[Congressional Record Volume 140, Number 82 (Friday, June 24, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: June 24, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                     PLUMMETING VALUE OF THE DOLLAR

  Mr. DOMENICI. Madam President, while discussion, and debate about 
Bosnia or about Yugoslavia or any foreign affairs issue is very 
important, the truth of the matter is that something is going on in the 
international money markets that is far more important to the American 
economy and to the future of our jobs and growth and prosperity than 
any of these discussions that are going on today.
  I rise to call to the Senate's attention and to the President's 
attention this issue. Now, obviously, I might have a different view 
than the President; he is clearly being advised on this issue, but I 
would like to share with the Senate the serious concern I have about 
the plummeting value of the American dollar in world markets, 
especially the markets and banking systems of Germany and Japan.
  Lenin reportedly once told a group of economists that the best way to 
destroy the capitalist system is to debase the currency. He was, 
obviously, correct in observing that the currency is the fundamental 
foundation upon which we as a nation build our economy and provide for 
our people. In fact, a critical element of economic growth in any 
country is a stable, viable currency. Today, I rise to discuss a most 
serious circumstance which, left unresolved, threatens to derail our 
continued economic progress; it is the persistent slide in the American 
dollar.
  Despite comments from President Clinton and Secretary Bentsen that 
``we're going to continue to monitor the situation,'' instability in 
the dollar is not to be ignored or dismissed as just a Wall Street 
problem. This past Monday, the mark/dollar exchange rate fell below 
160, capping a substantial 4-percent 1 week decline, and I might say 
that today the mark fell yet more. It is now, today, at 1.585, and the 
stock market dropped 40 points, all while long-term interest rates rose 
from 7.4 to 7.51.
  Iincidentally, that 7.51 long-term rate is higher than when this 
President, took office. Some have been talking about lower interest 
rates, but it is now higher than when he took office. Normally, higher 
interest rates on long-term 30-year bonds invite foreign investment, 
but in fact they are not.
  Tuesday, the dollar plunged below 100 yen against the dollar for the 
first time since the Second World War. It has gone up slightly, came 
down, and is now just slightly above 100.
  Let me tell you again how low that is: 100 yen against the dollar for 
the first time since the Second World War. Now, today, we are in a 
coordinated intervention mode which says that central banks of 10 
countries, including the United States and Germany, are attempting to 
shore up the dollar. That means they are buying dollars, but it is not 
working. So far today, a continued lack of confidence in the U.S. 
dollar is pushing up interest rates on the long-term side, and pushing 
down asset values. This has occurred despite what Chairman Greenspan 
has described as a fundamentally strong economy.
  Now, I am not arguing with Chairman Greenspan. I am taking his 
assessment as a reality, because if the economy is fundamentally strong 
from an economic standpoint, why is the American dollar falling so 
rapidly in the world money markets? In fact, the current recovery has 
been in the cards as I view it, for some time now, is the result of 
solid foundations of low inflation, low-interest rates, and high 
productivity growth, established over a long period of time including 
the last two Republican administrations.
  If one looks at the economic statistics in a vacuum, as I indicated a 
while ago, the conclusion would, indeed, be that the U.S. economy is in 
good shape. But those who deal with the worldwide financial markets, 
Madam President, look at more than just the statistics, because if one 
just looks at the economic statistics this should not be happening. 
They must be looking at something else. Indeed, they do, and they tell 
us they do. They also look at the overall direction or lack thereof of 
where the leadership of this administration is taking us. I am among 
many others who attribute this recent, precipitous drop in the dollar 
to a worldwide lack of confidence in United States leadership that is 
threatening prospects for a sustained U.S. economic growth.
  What is needed is for this administration to look at its 
international trade policies and all its international policies, and 
begin to conclude that they must be made more credible, and they must 
build confidence in the world's economic market.
  What is required is that the administration provide that needed 
leadership to stabilize the dollar, and restore international 
confidence in the United States economy, and the extended expansion of 
it.
  Let me turn to the next issue which I will call the vote of no 
confidence. Currency market instability is a global vote of no 
confidence. What is going wrong? I want to repeat that. My best summary 
of what is happening, and it is dead serious, is that currency market 
instability is a global vote of no confidence. The surprising thing is 
that foreigners are indicating the lack of confidence despite rising 
U.S. interest rates, which normally instill confidence and create 
investments of those American dollars which are accumulating overseas 
because of our balance of trade deficit. They have more dollars because 
they have sold more goods to us than we have sold to them. These 
dollars must be invested in America. Normally the confidence shows up 
when interest rates here are high, and the investment comes flowing 
back. The surprising thing is that this confidence is not reoccurring 
even with interest rates going up.
