kudlow hopes for tighter money.

The WSJ notes the world’s increasing dissatisfaction with the falling dollar.

From Forbes, Louis Woodhill worries the U.S. will raise taxes to fight the deficit and offers a smart counterfactual.

At NRO, Larry Kudlow applauds rising corporate profits but hopes the Fed will tighten money.

On The Kudlow Report, David Goldman explains that while large businesses are doing better, small businesses and consumers are getting squeezed:




From Reuters, James Pethokoukis links the President’s low approval numbers to the weak dollar.

At TGSN, Ralph Benko quotes Keynes from 1922 on the need for Europe to re-embrace gold:

If gold standards could be reintroduced throughout Europe, we all agree that this would promote, as nothing else can, the revival not only of trade and production, but of international credit and the movement of capital to where it is needed most. One of the greatest elements of uncertainty would be lifted. One of the most vital parts of pre-war organization would be restored. And one of the most subtle temptations to improvident national finance would be removed; for if a national currency had once been stabilized on gold basis, it would be harder (because so much more openly disgraceful) for a Finance Minister so to act as to destroy this gold basis.

At The Big Questions, Steve Lansburg suggests increased government consumption means a commensurate drop in consumption other parts of the economy.

From Marginal Revolution, Alex Tabarrok agrees with Lansburg.

On Kudlow, Tamar Jacoby argues allowing more high-skilled immigrants into the U.S. would boost growth:




At COAL, Paul Krugman responds to Putin’s hooliganism comment by suggesting Russia allow its currency to appreciate.

Also on COAL, Krugman notes the absence of bond market vigilantes:




There's an interesting parallel between the 10-Year Treasury and the euro/dollar exchange rate:



The Huffington Post reports some Republicans are taking heat over the Ryan budget plan (h/t: Bruce Bartlett).

Thursday items: Manhattan Institute posts SSE conference video; Lehrman discusses gold; Domitrovic on floating currency and manufacturing.

At Reuters, James Pethokoukis gives this blog a shout out. Thanks James!

The Manhattan Institute posts video of Tuesday’s supply-side convocation (part 2 here, part 3 here).

On CNBC’s Closing Bell, Lewis Lehrman discusses Reaganomics and the gold standard (h/t: Ralph Benko):



At TGSN, Brian Domitrovic makes the crucial point that the dollar standard has wrecked U.S. manufacturing.

Economics21 examines the dollar’s decline.

On The Kudlow Report, David Goldman debates the dollar’s future:



Bloomberg’s Caroline Baum suggests Japan’s crisis may worsen world inflation.

From Forbes, Steve Forbes advocates a flat tax to help Japan recover quickly.

At Forbes, Louis Woodhill recommends selling oil from the Strategic Petroleum Reserve when its ratio to gold creates an arbitrage opportunity.

Weekend round up: Lewis on currency boards; Danker on Utah's hard money legislation; Mitchell opposes raising taxes to lower the deficit.

From Forbes, Nathan Lewis argues that a currency board system tied to a specific gold price would fix the dollar.

Also at Forbes, Rich Danker suggests Utah’s bill to make gold and silver legal tender is the first tangible evidence of a populist revolt against Washington's weak dollar policy.

On The Kudlow Report, Stephen Moore discusses high oil prices:



At Forbes, Bill Flax links high oil prices to the weak dollar.

From New World Economics, Nathan Lewis continues his analysis of bank reserves.

Cato’s Dan Mitchell supports Grover Norquist’s argument that higher taxes will not lower the deficit.

At Heritage, David Weinberger cites Alan Reynolds on income inequality:

First, as Reynolds points out, shifting tax rates have influenced how income has been reported to the IRS. For example, after individual tax rate reductions throughout the 80s and 2000s, businesses shifted from corporate tax returns to individual tax returns, since they would pay less in taxes shifting income to the lower individual rate. This resulted in increased reported income at the top, when in reality there was a lot of income shifting – though not necessarily gaining – which Reynolds found to account for “more than half of the
apparent increase in the top 1 percent’s income share since 1986.”

