Share this story
Close X
Switch to Desktop Site

The dollar falls, and Treasury stands aside

Currency is down 22 percent since January of 2002. White House insists there has been 'no change' in policy.

About these ads

In a significant shift, the United States is backing away from verbal support of the dollar - a move that will affect everything from the European economy to home mortgage rates in Kansas.

For the past eight years, Washington has considered it important that the US dollar remain strong compared with other currencies. Now it is apparently less willing to define the greenback in terms of yen, euros, or pounds sterling and instead is using less tangible measurements.

The result: The dollar, which has already fallen 8 percent in two months, is likely to drop even more. The move may help the US economy by boosting exports, allowing American companies to book more orders for everything from aircraft to bulldozers.

Yet it will likely hurt the already fragile European economy. It will make it more difficult for overseas firms to sell goods here and further curtail US tourism abroad.

At the same time, the move could rattle the US financial system. With a trade deficit of about $42 billion per month, the US has to attract foreign capital to finance the yawing gap. Much of the foreign money that comes in gets invested in US stocks and bonds.

"This is a dangerous policy because the US is addicted to capital," says Robert Brusca, an economist with Native American Securities. "And people don't like to invest their money here and find out they have an instant loss."

The subtle change came out of a meeting of the Group of Eight finance ministers over the weekend in Deauville, France, where Treasury Secretary John Snow signaled the US would no longer defend verbally the greenback as it falls in value. Instead, he said the dollar should be viewed in terms of the more generic "public confidence" and resistance to counterfeiting.


Page:   1   |   2   |   3

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.