Newspaper article THE JOURNAL RECORD

Dollar's Drop Could Kill World's Economic Recovery

Newspaper article THE JOURNAL RECORD

Dollar's Drop Could Kill World's Economic Recovery

Article excerpt

By Bernard D. Kaplan

Hearst Newspapers

PARIS _ The dilemma presented by the tumbling dollar may be almost impossible to resolve.

Many politicians, bankers and economists outside the United States say global confidence in the U.S. currency has shrunk so drastically in recent days that only a rise in American short-term interest rates _ bringing them closer to the higher rates prevailing in Europe _ probably can end the dollar's rout.

Yet _ and here's the dilemma _ American authorities are loath to tamper with interest rates because a hike would halt the U.S. economic recovery.

The problem takes a further agonizing twist. Analysts in Paris say that, unless the dollar's slide is soon brought under control, the worldwide economic impact may be so severe that America's recovery will be badly dented anyway, causing far worse damage than would an interest-rate hike.

This is because a weak dollar reduces America's capacity to buy goods from the rest of the world. It was the resumption of exports to the expanding U.S. market that has fed the incipient European comeback of the past six months, especially in Germany and France.

Now with the possibility that speculative jitters could push the dollar to its lowest levels since the 1990-1991 recession, America's global purchasing power may contract sharply and ruin Europe's still fragile revival.

That, in turn, would stifle America's sales abroad, which have been a major ingredient of the U.S. recovery.

Many experts in Paris insist that the current storm was brought about largely by the Clinton administration's action of encouraging the dollar's fall against the yen in order to force Japan to make trade concessions earlier this year.

Paris-based international banker Klaus Edinger pointed out that "this tactic has been tried by every U.S. administration of recent times, except the Reagan administration. It has invariably failed in its aim. Its only result was to convince speculators around the world that the Americans would not defend their currency from attack.

"American officials always seem utterly flabbergasted when this happens. The astonishment (last week) of President Clinton and (Treasury Secretary Lloyd) Bentsen at the beating the dollar was taking was itself pretty astonishing. …

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