An Urban's Rural View

Promoting agricultural exports is to agriculture secretaries what mooing is to cows: It's what they do. But without taking anything away from Tom Vilsack, he has a rival in Washington for the title of No. 1 ag-export booster: Federal Reserve chairman Ben Bernanke.

A weak dollar makes our agricultural products more competitive internationally. And by holding interest rates low, pronouncing they'll stay low for many years and buying massive amounts of U.S. government debt, Bernanke's Fed has been keeping the dollar weak.

To be sure, American soybean growers outselling their Brazilian rivals isn't the kind of thing that keeps the Fed's governors awake at night. Their loose-money policy is aimed at encouraging bank lending and home buying domestically first and foremost, not at making American products more attractive overseas.

But a weak dollar comes with a loose-money policy as naturally as thunder comes with lightning. Keep U.S. interest rates low and short-term investment money flees from U.S. Treasury bills and notes to higher-yielding paper denominated in other currencies. The value of those currencies then rises against the dollar. In other words, the dollar weakens.

As you can imagine, foreign governments don't care whether the Fed intends for the dollar to fall or not. Regardless of the intent, and despite the Treasury's ritualistic assertions that the U.S. has a "strong dollar policy," foreigners complain the Fed is boosting U.S. competitiveness at their expense.

That, in turn, hints at the answer to two questions farmers might have at this point: Why aren't agricultural exports even stronger than they are? And which way is the dollar headed from here? The answer to both questions lies in what economists call "the race to the bottom."

The Fed, in other words, isn't the only central bank playing this game. So is China's. So is Japan's. So is Britain's. So is the European Union's. So are other countries'. The dollar isn't as weak as the Fed's policy would imply because other countries are keeping their currencies weak, too.

It would take an economist to do a proper study of the effects of these competitive devaluations, but the suspicion has to be that without them our agricultural exports would be stronger. If they continue, the dollar may not have much more downside.

The European Central Bank, ironically, has emerged as the least dovish of the bunch, which is why the dollar has been declining against the euro. How long this lasts is anyone's guess. If Europe's economy continues to struggle, we could lapse back into "euro-crisis" mode, which would shove the dollar back up.

There is one Washingtonian who has the potential to challenge Vilsack and Bernanke for the ag-export promoter title: Whoever ends up replacing the departing U.S. Trade Representative, Ron Kirk. Free-trade deals with Asia (now being negotiated) and Europe (negotiations not yet begun) could be very good for U.S. ag.

That's also why the next USTR will have so much trouble pulling them off: our counterparts don't want to give ground on ag issues and failure to make progress on those issues could doom any deal in Congress.

For now, at least, it remains Vilsack vs. Bernanke.

Urban Lehner can be reached at urbanity@hotmail.com

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