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Bush's Disastrous Dollar Policy

By Dan Froomkin
Special to washingtonpost.com
Thursday, November 8, 2007; 1:32 PM

President Bush doesn't talk about the dollar much, but when he does, he's got exactly one thing to say about it: "We have a strong dollar policy."

It's becoming increasingly clear, however, that Bush's "strong dollar policy" is driving the greenback into the ground.

The dollar is hitting record lows this week amidst fears that the mortgage-market meltdown will spread to other parts of the economy and as the Chinese make noise about moving more of their investments into euros. But it is the underlying dynamics of the American economy -- continued massive trade deficits and a whopping national debt -- that have put the dollar in such a precarious position.

A true strong dollar policy, aimed at increasing the confidence of international investors, would require Bush to do a bunch of things he doesn't want to do. For instance, he would have to stop borrowing so much money to fund his tax cuts and his wars. He would need to encourage the Federal Reserve to raise interest rates, rather than depend on it to keep propping up the domestic economy by decreasing them. That sort of thing.

Instead, Bush just offers the strong-dollar line, without specifics, and moves on.

Consider how eager he was to drop the subject last month during a Wall Street Journal interview:

WSJ: "[T]here has been a lot of concern, obviously, about the value of the dollar around the world, and some calls for the U.S. to put more action behind its vow that we support a strong dollar. How do you respond to them, and do you think Treasury needs to intervene at all at this point?"

Bush: "Secretary Paulson, of course, is our main spokesman on this issue, and he reflects the view of this administration that the strong dollar policy is the correct policy. And we also believe that the best way for a currency to become valued is through the market."

WSJ: "That's it?"

Bush: "Yes."

WSJ: "Is the low dollar helping the trade deficit numbers that today were pretty good?"

Bush: "The policy of the U.S. government, when it comes to the dollar, is a strong dollar policy, and that the currency -- the value of the currency needs to be set by the market."

WSJ: "Okay."

Here's Bush talking to CNBC's Ron Insana in April 2005:

Insana: "And some people are wondering if you are prepared to make a forceful statement or take forceful action to boost the value of the dollar and help drive down the price of oil."

Bush: "Right. Well, I, let me, I, I'll try to make a forceful statement right now. This government is for a strong dollar. We do believe the market ought to set the price of the dollar relative to other currencies, but we are for a strong dollar."

And here's Bush talking to reporters in December 2003: "[T]he policy, the stated policy -- and not only the stated policy, but the strong belief of this administration is that we have a strong dollar."

Neil Irwin writes in today's Washington Post: "The value of the dollar fell sharply yesterday, as did the stock market, after the Chinese government signaled that it might slow its purchases of U.S. assets. . . .

"Top Chinese officials suggested at a conference yesterday that they would direct more of their future reserves into European assets -- that the euro, not just the dollar, would increasingly be a currency of choice. For years, China has kept its currency artificially low relative to the dollar by buying hundreds of billions of dollars worth of U.S. assets, especially Treasury bonds. This has made Chinese imports inexpensive in the United States and made it cheap for Americans to borrow money.

"'We will favor stronger currencies over weaker ones and will readjust accordingly,' said Cheng Siwei, vice chairman of China's National People's Congress. Another official said the dollar was losing its position as the world's default currency. . . .

"A cheaper dollar was not unexpected when the central bank cut interest rates. In fact, it is one of the ways that lower interest rates stimulate the economy. . . .

"But a weak dollar could also spur inflation. Part of the reason that prices for oil and other raw materials have risen sharply in the past month is that the dollar is worth less."

Patrice Hill writes in the Washington Times: "A spokeswoman for Treasury Secretary Henry M. Paulson Jr. said he remains 'strongly committed to a strong dollar,' but the Bush administration has done nothing to prevent the currency's recent sharp drop against other major currencies."

So what happens if the central banks of Asian and oil-producing countries, which hold vast amounts of Treasury bills and the like, start losing their appetite for U.S. currency?

Carter Dougherty wrote recently in the International Herald Tribune: "Finance ministers and central bankers have long fretted that at some point, the rest of the world would lose its willingness to finance the United States' proclivity to consume far more than it produces - and that a potentially disastrous free-fall in the dollar's value would result.

"But for longer than most economists would have been willing to predict a decade ago, the world has been a willing partner in American excess - until a new and home-grown financial crisis this summer rattled confidence in the country, the world's largest economy. . . .

