[lbo-talk] no worries in Washington about falling dollar

[Doug Henwood]

U.S. Not Seen Worried About Dollar Drop
Thu Jan 1,10:35 AM ET

By Glenn Somerville

WASHINGTON (Reuters) - The U.S. dollar's steady decline in value 
against the euro and other key currencies may cause agony in European 
capitals but there is little sign it is rising to the level of a 
major policy concern in Washington.

Analysts say the steady depreciation not only remains orderly but 
also carries the potential to help America get its whopping trade and 
current account deficits, which are widely criticized in Europe, back 
into better balance.

"I think on balance there are far more positives for the United 
States in what is going on in currencies than there are negatives," 
said economist Greg Valliere of Schwab Washington Research Group.

The euro broke above a $1.25 barrier for the first time on Monday and 
late on Tuesday was trading at around $1.2550. The euro's strength, 
and the dollar's dive, comes ahead of a Feb. 6-7 meeting in Boca 
Raton, Fla., of Group of Seven finance ministers where currency 
issues always are discussed.

The G7 consists of the United States, Britain, Canada, France, 
Germany, Italy and Japan.

SHIFT IN RHETORIC

In just under a year since taking office last January, Treasury 
Secretary John Snow has toned down the former hard-line U.S. 
commitment to a "strong dollar," effectively endorsing the fall by 
saying the its value "reflects the fundamentals of the demand and 
supply for currencies."

Snow replaced former Treasury Secretary Paul O'Neill, who resigned 
under White House fire before Christmas last year.

"Long term, the weakness of our trade and current account imbalances 
meant we had to reverse course (on currency policy) so what we're 
seeing is a natural process and not something that should cause a lot 
of alarm," said Greg Mastel, an international trade adviser with 
Washington law firm Miller and Chevalier.

"It makes sense, given that inflation has been low and interest rates 
are at low levels, so under those circumstances a logical response 
would be to favor a weaker dollar," Mastel added, since it means 
there is little or no risk of importing price pressures and a better 
chance of boosting U.S. exports.

Economist Allen Sinai of Decision Economics Inc. in Boston wrote this 
week that the Bush administration had an evident policy of "benign 
neglect, if not outright approval" of a cheaper dollar.

WEAKNESS MASKS STRENGTH

He added the U.S. stance was a legitimate one.

"It is patently clear that the administration does not mind a 
declining dollar, so long as it is 'orderly'," Sinai said. "At this 
stage, a lower dollar should increase exports, help manufacturing, 
increase U.S. economic growth, not be a problem for inflation and if 
financial troubles occur, they would only do so from time to time," 
Sinai said.

Valliere similarly said that he saw no indication of official unease 
over the dollar weakening, possibly because there seemed to be no 
likelihood of a surge in inflation as can happen when a cheaper 
dollar makes imports more costly.

"The more relevant point might be whether the Europeans or Japanese 
start to cry 'uncle' and ask for coordinated intervention or for Snow 
to at least say the dollar slide has gone far enough," Valliere said.

"But frankly, I don't see any sign that this is becoming a major 
issue for Washington," he added.