Second, Reynolds argues that the Piketty-Saez tax return study excludes many transfer payments for low-income families, because these payments don’t show up in IRS data. These include things like Social Security, Medicare, food stamps and other lower-income subsidies. Excluding these payments shrinks the percentage of total income for lower income groups, making it appear to expand the percentage of total income top earners collect. Of course, employer health care contributions, which tend to favor upper-income earners and therefore offset some of the transfer payments to lower-income individuals, also need to be taken into account. But overall, middle- and lower-income earners receive
more subsidies than upper-income earners.

Third, tax rates also affect capital gains realizations. Prior to the 1987 capital gains tax increase, capital gains accounted for “18 percent or less of all the broadly defined income reported on the top 1 percent of individual income tax returns in the early 1980s,” according to Reynolds. However, starting in 1987, capital gains realizations as a share of the top 1 percent of incomes dropped to an average of 7.3 percent for the next decade.

From Cato, Robert F. Mullgan reports the institute's William Niskanen is working to rehabilitate the Phillips Curve.

On Forbes, Reuven Brenner suggests government art subsidies weaken the culture.

At Fiscal Times, Bruce Bartlett reviews Douglas Irwin’s Peddling Protectionism on the Smoot-Hawley tariff.

Wednesday update: Ritholtz's GDP chart, Benko on social disorders stemming from the unstable dollar, Luskin doubts gold as an inflation measure.

Courtesy of Barry Ritholtz, this chart illustrates how far off-trend GDP is:



From TGSN, Ralph Benko unpacks the dollar standard’s three social disorders (here, here and here).

Also on TGSN, Christopher K. Potter argues there’s plenty of gold for a gold standard.

At The Kudlow Report, Don Luskin denies that $1,400 gold means inflation:



From The Atlas Sound Money Project, Alex Chafuen excerpts Mary Anastasia O’Grady’s column on Dallas Fed Chairman Richard Fisher’s speech critiquing QE2.

At plata.com, Hugo Salinas Price blames the economy’s woes on the abandonment of the gold standard (h/t: Ralph Benko).

Weekend items: Rose roundtable on gold, Benko on the dollar standard, Kudlow on Utah's gold bill.

From December, Charlie Rose hosts an excellent roundtable on gold and the dollar.
(h/t: Ralph Benko)

At TGSN, Ralph Benko lists nine weaknesses that accompany a dollar standard, including necessitating a perpetual trade deficit while enabling a chronic budget deficit.

On Asia Times, David Goldman notes the recovery remains weak and lopsided.

At The Kudlow Report, Larry discusses Utah’s bill recognizing gold and silver as legal tender:



The NY Sun analyzes the latest exchange between House Monetary Policy Subcommittee Chairman Ron Paul (TX) and Fed Chairman Ben Bernanke.

From Forbes, Bill Flax explains that inflation is never a good policy.

Also on Kudlow, John Tamny debates unions, budgets, and Social Security reform:



At Huffington Post, Nathan Lewis explains the conservative critique of unions.

On Forbes, Reuven Brenner advocates putting public union compensation to a vote.

ABC promotes “buy America” as the solution to U.S. unemployment:



On NRO, Larry Kudlow notes that so far high oil hasn’t derailed the stock market.

From New World Economics, Nathan Lewis discusses bank reserves.

At COAL, Paul Krugman argues that British budget cuts haven’t increased business confidence:


On Time, David Von Drehle suggests claims of rising inequality are overblown.

At Lew Rockwell, Robert Wenzel blasts Karl Rove and supply-side economics.

Thursday round up: Rove on growth, Woodhill on the Fed, Goldman on inflation.

In a bellwether WSJ column, Karl Rove argues Republicans can’t succeed without a pro-growth/supply-side message.

