Apparently the Bush Administration feels the dollar's decline in value versus the euro is just fine. Read
News Analysis: How Main St. and Wall St. Will Feel as the Dollar Plunges for more information.
By EDMUND L. ANDREWS
Published: February 9, 2004
WASHINGTON, Feb. 8 — Treasury Secretary John W. Snow has tacitly but unmistakably abandoned Washington's longstanding support for a strong dollar in favor of a weak dollar that is getting weaker, though he continues to insist there has been no change in policy.
Stripped of the code words and elliptical references to "excessive volatility" in exchange rates, the message that Mr. Snow delivered this weekend to finance ministers from Europe and Japan was that the dollar's plunge against the euro is just fine and that the dollar should now decline more rapidly against Asian currencies as well.
This is an attempt to make American exports more competitive.
But the long-term risks are substantial. At some point, a weaker dollar will inevitably lead to higher prices for imported goods — almost all consumer electronics bought by Americans, most of their clothing, many of their cars and much of the oil that provides the fuel to drive them.
A much bigger risk is that a plunging dollar could contribute to a rise in interest rates, as foreign investors demand fatter risk premiums before agreeing to buy hundreds of billions of dollars worth of Treasury securities to finance America's high levels of indebtedness.
The United States needs to attract $1.5 billion a day in net capital inflows from abroad — $500 billion a year more than it sends out — which means that the world is being flooded by American I.O.U.'s at levels never seen before. The administration's huge budget deficits could increase that need for foreign capital even more, and higher interest rates would add billions of dollars to those deficits.
Mr. Bush's deficits would be even worse if interest rates weren't unusually low.
