Republicans have been vigorously criticising the Obama administration regarding the weak US dollar. It appears as though Washington’s remarkable penchant for short memories remains intact.
It also seems odd that the Republicans, the party that has overseen nearly three decades of a depreciating US dollar, suddenly feels that a strong dollar is so important.
I have argued for many years regarding the benefits of a strong US dollar, and have been consistently critical of Messrs. Greenspan and Bernanke and a host of Treasury secretaries because of their attempts to solve the US’s economic problems via a weak currency. It is admittedly difficult for politicians to encourage significant structural changes in the economy because of the unemployment that accompanies such changes (some give kudos to Ronald Regan for doing so with respect to the US labour movement). I strongly doubt that any politician has ever been elected using a slogan “More unemployment for America.”
However, altering the US economy via the currency is more insidious. Voters rarely make the connection between a depreciating dollar and their depreciating standard of living. But they should.
A country’s standard of living depreciates as its currency depreciates. Although many like to say that the depreciating US dollar reflects the improving standard of living in the rest of the world and does not reflect any depreciation of US living standards, such claims seem false. The move within the US from one- to two-wage earner families has been a direct attempt by the household sector to maintain standards of living. The US obviously was not going to rescind child labour laws, so two-wage earner families began to leverage their assets when their standards of living continued to depreciate.
A review of history shows why the Republicans’ current criticisms are so astounding. The dollar experienced only two periods of meaningful appreciation during the last 30 years. The first was during the early years of the Reagan administration. However, that dollar rally was relatively short-lived and the dollar subsequently crashed. The second was during the second half of the 1990s under Clinton. Other than during those periods, the value of the US dollar fell.
In 1986 and 1987, I remember the Japanese auto makers claiming that they were preparing to compete with US auto makers because they thought the Yen would appreciate to 120 to the dollar from about 160. Americans dismissed such claims as being crazy. First of all, it was felt that the Yen would never appreciate to such an extent and, second, the Japanese companies would significantly suffer if it did. Today, the Yen is about 90 to the dollar, and it is our auto companies and not Japan’s that are suffering.
So, let’s set the record straight. The dollar has fallen for the majority of the time under Reagan, Bush I, and Bush II. Its longest period of appreciation in the last 30 years was under Democratic President Clinton. It may well be that President Obama follows the politically expedient route and weakens the dollar further. That would be an awful choice, in my opinion. Nonetheless, the Republicans have a lot of chutzpah to now lament the dollar’s decline given their considerable history as poor stewards of the dollar.
Richard Bernstein is the CEO of Richard Bernstein Capital Management LLC. He was previously the Chief Investment Strategist at Merrill Lynch, and is the author of Style Investing – Unique Insight into Equity Management and Navigate the Noise – Investing in the New Age of Media and Hype.