Bush's Disastrous Dollar Policy

WSJ: "Okay."

Here's Bush talking to CNBC's Ron Insana in April 2005:

Insana: "And some people are wondering if you are prepared to make a forceful statement or take forceful action to boost the value of the dollar and help drive down the price of oil."

Bush: "Right. Well, I, let me, I, I'll try to make a forceful statement right now. This government is for a strong dollar. We do believe the market ought to set the price of the dollar relative to other currencies, but we are for a strong dollar."

And here's Bush talking to reporters in December 2003: "[T]he policy, the stated policy -- and not only the stated policy, but the strong belief of this administration is that we have a strong dollar."

Neil Irwin writes in today's Washington Post: "The value of the dollar fell sharply yesterday, as did the stock market, after the Chinese government signaled that it might slow its purchases of U.S. assets. . . .

"Top Chinese officials suggested at a conference yesterday that they would direct more of their future reserves into European assets -- that the euro, not just the dollar, would increasingly be a currency of choice. For years, China has kept its currency artificially low relative to the dollar by buying hundreds of billions of dollars worth of U.S. assets, especially Treasury bonds. This has made Chinese imports inexpensive in the United States and made it cheap for Americans to borrow money.

"'We will favor stronger currencies over weaker ones and will readjust accordingly,' said Cheng Siwei, vice chairman of China's National People's Congress. Another official said the dollar was losing its position as the world's default currency. . . .

"A cheaper dollar was not unexpected when the central bank cut interest rates. In fact, it is one of the ways that lower interest rates stimulate the economy. . . .

"But a weak dollar could also spur inflation. Part of the reason that prices for oil and other raw materials have risen sharply in the past month is that the dollar is worth less."

Patrice Hill writes in the Washington Times: "A spokeswoman for Treasury Secretary Henry M. Paulson Jr. said he remains 'strongly committed to a strong dollar,' but the Bush administration has done nothing to prevent the currency's recent sharp drop against other major currencies."

So what happens if the central banks of Asian and oil-producing countries, which hold vast amounts of Treasury bills and the like, start losing their appetite for U.S. currency?