"'This is all pointing to a greatly increased risk of a fast unwinding of the U.S. current account deficit and a serious decline of the dollar,' said Kenneth Rogoff, a former chief economist at the International Monetary Fund and an expert on exchange rates. 'We could finally see the big kahuna hit.'"

Rogoff, who teaches at Harvard, wrote earlier this year in the Guardian: "Will the United States ever face a bill for the string of massive trade deficits that it has been running for more than a decade? Including interest payments on past deficits, the tab for 2006 alone was over $800 billion dollars - roughly 6.5% of US gross national product. Even more staggeringly, US borrowing now soaks up more than two-thirds of the combined excess savings of all the surplus countries in the world, including China, Japan, Germany, and the OPEC states. . . .

"In an era in which stock and housing prices are soaring, the central banks of Japan and China are holding almost two trillion dollars worth of low-interest bonds. A very large share of these are US treasury bonds and mortgages. This enormous subsidy to American taxpayers is, in many ways, the world's largest foreign aid program."

Rogoff marvels at how "America's government and consumers have been engaged in a never-ending consumption binge." He writes: "When a fiscally responsible government launches a war, it typically cuts back on other domestic expenditures and raises taxes. The Bush administration did the opposite. . . .

"[S]ome day, the US may well have to pay the bill for its spendthrift ways."

Bush of course famously transformed Clinton-era budget surpluses into huge deficits. And as a result, as Martin Crutsinger reported for the Associated Press this week, the national debt hit $9 trillion for the first time.

As it happens, there was a president speaking to a joint session of Congress about the weak dollar yesterday. But it wasn't Bush.

Francois de Beaupuy writes for Bloomberg: "French President Nicolas Sarkozy told a joint session of the U.S. Congress the Bush administration must stem the dollar's plunge. . . .

"Sarkozy's complaints that the U.S. currency's drop against the euro is undermining European competitiveness struck a discordant note in a summit intended to demonstrate an improving U.S.-French relationship."

Skeptical Questions

In contrast to the carefully coifed questions Bush generally gets from American television anchors, Bush's French and German interlocutors yesterday didn't hesitate to displayed the profound skepticism that accompanies any mention of Bush outside (and increasingly inside) the United States.

Here's the transcript of Bush's interview with Patrick Poivre d'Arvor of French TF1 Television.

Bush spoke warmly of Sarkozy, whom he described as "a man of deep values. He's got a lot of energy. He's a lot of fun to be around, plus he's a serious man and he wants to -- he's like me, he wants to solve problems: Here is a problem; let's go solve it."

But Poivre was more interested in grilling Bush about Iraq, Iran and the perversion of the American Dream.

Poivre: "So to a certain extent, you did contribute to giving greater power to Iran, because it no longer is facing its hated enemy on the other side. So now is there a true threat in Iran, and are you ready now to invade Iran as you did with Afghanistan and Iraq? So it is indeed true that Vice President -- is it true that Vice President Cheney has a plan for that?"

Bush: "I don't know where you're getting all these rumors -- there must be some weird things going on in Europe these days -- because I have made it abundantly clear, now is the time to deal with a true threat to world peace -- that's Iran -- and to do it diplomatically and peacefully. And that's what I'm going to spend a lot of time on with President Sarkozy. But of course we want to solve these problems peacefully. . . ."

Poivre: "But in spite of all your efforts, the United States today have a worse image today than they had seven years ago; people find Americans less likeable pretty much everywhere in the world. Do you have your own share of responsibility, or is this inevitable because the United States is the most powerful country in the world?"

Bush: "Look, first of all, I think most people respect America and they like Americans. They may not necessarily like the President. And so -- but I've always been the kind of person, Patrick, to make decisions based upon what's right, as opposed to trying to be the popular guy. . . ."

Poivre: "In the past we used to say that the American Dream was freedom, but today it seems to be repression, more self-focused society."

Bush: "That's absurd to say the American Dream is repression. Freedom is the absolute we're helping people achieve. . . . I understand people's -- the image may not be as good as one would like, but people respect what America stands for. They may not like the decisions I have made, but I don't see how you can be a leader if you worry about public opinion polls all the time, particularly in a world in which there's a lot of problems that require strong leadership."

Here's video of the French interview.

And here's the transcript of Bush's interview with reporters from the RTL and N-TV German television networks.

