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Is foreign debt a wolf at the door?
By Glenn Somerville
Monday, November 1, 2004
WASHINGTON -- The Bush administration's retooled
rhetoric supporting a strong dollar while ceding control
to markets may be around for some time regardless
of the outcome of Tuesday's election.
The current incarnation of the "strong dollar" policy
policy allows Treasury Secretary John Snow to maintain,
as he did last week, that the United States stands
behind a strong dollar without having to raise the
imminent threat of intervention to prove it.
At the same time it imposes no impediment to further
falls in the dollar -- something several Federal Reserve
officials and economists say is needed to curb a swelling
"We support a strong dollar but we feel that a currency's
exchange value ought to be set in open and competitive
currency markets," Snow said on a visit to Cedar Rapids,
Iowa, to support President George W. Bush's re-election.
Even if Democratic challenger John Kerry wins, Snow
would head the Treasury and retain responsibility for
dollar policy until power changed hands next January.
Snow modified the "strong dollar" mantra early in 2003,
by telling lawmakers in February there was "no
conscious policy on the part of the United States ...
to move the dollar at all."
Two months later, he said in Deauville, France, that the
dollar's value partly "reflects the fundamentals of the
demand and supply for currencies."
That formulation, which Snow's predecessor, Paul
O'Neill, was unable to achieve without roiling markets,
gives full leeway for a currency adjustment many think
"Over time, there is only one direction for the dollar to
go -- lower," the president of the Dallas Fed, Robert
McTeer, said in New York last month.
He was referring to the need to cut mounting U.S.
deficits on current account, the broadest trade
measure, suggesting that a dollar fall would help by
making imports more costly and exports more
The dollar gained against major currencies on Monday,
but that was after falling last week to six-month lows
against the yen and eight-month lows versus the euro.
The policy originated in the 1990s when Treasury chief
Robert Rubin honed the refrain "a strong dollar is in the
U.S. national interest" to the point of caricature.
Still, that did not keep Rubin, who now advises Kerry,
from making his own modification in early 1997, by
adding that "the dollar has been strong for some time
now" when he wanted to cap its rise. However, the
economy was booming then and not encumbered as
it is now by record budget and trade deficits.
"What we're seeing now is a confluence of events,
driven by market forces, that feels the dollar's value
should fall," said Joseph Quinlan, chief market
strategist with Banc of America Capital Management
in New York.
He said a fall also would boost overseas earnings of
some 22,000 foreign-based affiliates of U.S. firms.
Snow's currency creed is little different from Rubin's,
or that likely to be followed by any Treasury secretary:
acknowledging the currency's fate is determined by
economic circumstances at the time.
Snow's basic contention is that U.S. investment
opportunities remain so attractive that foreigners will
keep pouring money into the United States, keeping
dollar demand healthy enough to ward off any swift or
His sanguine take on the trade gap may stir unease
among America's trade partners, many of whom will
have a chance to discuss it at a meeting of the Group
of 20 in Berlin this month.
But a cheaper dollar may deliver fringe benefits for
the global economy by encouraging America's trading
partners to pursue measures aimed at boosting
domestic demand rather than depending on the
insatiable U.S. consumer.
"We believe renewed U.S. dollar weakness -- occurring
in a gradual, orderly fashion -- is just what the United
States and the world needs at this juncture," said Banc
of America's Quinlan.
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