Kicking Dubya when he's up. Why it's time now to "do windows." (From The Founder).

• Author: Smick, David M.

People say Washington today is like a replay of the first Bush Administration. Actually the current team appears increasingly to be a return of the Ford Administration. This is not to knock age and experience. Still, it is important to remember that with today's economy at least, things bear little resemblance to the mid-1970s.

Today information is arbitraged by markets not over days and weeks but within hours. Today's Treasury Secretary (the ultimate market "horse whisperer") is now a premier actor on a highly leveraged, information-driven global stage. It is a stage in which capital flows heavily drive trade flows, often based on short-term perceptions of the future provided by policymakers themselves.

Looking back, if the Bush team has made one mistake, it is to see the top Treasury job largely in domestic terms. Too often the important global questions have remained unaddressed, ignored by an attitude that says as far as international economics and the dollar are concerned, "We don't do windows." Consider a few of the many questions the new Treasury chief must confront:

* Are Chinese-bred deflationary pressures becoming a dangerous, destabilizing global force? To be sure, Chinese companies themselves lack global reach. But are European, Taiwanese, American, and particularly Japanese firms another matter as they use China with its virtual zero marginal labor cost workforce as a manufacturing base and inevitably export deflation? Recently, even a large firm in Mexico closed its doors and moved to China. The reason: a labor cost of $2.00 versus $3.50 per hour.

The problem here is not Chinese labor but the lack of much of a central bank response to this shock to the system. Instead of adjusting to the global benefits of a large price decline, the international central banking community, with the exception of Alan Greenspan, appears to have failed to adjust the system adequately to this new reality.

Then there is the question of the Chinese currency itself, still tied to the U.S. dollar. With the world's second largest economy described now as being "hollowed out" by low-cost Chinese competition, and with Tokyo in response tempted to try to drastically depreciate the yen against the world (which risks undermining the banking structure; see below), wouldn't it make sense first to examine whether the Chinese currency is grossly undervalued?

* Isn't the Japanese bank problem simply too big to fix short of a severe weakening of the yen...