Question "Do you think that the nuclear threat that Iran poses right now is larger than the threat Iraq posed about five or six years ago?"

Bush: "I think they were both dangerous. I think both of them could have been solved diplomatically. Saddam Hussein chose to ignore the demands of the free world and Security Council 1441 -- which, by the way, Germany voted for initially. And I think they're both dangerous. And I think therefore the lesson of Iraq is that we can work together and solve questions peacefully now. . . ."

Question: "But you still have as a last option the military option. Do you think that that could be an option in the future? You even mentioned the possibility, the chance of third world war -- you were serious about that?"

Bush: "Oh, absolutely serious. I said, if you want to avoid World War III. I didn't say I'm for World War III."

Question: "Oh, no, I didn't say that. But you mentioned it in that respect, yes."

Bush: "But I said if you -- the reason I said that is because this is a country that has defied the IAEA -- in other words, didn't disclose all their program -- have said they want to destroy Israel. If you want to see World War III, you know, a way to do that is to attack Israel with a nuclear weapon. And so I said, now is the time to move. It wasn't a prediction, nor a desire.

"And do I think we can solve it? I do. Should all options be on the table? You bet. But I firmly believe we can solve this problem diplomatically and will continue to work to do so. . . .

"I've committed our troops into harm's way twice, and it's not a pleasant experience because I understand the consequences firsthand. And so I owe it to the American people to say that I've tried to solve this problem diplomatically. And that's exactly what I intend to do."

Pakistan Watch

David Rohde writes in the New York Times: "Amid a deepening crisis in Pakistan, Bush administration officials have begun pushing Gen. Pervez Musharraf on several fronts to reverse his state of emergency, quietly making contact with other senior army generals and backing Pakistan's opposition leader as she carries out back-channel negotiations with him. . . .

"For now, Bush administration officials are unanimous in saying that American financial support for Pakistan will continue regardless of whether General Musharraf reverses course.

"A senior White House official, speaking on condition of anonymity because of diplomatic sensitivities, said Mr. Bush still held out hope that American pressure could persuade General Musharraf to reconsider his moves. That approach, the official said, was 'Option No. 1, No. 2, and No. 3.'"

Robin Wright writes in The Washington Post: "President Bush intervened in Pakistan's political crisis yesterday with a telephone call urging embattled President Pervez Musharraf to resign as commander of the Pakistani military and to hold elections within the next two months, as originally scheduled.

"'My message was that we believe strongly in elections and that you ought to have elections soon, and you need to take off your uniform,' Bush said, describing his call with Musharraf at a joint news conference yesterday with French President Nicolas Sarkozy. 'You can't be the president and the head of the military at the same time. So I had a very frank discussion with him.'"

Wright notes that "the administration is facing a chorus of congressional skeptics who charged that Musharraf is spending far more time fighting democratic activists and lawyers than al-Qaeda and Islamic militants. Rep. Gary L. Ackerman (D-N.Y.), who described himself as 'a fan and a supporter' of the Pakistani leader, charged that Musharraf had manipulated the Pakistani political system and the United States since Sept. 11, 2001, only to ensure his continued tenure in office."

Mark Silva blogs for Tribune this morning: "Pakistani President Pervez Musharraf, who declared a state of emergency Saturday night, said today that parliamentary elections will be held by mid-February.

"Critics complain that Musharraf is pushing back a vote that had been planned for January. But the White House, which has been pressing the Pakistani leader to commit to the elections he had long promised, praised the announcement today as a welcome signal.

"'We think it is a good thing that President Musharraf has clarified the election date for the Pakistani people,' White House Press Secretary Dana Perino said this morning."

The New York Times editorial board writes that Bush's phone conversation "should have happened sooner, and Mr. Bush must also push for the release all of those lawyers, human rights activists and judges -- or elections have no chance of credibility. Washington must make it clear that a blood bath against protesters would be intolerable."

Big Problems

Brian Winter, Paul Wiseman and Jim Michaels write in USA Today: "When a Boston television reporter gave then-candidate George W. Bush a pop quiz on foreign leaders in 1999, one of the names he missed was that of Pakistan's president.

"Now, few people are more important to the Bush administration than Pervez Musharraf. His efforts to quell violent protests against his government this week have put a spotlight not only on the chaos within the nuclear-armed Islamic nation, but also on how fragile Pakistan's role has become in Bush's war on terrorism.

