King Dollar Politics Coming Into Focus for 2012

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The headline story in this morning’s Wall Street Journal is a beauty. Republican economists, hedge fund managers, and even some presidential candidates are blasting the Fed for its $600 billion QE2 pump-priming operation.

Quite sensibly, the group that signed an open letter to Ben Bernanke argues against dollar devaluation and inflation. At least a couple of the signees are Democrats. Following Sarah Palin’s Bernanke broadside, potential presidential candidate Mike Pence is on the hustings attacking the central bank.

All this is good. King Dollar politics.

During the 19th century, many presidential campaigns were fought on the issue of the dollar and its gold or silver backing. So history may repeat itself. Will we have Keynesian fine-tuning, or stable money backed by commodities including gold?

Here’s another reason why the Fed should cease and desist: There’s more evidence that the economy looks to be picking up. Today’s retail sales report showed a 1.2% rise for October, pointing to an 11.8% annual increase over the last three months. Core retail sales that feed into GDP increased 6.3% annually over the past three months.

This won’t calculate into the 6% or 8% recovery growth that the country really needs. But it does look like business and consumer confidence improved in the run-up to the GOP election sweep.

It’s worth noting that incomes are rising a bit faster, with hours worked combining with wage increases to produce some spending power. Of course, cash-rich companies remain highly profitable.

Meanwhile, on the inflation front, the CRB futures index is up 11.5% over the past twelve months. So does the Fed really want to ease into an improving economy, backed by an ominous commodity increase?

Final point: With better economic stats, the U.S. dollar is rising, not falling. And long-term bond rates are rising, not falling. Along with a better economy, the consensus has it wrong, at least for the moment. Go figure.

Mr. Kudlow is a frequent contributor to The New York Sun.

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