"We expect the markets to reflect the true value of currency - the way that currencies ought to be valued is based upon economic activity, a fiscal policy, monetary policy of the respective governments, the potential for growth, and the potential for long-term viability of economies that's how our respective currencies ought to be valued- (President Bush) .
Over the past two years the value of the American dollar relative to other currencies, such as the Japanese Yen and the Euro, has declined dramatically. Much debate has swirled around this topic. As the above quote from President Bush points out, the current administration that the value that a currency holds should continually change relative to other currencies based upon monetary and fiscal variables. The Bush administration's pursuit of a market driven value for the American dollar looks a lot like devaluation. Since July of 2001 the value of the dollar relative to the Euro gas declined some 31%, from a Euro buying 81 cents, to a Euro buying over $1.20. The fall of the dollar even seems contradictory. "The American economy and profits sprinting ahead, while keeping the Euro area's economies are barely able to maintain a walking peace and Japan is just getting off its knees. However, the falling value of the dollar, taken in the context of the United State's trade deficit makes perfect sense, and follows the economic theory." .
On the "Kudlow and Kramer" show on MSNBC both the hosts, not known for their great contributions to the economic or academic thought, opened on the trade deficit with china. Kramer used the current account deficit, currently at 5.2% of U.S. GDP, as an excuse to attack the policies of President Bush, who he blames for the deficit. Interestingly, neither host realized that a tidal wave of economic opinion is linking the falling value of the dollar to the huge current account deficit, the trade imbalance with China being only one component of which.
