[Congressional Record Volume 141, Number 43 (Wednesday, March 8, 1995)]
[Senate]
[Pages S3642-S3643]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 FALLOUT FROM BALANCED BUDGET AMENDMENT

  Mr. SIMON. Mr. President, I would like to make an observation or two. 
Sometimes we do things in the U.S. Senate that no one pays much 
attention to around the world. In the 4 days since we have turned down 
the balanced budget amendment, we have seen a precipitous fall in the 
dollar.
  I heard on the radio as I came in this morning, and at a breakfast 
meeting where I heard the distinguished presiding officer speak, I 
heard a reference to the international markets being concerned about 
the action and our failure to face up to our deficit problems.
  The Chicago Tribune, yesterday, front page subhead ``Dollar's Role as 
the Top Currency of International Trade Is Threatened.'' And I ask 
unanimous consent that the article be printed in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

                       Where Will the Buck Stop?

                          (By Ronald E. Yates)


                              the downside

       Americans face higher prices for many imports and foreign 
     trips, and the dollar's role as the top currency of 
     international trade is threatened.


                               the upside

       A cheaper dollar makes American exports more competitive 
     abroad, helping U.S. companies that sell overseas and 
     combating trade imbalances.


                     a losing battle with mark, yen

       With the dollar continuing its free fall in currency 
     markets around the world Monday, questions furrowed brows 
     from London to Tokyo:
       Does the buck stop here? Or will it fall further? And if it 
     does fall further, what will the impact be?
       The answers depend on who you are and what your agenda is.
       If you are an American consumer thinking about buying a new 
     Japanese or German car, the weaker dollar means you'll pay 
     more because it takes more dollars to buy the vehicle. It's 
     the same thing for those who are planning a trip to Europe or 
     Asia. Hotels, meals and other costs associated with travel 
     will cost more for those traveling with dollars.
       On the other hand, if you are Federal Reserve Board 
     Chairman Alan Greenspan, you aren't too concerned about the 
     plummeting greenback because a weaker dollar helps drive 
     domestic economic growth. How? A devalued dollar makes U.S. 
     goods cheaper and more competitive overseas.
       But if you are Japanese Finance Minister Masayoshi 
     Takemura, the idea of the dollar weakening and the yen 
     strengthening has no apeal.
       At one point Monday, the Japanese yen was trading at a new 
     post World War II high of 92.80 against the wobbly dollar. 
     Takemura and the other leaders of the Japanese economy hate 
     news like that.
       Why? Because a strong yen makes Japanese products expensive 
     in overseas markets, thereby decreasing their 
     competitiveness. That, in turn, slows the Japanese economy, 
     which is still struggling to come out of a 4-year-old 
     recession.
       While neither Greenspan nor Federal Reserve Board member 
     Susan Phillips have said outright that they support a weaker 
     dollar, that's the way it's being read around the world.
       ``Certainly the dollar is something we look at,'' Phillips 
     told reporters Sunday. ``But domestic considerations are in 
     many ways primary [to a falling dollar].''
       Traders and analyst were in general agreement Monday about 
     what that statement meant.
       ``Not only doesn't the buck stop here, but the U.S. 
     government apparently doesn't care if the dollar falls 
     further,'' said currency trader Manfried Holliger in Zurich. 
     ``It's a strange attitude for a government to take about its 
     currency.''
       While many currency nationalists might deplore the 
     government's apparent lack of concern over the falling 
     dollar, there is another, more practical reason to be 
     concerned about the currency's plunge, some economists say. 
     If the dollar continues to nose dive, its 50-year reign as 
     the currency of choice for global business transactions may 
     be over.
       That's a much more serious matter than old-fashioned 
     currency chauvinism, say some analysts. Worldwide confidence 
     in the U.S. economy is already at one of its lowest points in 
     recent memory.
       The U.S. is already the world's biggest debtor nation, with 
     liabilities at the end of 1994 of some $750 billion. Foreign 
     economists say that Congress' refusal last week to pass a 
     constitutional amendment that would have required a balance 
     budget by 2002 showed that Washington is simply not serious 
     about putting its economic house in order.
       ``The German mark is already replacing the dollar as the 
     currency of choice in Europe, and it may do so in Asia, 
     too,'' Holliger said. ``That will undermine international 
     faith in the U.S. economy and its government even further. I 
     can't understand what benefit U.S. leaders see in allowing 
     the dollar to fall even more than it already has.''
       From the perspective of Greenspan and the Federal Reserve, 
     who, some economists say, continue to be obsessed by the fear 
     of inflation, a weaker dollar may force another rise in 
     interest rates.
       The Fed already has raised interest rates seven times in 13 
     months. The fear in Washington is that when a weaker dollar 
     spurs economic growth by making American goods more 
     attractive in foreign markets, it will rekindle inflation.
       ``The Fed does care about the dollar's value,'' said Susan 
     Hering, an economist with Salomon Brothers in New York. ``A 
     weaker dollar will intensify the Fed's concerns about 
     inflation and make it more prone to raise [interest] rates.''
       Not all analysts agreed with that assessment, however. ``We 
     see no chance the Federal Reserve will hike U.S. short-term 
     interest rates to defend the dollar, because they have never 
     done so before,'' said Carl B. Weinberg, chief economist at 
     High Frequency Economics in New York.
       The dollar fell to 92.80 yen in late trading Monday in New 
     York, down from a Friday record low of 94.05. It also 
     declined against the German mark, dropping to 1.4042 marks, 
     the lowest level in more than two years and down from 
     Friday's close in New York of 1.4250 marks. The dollar was 
     down against other major currencies as well.
       The dollar's low against the mark is 1.387, reached in 
     September 1992. In London, the dollar was quoted at 1.4013 
     marks, down from 1.4355 Friday.
       In overnight trading in Asia, the dollar sank as low as 
     92.63 yen in Tokyo, the lowest it has been since modern 
     exchange rates were established after World War II.
       Against other currencies, the dollar sank to 4.9580 French 
     francs from 5.0270; to 1.1735 Swiss francs from 1.2010; and 
     to 1,661.00 Italian lire from 1,672.50.
       ``The dollar is being flawed by a huge U.S. current-account 
     deficit,'' said Weinberg, referring to the trade measure that 
     includes goods as well as services. He added that central-
     bank intervention in propping up the dollar last week failed 
     to do anything other than create profit-taking opportunities 
     for speculators, who continued to dump the currency by the 
     billions.
       ``This means [central] banks either have to give up their 
     support for the dollar--which is unlikely--or inflict more 
     pain on speculators this week by propping it up with more 
     dollar purchases,'' Weinberg said.
       A poll of several analysts revealed that many feel the 
     dollar will fall to 1.35 marks and 90 yen before beginning a 
     slow climb back.
       ``Any return to its old glory days as the leading currency 
     in the world will be slow,'' Holliger said. ``It doesn't take 
     much for a government to destroy the confidence people have 
     in a currency, but it takes an awful lot of work to revive 
     that confidence. That's where the dollar is today.''

