Newspaper article THE JOURNAL RECORD

Conflicting Signals from U.S. Worry European Economists

Newspaper article THE JOURNAL RECORD

Conflicting Signals from U.S. Worry European Economists

Article excerpt

Hearst Newspapers

PARIS _ Whenever the rest of the world finds America's economic policies incoherent, the alarm bells start ringing loud and clear in the market place.

The toboggan slide being taken by global bond prices is the sound of the alarm going off, according to worried European bankers and analysts.

They blame the recent plunge of bond markets everywhere on fears that U.S. authorities have embarked on a confused economic strategy _ or as the critics see it, a clutch of contradictory strategies _ that may wind up setting world recovery on its ear.

"On the one hand, Federal Reserve officials have been raising interest rates to head off impending inflation," noted Gerhardt Fleischer, a Paris-based international banker. "But on the other hand, President Clinton is encouraging the dollar to fall (raising the value of the Japanese yen) to punish Japan for not reducing its trade surplus."

The two policies, seemingly unconnected, are in reality at "dangerous cross-purposes," he said.

"A weaker dollar ultimately means more inflation and a loss of confidence in American financial assets, as represented by bonds and shares," Fleischer emphasized. "If you want to know why bond prices have plummeted, look no further. That's why."

Jean-Philippe Monod, a senior consultant to the French economics ministry, claimed the bond market plunge coincided with the world's perception that "Clinton and (Federal Reserve Chairman Alan) Greenspan have embarked on policies that fundamentally are in conflict and, what is worse, may not recognize they are."

The French expert added that European governments, as well as European markets, have begun to fear the U.S. administration "in obsessive pursuit of its trade war against Japan is using devaluation of the dollar as an economic weapon."

Monod dubbed this "not only unacceptable (to the rest of the world) but contrary to the spirit of the new world trade agreement just signed in Marrakech. It could easily lead to competitive devaluations by many countries seeking unfair advantage in international trade."

The Clinton administration's economic record was until recently the one aspect of its performance that had won widespread approval abroad. …

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