Monday, October 5, 2009

How can the U.S. Congress help strengthen the dollar?

By Money Matters Editors

One of the ways the U.S. government can strengthen the dollar is an obvious one: cut the budget deficit, including a tax increase to pay for the Iraq War and Afghanistan War.

The U.S. Congress made many policy mistakes in the past eight years prior to the Obama administration, and one of them was spending money on the Iraq War and Afghanistan War without first raising a tax – an income tax or otherwise – to pay for it.

The result? More than $1 trillion was added to the national debt and the dollar has fallen against most of the world’s other, major currencies. The latter’s depreciation was help boost the price of oil, current around $70. (Among other factors, oil prices tend to rise as the dollar falls because the dollar is priced in dollars.)

Income taxes won’t be raised any time soon, due to the fragile, nascent economic recovery, but after the recovery is underway, the budget deficit has to be cut to strengthen the dollar – and that means a tax increase along with spending cuts, and health care reform to decrease the cost of Medicare – and hopefully Medicaid – on an outcomes achieved basis.

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