  Mr. SIMON. Mr. President, this article mentions a currency trader 
that is apparently very prominent. I have to say I am not that 
knowledgeable in this field. A gentleman from Zurich, Switzerland, 
Manfried Holliger, says:

       Foreign economists say that Congress' refusal last week to 
     pass a constitutional 
     [[Page S3643]] amendment that would have required a balanced 
     budget by 2002 showed that Washington is simply not serious 
     about putting its economic House in order.
       The German mark is already replacing the dollar as the 
     currency of choice in Europe, and it may do so in Asia, too 
     [Holliger said].
       That will undermine international faith in the U.S. economy 
     and its government even further. I cannot understand what 
     benefit U.S. leaders see in allowing the dollar to fall even 
     more than it already has.

  When I served overseas in the Army--and I have to say that was a long 
time ago, 1951 to 1953--for $1, you got 4 German marks. That has 
changed dramatically.
  Every once in a while, we do things here that are of monumental 
importance to the Nation. What happened last week is of such import. If 
we want to stop the slide of the dollar, the U.S. Senate can do it 
very, very quickly by adopting the balanced budget amendment.
  I say to my 34 colleagues who voted against it, any one of you can do 
a great favor for this Government and for the future of world stability 
by changing that vote. I hope before too long we will have a changed 
vote. The news on the dollar should be a matter of concern to all of 
us.
  Mr. DOMENICI addressed the Chair.
  The PRESIDING OFFICER. The Senator from New Mexico.
  Mr. DOMENICI. Mr. President, I did not know my friend was going to 
speak on the subject of the falling dollar, but I fit right in with his 
discussion. I ask unanimous consent that I have up to 7 minutes as in 
morning business to discuss this issue.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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