Andy Kessler: Next Treasury Secretary Should Strengthen Dollar

Monday, 26 Nov 2012 08:09 AM

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Treasury Secretary Timothy Geithner is due to step down soon and whoever President Barack Obama picks to replace him should favor a strong dollar, former hedge-fund manager and author Andy Kessler wrote in The Wall Street Journal.

Obama’s fiscal policies focus in part on raising taxes on wealthier Americans to drum up fresh revenue to narrow deficits, with the argument being that the country thrived under higher taxes during the Clinton administration.

Maybe so, but since Bill Clinton left office, state, local and other taxes have risen, and Obama’s tax hikes would hamper recovery, not hasten it, Kessler wrote in an Opinion piece appearing in The Journal.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Furthermore, Clinton’s Treasury Secretary Robert Rubin bolstered the economy by keeping the dollar strong, something most of his predecessors avoided in order to boost exports to stimulate the economy.

Whoever replaces Geithner should pick up where Rubin left off.

“Robert Rubin, who took over as Treasury Secretary in January 1995 after 26 years at Goldman Sachs, understood a thing or two about markets. In particular, he knew that during the inflationary 1970s, weak dollars flowed into commodities instead of stocks and ventures that were vulnerable to shifts in the value of the currency,” Kessler wrote.

“During the Reagan era, Mr. Rubin and Goldman Sachs thrived by learning that a strong dollar attracts productive investment that drives a growing economy,” he noted, adding that due to Rubin’s policies, oil and gold prices fell as did the unemployment rate, which dropped to 4.3 percent from 5.6 percent

And the stock market more than doubled.

Since Rubin’s tenure, Treasury Secretaries Paul O’Neill, John Snow, Henry Paulson and Geithner did little to stop the dollar’s slide, and a sliding dollar sends commodities such as gold and oil rising, but does little for the underlying economy.

Whoever replaces Geithner must work to strengthen the dollar and convince Federal Reserve Chairman Ben Bernanke to halt his ultra-loose monetary policies, including quantitative easing, under which the Fed buys bonds held by banks, pumping the economy full of liquidity to encourage investing and hiring, weakening the dollar in the process, according to Kessler.

“A strong dollar has already proven under Presidents Reagan and Clinton to increase investment and then jobs and then profits and then more investment,” he wrote.

“A weak dollar will delay an investment boom and continue the country’s current plodding path. Inquiring minds and investors wonder which it will be.”

Other experts point out that whoever replaces Geithner must be a dealmaker and push policy through.

The country is facing a fast-approaching fiscal cliff, a combination of tax hikes and spending cuts due to kick in at the end of this year.

The Congressional Budget Office has said that failure to address the cliff could send the country into a recession next year.

But even if disaster is averted, longer-term fiscal imbalances must be addressed, as the U.S. economy is facing high debt burdens, gaping deficits, sluggish growth and persistently high unemployment rates.

“This Treasury secretary has to guide us through a deal. It has to be someone with deficit credentials and respect from both sides,” said Jim Kessler, senior vice president for policy at centrist think tank Third Way, according to Reuters.

“It has to be someone who challenges the president’s party as well.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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