Out with the old, Democrats as the tax-and-spend party. In with the new, the GOP as the borrow-and-spend party. -- The deficit.

New York Times editorial (11-13-04):

As the Dollar Declines

For all its professed desire for a strong dollar, the Bush administration has apparently decided that letting the dollar slide is a good way to shrink America's trade deficit. This is dubious economic policy. It provides a modicum of relief to American exporters, but it increases the nation's vulnerability to higher prices and higher interest rates, while ignoring fiscal measures that would more assuredly anchor the United States in the global economy.

The dollar, which has declined nearly 30 percent against the euro since President Bush took office in 2001, fell to a record low this week. The decline has not been as marked against other currencies, largely because China and Japan prop up the dollar by investing heavily in United States Treasury securities - in effect, lending us money so we can buy their goods. Meanwhile, the Treasury secretary, John Snow, has largely eliminated the phrase "strong dollar" from his workaday vocabulary.

The underlying problem is that deficits in America's global transactions are at record levels, putting Americans at risk of either a slow deterioration in living standards or abrupt spikes in inflation and interest rates. There are three ways to get that deficit down: America can reduce the federal budget deficit, thus lowering the amount of interest we pay foreign countries to finance that deficit; trading partners like Europe and Japan can expand their economies, increasing their demand for American goods; or America can allow its dollar to fall to increase its exports.

The only lasting remedy is to reduce the federal budget deficit. That, in turn, calls for specific policies, like - we may have mentioned this before - rolling back the Bush tax cuts. Letting the dollar weaken is a far less responsible approach, an unwieldy and risky attempt to reduce the trade imbalance without the political pain of deficit reduction.

During the Bush years, 92 percent of the nearly $1 trillion increase in publicly held debt has been financed by foreign lenders. Foreign ownership of Treasuries has tripled from the peak of the Reagan deficits in 1983. Because of this enormous dependency, anything that might affect foreign lenders' willingness to invest in Treasuries - including dismay over the United States' long-term fiscal disarray, better investment opportunities elsewhere, or geopolitical or economic strife - could cause the dollar to tank.

No one knows if or when that would actually happen, though the dollar's slide since the election doesn't inspire confidence. But we do know that financial flows are quick and unsentimental. A fiscal policy that esteems controlling the deficit over tax cuts is the best way to avoid a debilitating dollar decline.

There is truth to the complaint that countries in Europe and elsewhere are not doing enough to bolster consumption within their own economies. But there's precious little the United States can do about it. Instead of complaining, Washington should get its own affairs in order.

The president, wed as he is to deficit-bloating policies, is not likely to step up to that responsibility without a stern shove from Congressional Republicans and Democrats alike. While they're at it, they should press Mr. Bush to choose Treasury officials who are true economic stewards, not merely cheerleaders for his "tax cuts above all" policies. If leadership is not forthcoming, the invisible hand of the global financial community is all too likely to provide the push.