Notes on the Revolution XI/Dollar/Yen
Jude Wanniski & David Gitlitz
April 28, 1995



MEDICARE: The Wall Street Journal editorialized Monday on the determination of the Republicans to bravely march into fixed bayonets in order to “transform” Medicare. On Wednesday, Senate Republicans announced the bayonet march will be postponed until at least May 8. Why? Because the White House next week hosts a conference on aging. GOP political advisors do not relish a concurrent Senate vote on Senate Budget Committee Chairman Pete Domenici’s plan to cut $250 billion from Medicare by the year 2002. In fact, GOP political advisors would like Domenici to postpone a vote until, say, 1997. Instead of this maniacal resolve to lay out a grisly balanced budget scenario before the summer recess, seasoned politicos at the Republican National Committee would prefer to spend the next two years in public discussion about the deplorable state of Medicare’s finances. They are afraid Domenici’s mania would infuriate the seniors. Just as Hillary Clinton’s secretive task force on health care produced a scheme that disintegrated when the public got a look at it, the GOP financial reforms of the system, hatched in private working sessions, would quickly be demolished. The White House, with bayonets fixed, is grinning from ear-to-ear. 

SENATE RETREAT: Senate Republicans have gone into a private weekend retreat to contemplate the bayonet charge. It is really the first time since November 8 that Republicans in both houses are reassessing their reading of the electoral mandate that gave the GOP control of Congress for the first time in 40 years. At the time, my reading was that the voters primarily wanted to alert their representatives in Washington that they did not want to go in the direction the Clintons wished to head us. It also seemed that insofar as the fall campaign was described as a referendum of Reaganism vs. Clintonism, Reaganism won. Newt Gingrich’s Contract With America looked like it could well be a Reagan progeny, but the stress on budget balancing and smaller government has been clearly identified with the early Reagan who was identified with first mate Barry Goldwater. The part of the Contract that is identified with economic growth -- and the later Reagan identified with second mate Jack Kemp -- has thus far been downplayed. RNC Chairman Haley Barbour, who knows that Reagan-Goldwater did not play as well as Reagan-Kemp, is trying to figure out how to get from one to the other. He will be speaking to the Senate Republicans this weekend. 

CLINTON: The President enjoys his first 50% approval rating following his handling of the Oklahoma City bombing. The President’s team is also cheered by the NBC/Wall Street Journal poll, conducted April 21-25, that shows him defeating GOP frontrunner Bob Dole by 45% to 43% in a presidential matchup. No other Republican comes close. In a three-way race with Colin Powell, Clinton wins with 35% to Dole’s 28% to Powell’s 23%. Dole is favored by 58% of Republicans and independents polled when matched among other Republicans for the GOP nomination. In a question, “the best age for a president of the U.S.,” 47% say someone in their 50s, 26% say someone in their 40s, 14% say someone in their 60s, and 1% say 70s. White House insiders expect the President’s numbers to improve further as the Republicans present their balanced-budget solutions. The White House Bulletin today reports that one official “said such issues as Republican efforts to balance the budget by reducing Medicare expenditures ‘will make the Republicans look like the extremists we have been calling them.’” 

FORBES: Our discussions with Malcolm Stevenson Forbes Jr. on why he should seek the GOP presidential nomination are continuing. I expect he will soon decide, sometime in May, whether or not to formally announce that he is seriously considering entry. I spoke to him today soon after he returned from Tokyo, where he spent the week looking after the Japanese-language edition of Forbes. This evening he gets back on The Capitalist Tool for a quick trip to Israel for weekend discussions on how to replace socialism with entrepreneurial capitalism. He would be even more effective, I suggested, if he showed up in Air Force One.

Jude Wanniski


The greenback’s rebound this week to around 84 yen has been substantially aided by what appears to be an adjustment in the Bank of Japan’s operating stance, along with signs of a recovery in the marginal demand for dollar liquidity. After steadily draining some 10 trillion yen in the month leading up to the dollar touching 80 yen early last week, the BoJ has on a net basis injected more than 4 trillion yen since April 20. As yet, we cannot state unequivocally that this represents a purposeful shift in policy to increase the availability of yen liquidity. It could, we recognize, simply reflect a technical adjustment in routine procedures. (In Tokyo trading last night, for example, the central bank drained 1 trillion yen.) Still, the market’s response to the changing pattern of operations is clear. Bias toward expectations of a weaker yen is also supported by reports that Japanese gold purchases are surging. March purchases of more than 36 metric tons were triple year-earlier levels. (There are roughly 115,000 metric tons in existence.) This suggests, on the one hand, that the yen’s extraordinary deflation is giving Japanese investors a tremendous incentive to buy commodities on the cheap. But it is also an indication that the smart money (including the BoJ, perhaps?) is betting on a weakening of the yen and accompanying rebound in the yen price of gold to at least 35,000 from its currently depressed level of around 32,000. Meanwhile, the dollar price of gold giving back part of its recent gain to drop below $390 this week encourages us that the relative demand for dollar liquidity is on the rise. If you recall, we suggested that a weakening of the yen against the dollar would likely produce a lower price of gold in dollars, because of the effects of currency substitution. A dollar recovery can also be seen in figures released yesterday showing that the Fed’s custody holdings of dollar reserve assets for foreign central banks dropped by more than $9 billion last week. These central banks’ holdings had surged by $30 billion since early March, reflecting their absorption of excess dollars. A continued reversal of this build-up will signal restored global investor demand for dollar holdings.

David Gitlitz