If we were President Bush - a stretch, to be sure, but all the greater the honor - the thing that we'd be worried about these days is less the war than the dollar. For every senator and editorial writer wringing his hands over the war, it is possible to find someone sending in an encouraging report from the theater. But when it comes to the greenback, the president's policies, or America's (take your pick), don't seem to be getting much respect.
James Grant, writing on these pages last week, pointed out that over the course of Mr. Bush's presidency, the value of the dollar has plunged 46% in terms of the metal that is the greatest store of value. And if it keeps going in this direction, as our Dan Dorfman reports this morning that several experts reckon it will, Mr. Bush will leave his presidency with America's currency a shadow of what it was when he first took the constitutional oath.
Now it is true the greenback has been holding its value against the Euro and the Japanese Yen and, for that matter, the communist Chinese scrip. But that's not much of a compliment. The Red Chinese are fixing to a basket of currencies that includes the dollar, and the economies of Japan and Europe, meaning, in the latter case, principally the Germans, are textbook weaklings. And it is also true that it was not to the president that the Founders of America delegated the power to fix the value of the dollar.
That power was, in Article 1, delegated to the Congress, which has long since abdicated by delegating the management of the currency to the Federal Reserve. And it is also true that Mr. Bush would be far from the first war-time president who saw the value of the dollar decline on his watch. Franklin Delano Roosevelt gave up control of the dollar, as did, notoriously, President Nixon.
All that notwithstanding, the value that has moved from the dollar to gold cannot be good for Mr. Bush's reputation. It may be, as some suggest, that the dollar, at about a 265th of an ounce of gold, was, when he took office, over-valued. It's not a concept that sits comfortably with us, but there is a school of thought that reckons a good place for the dollar to have been managed would have been at something close to a 350th of an ounce of gold.
Even if one accepts such a view, a dollar that is worth less than a 500th of an ounce of gold is something Mr. Bush is going to have a hard time explaining to his grandchildren - not to mention the rest of us. With three years left to go in Mr. Bush's presidency and the gold value of the dollar collapsing, something, as Mr. Dorfman writes, "certainly seems out of whack."
Mr. Dorfman quotes Frank Holmes of U.S. Global Securities as pointing out that whenever inflation, as measured by the Consumer Price Index, is greater than the Federal Funds rate - which Mr. Dorfman notes is currently the case - the price of gold tends to rise because of the negative return on cash. It wouldn't surprise us were Mr. Bush to understand this. He picked, in Ben Bernanke, a Federal Reserve chairman who has a record of understanding the importance of constraining changes in the values of a currency. Mr. Bernanke has supported a regime of monetary management known as inflation targeting. Inflation targeting tends to be about domestic goals, that is, how much prices go up in a certain time frame. We'd like to think at some point he will want to, or have to, pay attention to the gold price.