Falling Dollar
The dollar is hitting all-time lows against the Euro. Here is an excerpt from a James Fallow article in January / February's Atlantic magazine:

When the dollar is strong, the following (good) things happen: the price of food, fuel, imports, manufactured goods, and just about everything else (vacations in Europe!) goes down. The value of the stock market, real estate, and just about all other American assets goes up. Interest rates go down—for mortgage loans, credit-card debt, and commercial borrowing. Tax rates can be lower, since foreign lenders hold down the cost of financing the national debt. The only problem is that American-made goods become more expensive for foreigners, so the country’s exports are hurt.

When the dollar is weak, the following (bad) things happen: the price of food, fuel, imports, and so on (no more vacations in Europe) goes up. The value of the stock market, real estate, and just about all other American assets goes down. Interest rates are higher. Tax rates can be higher, to cover the increased cost of financing the national debt. The only benefit is that American-made goods become cheaper for foreigners, which helps create new jobs and can raise the value of export-oriented American firms (winemakers in California, producers of medical devices in New England).

You can read the whole article here. It is a sobering read and I need to re-read it. Another benefit implied at the end of the second paragraph is that a weak dollar helps corporate profits and earnings per share of multi-nationals. (Checkout the two-year stock chart on Coca-Cola (KO) to see the benefit of a falling dollar.) A falling dollar is also good if you own unhedged foreign mutual funds.

It has been this blog's opinion that tax cuts, a falling dollar (that makes for good corporate profits) and consumer spending (debt be damned - i.e. house as a bank with exotic mortgages as the finance source) have been the Bush Administration's economic policies. These are tenuous policies at best. All provide short-term benefits but none have a lasting impact on the economy. Some will argue that tax cuts provide long-term benefits, but I think tax cuts are absorbed quickly into the economy and spending and saving habits revert to pre-tax cut levels. The Bush Administration's economic policies are like Chinese food or cotton candy - both sound good before you eat them, but neither are good for you, and when you are finished you realize you're still hungry.

The next president will have to make tough economic choices. The economy will not be strong enough to raise taxes. Curbs on government spending will have to make up for lost tax revenue. The market will take care of consumer spending - by choking it to death. The house as a finance tool is gone for now and won't be back for several years (but it will be back in some version). The easiest course will be a policy to support a strong dollar. It is not in this country's best interest to have the dollar fall much further.