[Congressional Record Volume 141, Number 43 (Wednesday, March 8, 1995)]
[Senate]
[Pages S3643-S3644]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          FALLING DOLLAR: IMPORTANT IMPACT ON AMERICAN PEOPLE

  Mr. DOMENICI. Mr. President, first of all, let me suggest that the 
falling dollar seems like something out in the sky that does not have 
an impact on the American people. Let me suggest it has a very, very 
important impact on the American people.
  I said to my staff this morning, ``Let's not talk about Wall Street 
and the markets. Let's talk about a couple in their home, living in an 
apartment house with two children and are thinking about buying a new 
house.'' That is the kind of American who is going to get hurt, or the 
American who is thinking about buying a new car or a new refrigerator 
and is going to have to borrow money, because essentially as the dollar 
lowers in value and America's appetite for borrowed money grows because 
we do not have a balanced budget and we do not have any game plan to 
get our deficit under control, what happens is that those foreigners 
who invest in American debt will insist on higher interest rates. 
Because the dollar is worth less money, they want higher interest 
rates.
  So what are we already seeing as a result of the falling price of the 
dollar? We are seeing higher interest rates, higher long-term interest 
rates. So I want to discuss for a few minutes with the U.S. Senate and 
those interested in this about things we ought to be doing that we are 
not doing to see if we cannot stop this and put America's dollar and 
America's economy back, from the standpoint of the world, in the proper 
light, in the light it should be and should have.
  The currency markets might even be said to be in turmoil. Yesterday's 
news on that is not a disconnected Wall Street event. It is a critical 
comment on the U.S. economy and on the budget policy of this Nation, as 
I see it. Leadership in this country requires more than just saying a 
strong dollar is in our interest. Who would not say that today? And 
waiting around to see what happens is not an appropriate response.
  It is backing that up with responsible fiscal policy that does not 
take a walk on the deficit. Half a year ago, I spoke to the Senate the 
last time America's currency was falling precipitously to new lows 
against foreign currencies. The yen per dollar exchange rate was 
flirting then with a historic floor of 100.
  At that time, I warned that the dollar slide was a global vote of no 
confidence on the direction of U.S. policy, both foreign and domestic, 
and, in particular, fiscal policy. Now we are seeing the dollar hitting 
new record lows every day since the Senate's failure to pass the 
balanced budget amendment to the Constitution.
  On Monday, our currency declined to a record low of 93 yen per 
dollar, down 4.5 percent. In a week, it fell a similar amount against 
the German mark and entered a record low territory against that 
currency as well.
  Yesterday, the dollar slide accelerated. By afternoon, the dollar had 
fallen sizably further, 2 percent, since the previous day to a record 
of 90 yen to the dollar, setting a fourth consecutive record low in as 
many days. Against the mark, the dollar fell to 137, a new record low 
against that currency as well. As a result, long-term interest rates 
were pushed higher and stock values declined, just what I said in my 
opening remarks. Interest rates are pushed up.
  This is not the work of the Federal Reserve Board, which has been 
adjusting short-term rates. Clearly, this is not that. This is the 
world currency market responding.
  These are not random disconnected events. Here is how we got to this 
place:
  First, Federal deficits are going up, not down, I say to my good 
friend from Illinois. Last July, the projected deficits were said to be 
$173 billion for 1996 and much was made of that decline.
  In February, without any changes in policy, the administration upped 
its estimate to $196 billion and took a walk on controlling long-term 
deficits--that is the President's budget--took a walk on having any 
impact on long-term deficits, thus, avoiding involvement by our country 
in a meaningful way in getting long-term interest rates under control.
  Second, and I regret to state this but it is absolutely true, we must 
borrow even more, I say to Senator Simon, even more from abroad, rather 
than less. Higher Federal deficits and low national savings rates mean 
America's borrowing from abroad will have to grow tremendously in order 
to fund America's investment needs.
  Over the last four quarters, America has increased its net borrowing 
from abroad by 50 percent, from $100 billion in 1993 to $150 billion in 
1994. Last month, the administration projected borrowing needs from 
abroad to rise to $170 billion by 1996.
  The administration's shaky leadership with reference to the peso also 
contributed somewhat to the crisis and is part of a connected web of 
American activities that have shaken the market. I believe that event 
on the Mexican peso contributed to some lack of confidence in the 
dollar and our abilities to get involved in an appropriate way.
  Then last Thursday, the U.S. Senate sent a message to the world 
capital markets that the U.S. Government did not have the resolve to 
deal with these damaging trends. The balanced budget amendment failed 
in the Senate by one vote after passing overwhelmingly in the House. 
The dollar now stands 7 percent lower against the yen and 6 percent 
lower against the mark relative to 1 week ago.
  The current 7.6-percent interest rate on 30-year Treasury bonds is 20 
basis points higher than a week ago, and the Federal Reserve Board has 
done nothing to adjust interest rates, so it is something else causing 
it because they have not changed short-term interest rates, which many 
think has no impact on long-term rates anyway.
  A weak dollar and higher interest rates is prima facie evidence that 
foreign investors lack confidence in dollar investments. Foreign 
central banks time and time again have had to pick up the slack through 
currency interventions, as they attempted to do last Friday, apparently 
without success.
  What should we be doing? There are many factors that can affect the 
dollar. They include strengthening economies in Germany and elsewhere, 
Japan's earthquake, and the peso crisis, but there will always be 
events like that occurring outside our immediate control.
  The question is, what are we doing to guide America's future in this 
sea of uncertainty? If we do not provide a firm currency, obviously our 
economic goals are put in jeopardy. That does not mean relying on the 
Federal Reserve Board to increase rates enough to entice foreign 
lenders to hold American-denominated securities, because obviously 
there are two sides to that coin. When you do that, you hurt America, 
although you might help the 
[[Page S3644]] dollar overseas. When it comes to changing interest 
rates, the U.S. Federal Reserve Board should always place domestic 
interests first. A U.S. recession helps no one.
  The only way to strengthen America's rate of return is to strengthen 
America's economy by reducing long-term deficits, improving our savings 
and investment climate, and getting the Government out of the way of 
workers and business. All of these are on the agenda for this year and 
next year, right on the table. Allowing confidence in the stability of 
U.S. currency to significantly erode is not just unfortunate, it 
reflects misguided and, I believe, irresponsible Government policies.
  This is a very simple graph, easy to understand. It talks about the 
U.S. dollar and its decline to new lows. The green one is its decline 
against the yen. The red one is its decline against the other major 
currency, the mark. This is all in the period of time, I say to my 
friend from Illinois, from April 1, 1994, to March 7; that is 
yesterday. It is rather significant, not something that is esoteric and 
outside of impacting our people. It is very, very important to average 
Americans and to our continued success as a viable economy.
  I yield the floor.
  Mr. EXON addressed the Chair.
  The PRESIDING OFFICER. The Senator from Nebraska.

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