[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.
____________________