At Forbes, Louis Woodhill suggests the Fed’s combination of quantitative easing plus paying interest on reserves is causing commodity inflation even while housing, labor and car prices are falling.

On The Kudlow Report, David Goldman debates the dollar and inflation:



At Politico, Steve Forbes compares current policies on energy and the environment to the Carter era.

In Business Week, David Malpass argues spending cuts will attract foreign capital and thereby increase employment.

At CNBC, Steve Forbes discusses the dollar:



On Forbes, Jerry Bowyer notes that without devaluation the U.S. might be near default.

Bloomberg’s Caroline Baum suggests Keynesian economics is stuck in the Dark Ages.

Also on Bloomberg, David Malpass analyzes the Fed’s impact on the world economy.



In The WSJ, Keynesian (and gold standard critic) Barry Eichengreen echoes weak dollar guru Fred Bergsten in predicting the end of the dollar’s reign in favor of a three currency world.

From the archive, Brian Domitrovic comments on Eichengreen’s Golden Fetters.

On The Freeman, Howard Baetjer Jr. rebuts claims that inflation has non-monetary roots.

Wednesday items.

From Forbes, Brian Domitrovic recalls Robert Lucas’s role in challenging 1970s Keynesianism.

The Hill reprints a Judy Shelton memo to members of Congress on potential questions for Federal Reserve Chairman Ben Bernanke.

On The Kudlow Report, U.S. Rep. Ron Paul (TX) explains why he asked Bernanke to define a dollar:



At The Atlantic, Daniel Indiviglio comments on the Paul/Bernanke exchange.

Cato’s Dan Mitchell notes Bernanke’s embrace of Keynesian spending analysis.

From The WSJ, Mary Anastasia O’Grady notes Fed Chairman Bernanke is “out on a limb” with his inflation prediction:



At RCM, John Tamny defends insider trading.

In The WSJ, Seth Lipsky suggests Sarah Palin’s outreach to labor is similar to Reagan’s.

From the archive, the late-Robert Bartley and Amity Schlaes explain the supply-side revolution.

Tuesday round up.

On Forbes, Charles Kadlec predicts price inflation.

Also at Forbes, Brian Domitrovic notes that 19th century tariffs were limited by consideration of diminishing returns.

From The Kudlow Report last week, David Goldman suggests the dollar is falling which means inflation:



At The Heartland Institute, Matt Warner interviews Judy Shelton on the dollar.

On TGSN, Kelly Hannon notes gold-backed currency’s role in restraining government debt.

At Alhambra Investments, Joe Calhoun wonders if the dollar has lost its safe haven status.



From the archive, USA Gold runs an interesting summary of supply-side guru Robert Mundell’s views.

McKinsey Quarterly explains that China exports less than some data suggest.

Courtesy of RCP, Chris Matthews is annoyed that Americans revere President Reagan most.

Tuesday summary.

At Forbes, Brian Domitrovic recounts the history behind William Jennings Bryan’s “cross of gold” speech.

On RCM, John Tamny scolds Paul Kruman for suggesting sound money has racist roots.

At The Kudlow Report, Larry advises Republicans to focus on tax and monetary reform rather than obsessing solely on the deficit:



Think Progress previews the left’s line of attack on Republicans: “Invest and Grow vs. Slash and Burn.”

At Alhambra Investments, Joe Calhoun suggests current Fed policy may provide a window for overdue fiscal policy reforms.

The NY Sun explains why the dollar’s value should be fixed.

On The Kudlow Report, Tamny debates high commodity prices:



The Independent Institute reprints Richard K. Vetter’s recent congressional testimony on why money creation doesn’t stimulate employment. (Hat tip: Atlas Sound Money Project.)

On Forbes, Steve Forbes interviews George Gilder on the future of technology.

From the weekend WSJ, Philadelphia Fed President Charles Plosser explains his skepticism regarding Ben Bernanke’s policy direction.

