Steps must be taken to restore confidence in dollar

THE ISSUE Hawaii has experienced price increases in oil and other items as the government struggles to deal with a declining economy.

AS gasoline prices in Hawaii and across the country have soared, so have other items, from agricultural products to metals. But this doesn't reflect supply and demand, nor is oil the tail wagging the dog. Instead, the price increases of commodities and the downturn in housing costs result primarily from the plummeting of the dollar in the world market and point to the need for policies to restore confidence in U.S. currency.

Crude oil futures have increased by more than $8 this month to a record $122 a barrel before sagging to below $106 in New York trading. In the past year, monthly electricity rates in Manoa rose from $151 to nearly $218, a half-gallon of milk increased from $4 to $5, roundtrip airfares between Honolulu and Las Vegas jumped from $445 to $504 and the cost of shipping a car from Honolulu to the West Coast went from $975 to $1,055.

Meanwhile, the dollar has become worth less than the Australian dollar, the Swiss franc or the Canadian loonie and far less than the euro. If the dollar had kept up with the euro since this decade began, today's price for a barrel of oil would be closer to $70. It follows that any increase in the cost of electricity, milk, airfare and shipping in Hawaii may have been negligible.

The decreased value of the dollar might be beneficial to Hawaii's tourism industry, making vacations cheaper for visitors from Europe, Australia and Asia, but that pales in comparison to the falling value of the dollar.

Of more importance, investors are withdrawing their capital in American investments and turning to other currencies and reliable nest eggs such as gold, which has grown in value from $700 to $1,000 an ounce in the past six months. That could turn sour visitation to Hawaii from the mainland, the main source of tourism.

In addition, demand for oil will require greater supply. Demand has increased by 1.5 million barrels a day in the past 10 years and might continue to do so during the next decade, with the growth of Chinese, Indian and other emerging economies, according to Forbes magazine.

The seriousness of the problem became clear over the weekend, as Bear Stearn, the prominent Wall Street investment bank, was thrown on the brink of bankruptcy, resulting in a Federal Reserve-backed buyout by JP Morgan Chase. The assumption that its mortgage-backed securities were safe turned out to be mistaken.

President Bush welcomed Treasury Secretary Henry W. Paulson Jr.'s assurance "that our financial institutions are strong and that our capital markets are functioning efficiently and effectively," but that remains to be seen. Economic policy finally has risen to the forefront of this year's presidential campaigns.