"There are increasing questions about whether Musharraf is effectively keeping his vow to crack down on Islamic militants, which are using Pakistan as a base to attack U.S. troops in Afghanistan. Add this week's political crisis, and Pakistan may have surpassed Iraq and Afghanistan as the most vulnerable front in Bush's anti-terrorism efforts."

Michael Isikoff and Mark Hosenball write for Newsweek: "The latest turmoil in Pakistan has sparked new worry over the prospect that Al Qaeda or other Islamic radicals will acquire access to the country's nuclear arsenal. Pakistan has an estimated 50 nuclear bombs (compared with about 80 in India), which are dispersed throughout the country. U.S. officials acknowledge they do not have as much information about their location and security arrangements as they would like. . . .

"[T]he threat of Pakistan as a 'ticking nuclear time bomb' should be a 'real concern,' said Graham Allison, a former assistant secretary of defense for planning in the Clinton administration who now teaches at Harvard. 'It is quite possible to describe scenarios in the destabilization of Pakistan in which control of nuclear weapons would be splintered--and in which some of those splinters could be Taliban or Al Qaeda sympathizers.'"

Sidney Blumenthal writes in Salon: "Every aspect of Bush's foreign policy has now collapsed. Every dream of neoconservatism has become a nightmare. Every doctrine has turned to dust. The influence of the United States has reached a nadir, its lowest point since before World War II, when the country was encased in isolationism. . . .

"Gone are the days when the stern words of a senior U.S. official prevented rash action by an errant foreign leader and when the power of the U.S. served as a restraining force and promoted peaceful resolution of conflict. In the vacuum of the Bush catastrophe, nation-states pursue what they perceive to be their own interests as global conflicts proliferate. The backlash of preemptive war in Iraq gathers momentum in undermining U.S. power and prestige. The resignation last week of Bush's close advisor, Karen Hughes, as undersecretary of state for public diplomacy, whose mission was to restore the U.S. image in the world, signaled not only failure but also exhaustion. . . .

"Dick Cheney's and Donald Rumsfeld's presumption that successful war would instill fear leading to absolute obedience and the suppression of potential rivalries and serious threats -- the 'dangerous nation' thesis of neocon theorist Robert Kagan -- has proved to be the greatest foreign policy miscalculation in U.S. history."

French Kiss

Michael Abramowitz writes in The Washington Post: "French President Nicolas Sarkozy continued his Washington charm offensive yesterday, telling Congress he stands with the United States in fighting terrorists and backing President Bush's strategy to confront Iran even as he found time to consult with the leading Democratic presidential contender. . . .

"Sarkozy spent several hours in conversations with Bush and his advisers, discussing the combined efforts of the United States and Europe to persuade Iran to give up activities that the Bush administration has argued are aimed at developing a nuclear weapon, among other issues.

"At their joint news conference, Sarkozy backed Bush's efforts to impose new sanctions on Iran, although the French president also spoke, somewhat elliptically, of the need to engage Iran in a 'dialogue,' something the Bush administration has resisted."

Dana Milbank writes in The Washington Post: "While large numbers of Sarkozy's countrymen regard the American president as the devil incarnate, the new French president described Bush as 'open-minded' and 'warm.'"

Iraq Watch

At the brief press availability yesterday, a French reporter referred to Iraq as a quagmire.

Bush's response: "I don't -- you know, 'quagmire' is an interesting word. If you lived in Iraq and had lived under a tyranny, you'd be saying, god, I love freedom -- because that's what's happened. And there are killers and radicals and murderers who kill the innocent to stop the advance of freedom. But freedom is happening in Iraq. And we're making progress."

Bush's optimism is not shared by the American people, however.

Katy Byron reports for CNN: "Opposition to the war in Iraq has reached an all-time high, according to the CNN/Opinion Research Corporation poll released Thursday morning.

"Support for the war in Iraq has dropped to 31 percent, and the 68 percent who oppose the war is a new record, up slightly from last month. The last time a majority supported the war was in 2003, when 54 percent answered affirmatively.

"Despite a recent drop in violence in Iraq, only one quarter of Americans believes the United States is winning the war, while 62 percent believe neither the Americans nor the insurgents are winning."

Here are the results. Respondents were also asked: "If the U.S. government decides to take military action in Iran, would you favor or oppose it?" Seventy percent said they would oppose it.