  First, let me lay out what I understand sets exchange rates. In 1993, 
the U.S. purchased $109 billion more goods and services than foreigners 
did of U.S. products. That is called a current account deficit. That 
means we bought more than we sold, in summary. In 1993, that was $109 
billion. The impact of this deficit is that foreign sellers were left 
with $109 billion in excess U.S. dollars that were not needed for 
purchases. These dollars are used to invest in U.S. securities and 
other investments that generate a return. These dollar investments by 
foreigners represent what we all call capital accounts.
  Simply put, the exchange value of the dollar is set by whether 
foreigners want to hold more or less dollars in their capital accounts 
than the $109 billion they are required to hold--the result of the 
current account balance.
  If the return on the U.S. investments is not sufficiently attractive, 
then they wish to hold fewer dollars which decreases its exchange 
value, pushing the dollar down. On the other hand, if the U.S. returns 
are sufficiently attractive, the reverse is true. But of course that is 
not the current situation. So something is amiss besides economics. A 
weak dollar means foreigners lack confidence in dollar investments 
despite current U.S. rates of return. Long-term interest rates have 
been rising in the United States by more than can be explained by the 
Federal Reserve Board's efforts to control inflation.
  So far those who are now concerned about the 7.51 percent interest 
rate on 30-year bonds, it is now higher than what was caused by Federal 
Reserve action and higher now than when this administration took 
office. Yet, despite these higher rates of return, foreign investors 
now shun U.S. investments. Today, overseas investors would prefer not 
to hold assets denominated in dollars. It is too uncertain, too great a 
risk.
  Consequently, foreign central banks time and time again have had to 
pick up the slack through intervention as the Bank of Japan did 
recently on Wednesday. G-7 intervention in May tried to halt the 
erosion in dollar confidence and that effort met with little success. 
Another round of intervention today does not appear to be any more 
successful because the exchange rate numbers I gave you in the opening 
comments as I indicated were after intervention by 10 international 
banks tried to change the valuation.
  I believe there are a number of reasons for the instability that we 
are experiencing. First, the administration has created uncertainty in 
currency markets by taking a narrowly focused unilateral approach to 
trade policy. They have indicated a willingness to allow currency 
markets to be held hostage to United States-Japanese trade disputes. I 
believe the effect of the problem with Japan in terms of our trade 
relations is causing a very big ripple and many do not understand it 
yet. Perhaps the continued drop of the American dollar will expedite a 
solution to that problem. This is occurring at the same time that we 
are seeing an ominous widening of our trade deficit. In particular, 
this week's dollar plunge in part reflects Tuesday's release of the 
trade deficits.
  The United States trade deficit rose to $8.4 billion in April, up 
from an average of $8 billion in the first quarter and $6.6 billion in 
the fourth quarter of last year. But no action has been taken to try to 
stabilize the dollar. In other words, just when we are asking those 
abroad to hold more trade-deficit generated dollars, the message here 
to foreign investors is the stability of the American currency cannot 
be trusted.
  Second, there is a lingering concern about Federal deficits in spite 
of recent short-term good news, especially for those expert in 
analyzing what we are probably going to do to our deficit with an open-
ended health care reform package. Under current projections and 
policies, we will become ever more dependent on foreign investments 
flowing into the United States after waiting for a short reprieve of 4 
or 5 years.
  Without confidence in the stability of the dollar we will be unable 
to close the gap between what we need to finance our Federal deficits 
and what we will be able to secure from abroad. As a result, interest 
rates will go even higher to close the gap dampening long-term growth 
and economic prospects. Madam President, we will not have to wait 
around for the Federal Reserve to raise interest rates. Interest rates 
will go up anyway if this situation continues dampening long-term U.S. 
economic prospects because it will go up to stabilize the American 
dollar. It will happen in the marketplace.
  Allowing confidence in the stability of the U.S. currency to 
significantly erode is not just unfortunate, it must be solved. It will 
represent the poorest of leadership if we do not attempt to solve it.
  When this administration came to office, they said they would provide 
domestic economic leadership. What I believe they are realizing today--
and so are we--is that this cannot be done without coherent and 
competent international leadership as well. Let me repeat. To promise 
domestic economic leadership without coherent competent international 
leadership will not make the economy of America better. It will make it 
worse. And on the international front, from Korea to Bosnia to Somalia 
to Haiti, we have a troubling record before us which certainly does not 
promote confidence. Compounding this crisis of executive leadership is 
a forced crisis of monetary leadership. The more we as Senators take to 
the floor of the Senate and criticize the Federal Reserve Board, giving 
an indication that we as politicians might want to destabilize that 
entity's power, the more credibility weakens with reference to our 
currency in the international markets.
  Calls from Congress to reign in the Federal Reserve are part of this 
credibility problem. If we cannot provide a firm, rock solid currency, 
our many other economic goals are in jeopardy.
  So, today, I took this opportunity in the midst of a very heated 
debate regarding one area of international policy to beseech the 
administration to provide the needed leadership to stabilize this 
dollar and to recognize that economic leadership at home will not 
suffice if international leadership is not stable, consistent, and 
strong. I believe the facts are beyond dispute.
  I yield the floor.

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