U.S. law still may authorize seizure of gold and silver; GATA queries Treasury

Section:

By Mark Landler
The New York Times
Thursday, January 27, 2005

http://www.nytimes.com/2005/01/27/business/worldbusiness/27econ.html?

DAVOS, Switzerland, Jan. 26 -- Two things were as clear as the Alpine
air on the opening day of the World Economic Forum on Wednesday: The
relentlessly sinking dollar is Topic A, and anyone hoping for an
answer to when it will stop dropping is likely to come away
disappointed.

Economists, politicians, and business executives voiced deep unease
about the imbalances in the global financial system, which are
reflected in the dollar's steep fall against the euro and other
currencies.

But most expressed skepticism that the Bush administration would
reduce the trade and budget deficits, which have fed those
imbalances. The White House has said that it does not view these
issues as a major problem because foreigners still view the American
economy as an attractive investment.

Some at the forum said they doubted that China, which is financing
much of the American debt, would bow to pressure to allow its
currency to rise against the dollar this year.

"The U.S. current-account deficit is a problem for the whole world,"
said Jacob A. Frenkel, a former governor of the Bank of Israel. But,
he said, "I don't see the budget deficit being taken seriously."

The Bush administration, which dispatched Vice President Dick Cheney
and Secretary of State Colin L. Powell to past Davos meetings to
defend the Iraq war and other foreign policy actions, has not sent a
similarly prominent economic policy maker to this gathering. That
absence has lent the proceedings an imbalanced tone.

"In fairness, it's a transition period in Washington," said
Representative Barney Frank, Democrat of Massachusetts, who supplied
the American voice on a panel about American leadership. He added,
however, "The administration doesn't really have anyone they trust
enough to send here."

Mr. Frank, the ranking Democrat on the House Financial Services
Committee, said that he worried that the United States was not paying
enough attention to the risks of its growing indebtedness. The
repercussions of a weak dollar, he said, had barely registered with
the White House.

Other critics were blunter.

"There's nobody home on economic policy in America right now," said
Stephen S. Roach, the chief economist at Morgan Stanley. The twin
burdens of household and public debt in the United States, he said,
are unsustainable. Describing American consumers as "an accident
waiting to happen," he asked, "When does the music stop?"

With the dollar already trading at $1.30 to the euro -- near the
level of economic unacceptability for Europe -- Mr. Roach said the
United States could not rely on currency markets to right the
imbalance between it and the Asian countries that finance American
deficits by buying Treasury bills.

The answer, he said, lies with the Federal Reserve, which he said
would have to raise rates aggressively to curb the spending binge.
Whether it could do that without triggering a recession is an open
question.

Few here held out hope for international coordination of the kind
that stabilized the dollar in the 1980s.

"The Bush administration doesn't listen to people," said Laura D.
Tyson, who served as an economic adviser to President Bill
Clinton. "There's no hope of changing U.S. fiscal policy."

Professor Tyson, who is dean of the London Business School, said
European leaders needed to stop worrying about the actions of other
countries and set about streamlining their own economies. She pointed
to recent wage negotiations in Germany, in which the unions agreed to
longer hours and more flexible work rules, as a hopeful sign of
change.

Certainly, Europe cannot rely on Asia to take the pressure off the
euro. While people here said they were guardedly optimistic that
China would eventually allow its currency, the yuan, to rise against
the dollar, few were willing to hazard a guess as to when - or to
what extent.

"That will need a political commitment and a political will, and I
don't see that happening this year," said Takatoshi Ito, a specialist
in international economics at the University of Tokyo.

Some economists warned that the expanding trade deficit and weak
dollar could cast a shadow over negotiations to liberalize world
trade, which have been dragging for various reasons in the last year.

China's record trade surplus with the United States could fuel
protectionist forces in the United States, said C. Fred Bergsten, the
director of the Institute for International Economics in Washington.
He said he could foresee moves to impose import barriers on Chinese
wood and shrimp. "This is a poisonous environment for trade policy
and for domestic politics in the United States."

In the last couple of years, with the White House's march to war in
Iraq, Davos itself has been a rather poisonous environment for
Americans. Those tensions have ebbed this year, although some non-
Americans here were talking about the emergence of informal
alliances -- like those occurring between China and the European
Union -- that leave the United States on the sidelines.

"In recent years, our leaders have felt more comfortable talking to
European leaders," said Yuan Ming, the director of the Institute of
American Studies at Peking University. "The United States could be
our biggest partner, but it could also be our biggest troublemaker."

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