Rejecting Bush

John Harwood writes in the Wall Street Journal: "A Wall Street Journal/NBC News poll shows that Americans have turned sharply away from President Bush and toward domestic issues favoring his partisan adversaries. Majorities believe the Iraq war can't be won and want most U.S. troops withdrawn by the dawn of a new president's term in 2009. . . .

"Just 20% of Americans said the next president should take an approach similar to Mr. Bush's, while 71% want a different approach."

The results show Bush's job approval rating at 31 percent, with 63 percent disapproving.

Bush on Oil

Here's another exchange from the press avail yesterday.

Question: "Mr. President, with oil approaching $100 a barrel, are you concerned that your hard words for Iran on its nuclear program are helping drive up oil prices, which can end up hurting the U.S. economy?"

Bush: "No. I believe oil prices are going up because the demand for oil outstrips the supply for oil. Oil is going up because developing countries still use a lot of oil. Oil is going up because we use too much oil, and the capacity to replace reserves is dwindling. That's why the price of oil is going up."

But experts agree that supply and demand is just one factor contributing to rising oil prices -- and maybe just a small factor in the recent price spikes.

For instance, as Steven Mufson wrote in The Washington Post last week, "traders who treat oil like any other commodity are widely thought to be driving prices upward, bolstered by a weak dollar and money flowing out of stock markets and other investment vehicles."

Some analysts think that as much as $40 of the per-barrel price increase is a result of the falling dollar.

And, as Mufson wrote last month: "Oil traders said that even if the chances of military conflict with Iran were small, the huge run-up in oil prices that would result encourages some speculators and investment funds to bid up the price of oil, adding a premium of $3 to $15 a barrel."

Torture Watch

Joseph Galloway writes in his McClatchy opinion column about why the Bush administration is so fixated on denying the obvious fact that waterboarding is torture.

Writes Galloway: "The president, Vice President Dick Cheney, and their cronies and legal mouthpieces such as David Addington, John Yoo and Alberto Gonzales are doing all they can to avoid one day facing the bar of justice, at home or in The Hague, and being called to account for crimes against humanity.

"They want a blank check pardon, and they'll continue searching for attorneys general and judges and justices and senators and members of Congress who'll hand them their stay-out-of-jail-free cards.

"As they squirm and wriggle and lie and quibble and cut deals with senators, they claim that 'harsh interrogation methods' are necessary to prevent another 9/11. But as terrified as they are by terrorists, they also fear that one day they may be treated no better than some fallen South American dictator or Cambodian despot or hapless Texas sheriff; that they might not be able to leave a guarded, gated compound in Dallas or Crawford, a ranch in New Mexico or the shores of Chesapeake Bay for fear of arrest and extradition."

Rosa Brooks writes in her Los Angeles Times opinion column that torture is the new abortion, in the sense that "the GOP has a new litmus test for its nominees: Will you or will you not protect U.S. officials who order the torture of prisoners? . . .

"But if the waterboarding debate has become a symbolic rallying point for Republicans -- emblematic of a broader insistence on aggressive unilateralism in foreign affairs and on executive power unchecked by Congress or the judiciary here at home -- it increasingly seems to be turning into a symbolic litmus test for Democrats too. . . .

"Far more than the abortion debate ever did, the debate about torture goes to the very heart of what (if anything) this country stands for."

Mon Diner Avec Bush

Agence France-Presse reporter Olivier Knox was one of two White House correspondents invited to the formal dinner for Sarkozy Tuesday night. (The other was CBS News's Bill Plante.) Knox tells Houston Chronicle blogger Julie Mason about his experience, and notes that "the two presidents may have made White House history by toasting with water glasses (neither drinks alcohol)."

He's the Chooser

Another excerpt from yesterday's press availability:

Bush: "You want to call on somebody?"

Sarkozy: "You know, in France, I don't choose, I don't pick the journalists."

Bush: "You don't get to choose? Who chooses? I choose? (Laughter.) Who would you like me to choose? (Laughter.) Oh, he chose. Wait a minute, it didn't last very long, did it?"

Sarkozy: "I didn't choose, I indicated a general direction. (Laughter.)"

Later, when Reuters reporter Tabassum Zakaria paused before asking her question, Bush chided her: "Get moving, will you?"

Cartoon Watch

Jim Morin on Bush's vetoes; Tony Auth on Bush's priorities; Tom Toles on oilboarding.

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