From Bloomberg, I quote our Treasury Secretary:

?I believe deeply that it?s very important to the United States, to the economic health of the United States, that we maintain a strong dollar,? Geithner told reporters in Tokyo today.

Before I write, I can hear my friend Caroline Baum of Bloomberg gearing up her mental energies to say something like, “Again?? How many times can they say that with a straight face?”

If I wanted to create a strong dollar, what would I do?

• I would have the Fed raise short-term rates.
• I would reduce the creation of dollar claims by bringing the Federal budget into balance.

Neither of these are realities.? Thus the weak dollar.

But perhaps there is another way, and if you are reading me at the Treasury, please listen.? The idea is to make the countries that have acquired a lot of Dollar obligations realize that they are likely better off acquiring goods and services from the US now, rather than at a lower exchange rate later.

There is brinksmanship here, but when I was a bond trader, I could make it happen.? In the present context, there is no value to piling up more dollar obligations in exchange for goods today, unless one has a domestic political agenda to fulfill.

Now, with Japan and China, (and OPEC) both should be encouraged in this way.? Buy today, your dollars will likely buy less tomorrow.? That one action would restore balance to the global economy, as less business would be done on a credit basis across nations.

After that, the harder problem of dealing with structural US budget deficits becomes paramount.? What do you do with a government that has promised more than it can deliver?? The French Revolution comes to mind, but maybe we can do something more gentle.? The President addresses the nation, and tells the Baby Boomers that benefits from Medicare will be reduced.? It becomes a small medical needs and hospice program.? The nation can’t afford anything more, and if you were paying attention, you knew that.? Oh, and the foolish Part D, created by Bush gets eliminated, with no replacement.

As for Social Security, it becomes means-tested, and becomes an old age welfare program, complete with stigma.? “If you are receiving Social Security, you couldn’t have done that well.”

If we take actions like that, the US can survive.? Short of that, we face significant inflation, and a greater diminution of our living standards.

Until then, whoever is our Treasury Secretary will go around the world and say, “The US is committed to a strong dollar.”? And this is a valuable service.? We all need fairy tales to help us fall asleep easily at night, both here and abroad.