Mr. President! So glad you called. No, it’s not too early; I was up anyway.
You wanted to know whether a strong dollar or a weak dollar is good for the economy. Excellent question.
There’s an important distinction here between what we discuss entre nous, and what you tweet out. Let’s start with the “just between us” version.
One of the most important things a government can do for an economy is provide a stable currency. People often refer to a currency that holds its value as ‘strong.’ In that sense, strength is a good thing. You don’t want the value of a currency eroded away through high inflation, for example.
But if you look at the dollar, it’s up roughly 25 percent over the last few years. Is that good? It’s more a reflection of how the American economy has been doing relative to the rest of the world. When investors elsewhere want to put their money in the United States, it tends to bid up the value of the dollar. While that’s flattering, it does make life tougher for US exporters, as a strong dollar makes US exports look expensive. So it’s hard to argue that today’s value is better than the value of the dollar a few years back.
Also, I hate to say this, but you don’t really control the value of the dollar. Its value is determined in currency markets. It will react to things like whether the Fed raises interest rates faster or slower than people expect. You only influence that indirectly. If you push through a big infrastructure spending bill, for example, especially one that is funded through borrowing, that should prompt the Fed to raise rates faster and, in turn, prompt the dollar to strengthen.
Now, you might be tempted to help exporters by “talking” the dollar down – tweeting how a weak dollar might be just the thing to make America great again. Don’t do it.
Here we get to the public part. Two possibilities: you either back up your words with policies, or you don’t. If you back them up with policies, you don’t need to say anything. If you don’t, then an empty promise of action will undermine your credibility. You’re better off saving that credibility for a rainy day.
Plus, you don’t want to be in the position of giving daily market commentary. It might be fun to cheer when the dollar strengthens – a win! – but what are you going to say when it blips down? Will that be a loss?
So how do you handle questions about the value of the dollar? First, you let your Treasury Secretary deal with it. No one else in your administration. It’s what you pay him for.
Second, you might want to tell him to follow the model of Robert Rubin, his predecessor from back in the 1990s. Rubin was famous for saying that a strong dollar is in the US interest.
And that’s it. No further interpretation. How strong is strong? Is there such a thing as too much? Wouldn’t a weaker dollar help exporters? The answer to all these questions: “A strong dollar is in the US interest.”
Reporters very quickly learned that there was no news in this statement. Rubin would say it whenever the issue came up. Market participants would contentedly go about their business. The administration he served would be off the hook.
So, in public, say nothing or chant the strong dollar mantra. If you really feel the need for a more candid discussion about the dollar, you’ve got my number. Feel free to call. Anytime. More or less.