Mr. Plosser doesn't see a deflation risk for the U.S. economy right now. Even those who were worried about deflation six months ago, he says, have begun to change their tune. That means that, with moderate GDP growth and low inflation in the mix, the only thing left as an excuse for QE2 is high unemployment. Can lax monetary policy change that picture?

Mr. Plosser's answer is unequivocal: This mess was caused by over-investment in housing, and bringing down unemployment will be a gradual process. "You can't change the carpenter into a nurse easily, and you can't change the mortgage broker into a computer expert in a manufacturing plant very easily. Eventually that stuff will sort
itself out. People will be retrained and they'll find jobs in other industries. But monetary policy can't retrain people. Monetary policy can't fix those problems."

Thursday round up.

In The WSJ, Art Laffer recounts Reaganomics' successes.

At NRO, Larry Kudlow discounts the parallels between Reagan and Obama.

On CNN, U.S. Rep. Paul Ryan (WI) questions Federal Reserve Chairman Ben Bernanke on inflation:



At Bloomberg, Caroline Baum cites the latest example of how a falling dollar changes business behavior.

On RCM, Louis Woodhill suggests unions are out of step with the 21st century economy.

From last week, Paul Krugman notes the lower median income since 1973, but fails to connect it to the end of the dollar’s peg to gold.



From the archive, Nathan Lewis explains the falling dollar’s impact on U.S. wages.

In last month’s WSJ, Dilbert creator Scott Adams recommends alternative ways to raise taxes on the rich.

McSweeney’s provides a satirical look at supply-side economics. (Hat tip: Yoram Bauman.)

Thursday round up.

At Forbes, Jerry Bowyer highlights China’s weaknesses.

On Cafe Hayek, Don Boudreaux rebuts China currency manipulation charges.

The XtraNormal bears argue China manipulates its currency which steals American jobs.



The WSJ clarifies that China has many problems and that a burst of Reaganite growth would restore American confidence.

China remains an underdeveloped country, its economy barely one-third the size of America's. Its leaders live in fear of peasant revolts, ethnic separatists, underground religious movements, political dissidents and the free flow of information. Its economy remains profoundly hobbled by corruption, inefficient state-owned enterprises and an immature banking system.

There is no genuine rule of law and its regulatory environment has become increasingly unpredictable for foreign investors and local entrepreneurs. It suffers from an aging population and environmental damage Americans wouldn't tolerate. Its greatest comparative advantage—cheap labor—is under strain from rising domestic wages and competition from places like Vietnam and Bangladesh.

Above all, China suffers from an absence of self-correcting mechanisms, beginning at the top with its authoritarian political system. And while it can trumpet achievements like a stealth fighter or bullet trains—some based on pilfered designs—it has a harder time adjusting to failure, much less admitting to it.

From Foreign Policy, Daniel W. Drezner explains that China isn’t beating the U.S.

On The Kudlow Report, Gov. Mitch Daniels (IN) shows sound policy instincts regarding China and pro-growth policies, but omits the dollar from his analysis:



At Conscience of a Liberal, Paul Krugman praises the Bush era’s dollar decline.

On his blog, Brad DeLong quotes Krugman citing Milton Friedman in favor of currency devaluation.

In The WSJ, Joseph Sternberg suggests China won’t "rebalance" toward consumption anytime soon.

China needs to reallocate capital and labor on a massive scale to orient itself toward producing goods and services that Chinese consumers want to consume. This will require major banking changes, especially improving access to credit for the small and medium-sized enterprises that make a modern consumption-driven economy tick. Both regulation and habit will get in the way.

The regulation involves interest rates: Government manages both deposit and lending rates in a way that guarantees banks a wide spread. This was intended to help banks earn themselves out of an earlier generation of nonperforming loans at the expense of households, which earn lower rates on savings deposits. And the policy could prove especially necessary if 2009's credit binge results in huge piles of bad debts.

On Lew Rockwell, "Norm" claims Bill Kristol’s recent support for monetary reform is “another neocon trick, like supply-side economics.”