The biggest story out there right now has got to be the re-emergence of King Dollar. This could be a major game changer for both Wall Street and Washington. All the dollar bears from the beginning of this year, and all the gold bulls, have been completely and utterly wrong.
Now, why is this? Is it Fed head Ben Bernanke's monetary restraint? Nope. Is it Tim Geithner's spirited dollar defense? Nope. It's Greece, Portugal, Italy, and the sinking euro, which has dropped 12 percent from early December. And there's no end in sight.
Unsurprisingly, the broad dollar DXY index is up 10 percent, reversing a 17-percent drop from March to November of last year. Gold, meanwhile, is off 12 percent.
Now you know me: I love King Dollar. You can't have a growing, healthy, free-market, supply-side, capitalist economy without a reliable currency. I learned that from Ronald Reagan. But this King Dollar story is getting a little weird. After all, the Fed is still pumping out money like there's no tomorrow. Its balance sheet is still growing. Meanwhile, tax rates are going up, not down.
But here's the key point: the euro is going down -- more. And this could wind up being a big game-changer for investors.
By the way, Ben Bernanke is being bailed out by this cheap euro, the same euro that can't seem to bailout its weakest European sisters. It's a very strange story. As I've said before, Mr. Bernanke ought to go to the Greek Parthenon and genuflect over the weak euro bailing out his super-easy money policy.
A high dollar can suppress nascent inflation pressures. And if you take a look at February, you'll see that price indexes came down. (They had been rising for several months.) So without inflation worries, a high dollar gives Mr. Bernanke a lot of zero-interest-rate running room for as far as the eye can see.
The question is whether a high dollar is in fact good for stocks and economic growth, because oftentimes a rising currency can be deflationary. A lot of people on Wall Street are shying away from the so-called "risk trade," meaning stocks, in favor of the dollar trade.
Speaking of deflation, is the Chinese renminbi going to be revalued in order to choke off inflationary pressures in China? If you think all this currency talk is confusing, join the crowd.
To sum up, as a good free-market supply-sider, I want a reliable King Dollar and low marginal tax rates to spur economic-growth incentives here at home. Now, I may get the former, but I am probably dreaming on the latter.
But then again, despite Obamacare's tax-and-spend big-government policies (which remind me of the Eurozone), we could get free-market banking reform if Sen. Chris Dodd stays with me and ends too-big-to-fail. Could we be looking at the Dodd Dollar? Think of that one.
This article first appeared on Kudlow's Money Politic$.