[Congressional Record Volume 141, Number 43 (Wednesday, March 8, 1995)]
[Senate]
[Pages S3660-S3662]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
THE BALANCED BUDGET AMENDMENT
Mr. SIMON. Mr. President, I spoke earlier today about the falling
dollar. I quoted the Chicago Tribune. I ask unanimous consent to have
printed in the Record some more items.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the Wall Street Journal, Mar. 6, 1995]
Currency's Slide May Mark End of Reserve Role
(By Michael R. Sesit)
London.--Undercut by years of U.S. deficits, the dollar's
days as the world's reserve currency may be drawing to a
close.
On Friday, eighteen central banks spent a half-billion
dollars in a futile attempt to resist that notion, following
a similar $250 million effort by the Federal Reserve the day
before. In Germany and Japan, finance ministries scolded
dollar bears as wrongheaded. In the U.S., Treasury Secretary
Robert Rubin tried talking up a strong dollar as ``in our
national interests.''
Traders, unperturbed by the fuss, continued to dump dollars
by the billions. As the greenback fell to another post-World
War II low against the yen and continued sliding against
major European currencies, foreign-exchange dealers and money
managers predicted more to come.
In trading Monday in Tokyo, the dollar hit a new postwar
low of 92.75 yen and skidded to 1.3875 marks, just short of
its historical low of 1.3870 marks. About noon Monday, the
dollar was trading at 93.25 yen, and at l.4030 marks;
sterling was at $1.6473.
At its lowest point Friday, the U.S. currency touched a
postwar low of 93.75 yen, and a 29-month low against the
mark. By late trading in New York, the dollar stood at 94.05
yen and 1.4240 marks, compared with 95.25 yen and 1.4415
marks late Thursday. The pound, meanwhile, rose to $1.6295
from $1.6135 a day earlier.
``There is a firm belief that the dollar doesn't have the
reserve-currency status it once had,'' says Jeremy Hodges,
head of global foreign-exchange sales for Lehman Brothers
Inc. ``Globalization and diversification'' are progressively
eroding the dollars's mystique, he explains. ``More and more
people are adjusting their portfolios to include other
currencies--yen, deutsche marks, French francs, Canadian
dollars.''
Meanwhile, weaker currencies continue to lose out. Early
this morning, after an emergency meeting of the European
Union's monetary committee, the Spanish peseta and Portuguese
escudo were devalued, by 7% and 3.5% respectively, following
weeks of difficult trading.
Within the next three months, Mr. Hodges predicts the
dollar could tumble another 5%, to 1.35 marks, and another
4%, to 90 yen, although he cautions not to expect a freefall.
So far this year, the dollar has fallen 6% against the yen
and 8% against the mark.
The basic problem for the dollar is that there are just too
many of them sloshing around, says George Magnus, chief
economists at S.G. Warburg & Co. in London. The U.S. current
account deficit--a broad measure of trade in goods and
services plus certain financial transfers--is huge and
growing. In addition, ``there is still an underlying outflow
of investment capital'' as U.S. companies continue to invest
in plants and equipment overseas, he says.
``And don't forget that the U.S. is the world's biggest
debtor nation, with external liabilities of $750 billion at
the end of 1994,'' he adds. Last week's defeat of a
constitutional amendment that would have required a balanced
budget by 2002 only underscored the country's lack of will to
reform its way.
What's more, Mr. Magnus argues, Fed policy isn't as tight
as many people suspect. The evidence: strong growth in U.S.
loan demand, increasing bank borrowing from the Fed and the
modest pickup in bank reserves since October. And, he added,
``the Mexican bailout is going to result in the creation of
additional dollar reserves, either by the Fed, the Treasury
or both.''
Based on 10-year government-bond yields, U.S. inflation-
adjusted interest rates are 4.35%, compared with 5.4% in
Germany and 4.4% in Japan. While stronger fundamentals could
propel the dollar to 110-120 yen and 1.60-1.65 marks in a
year or so, for now, * * *
____
[From the Washington Post, Mar. 7, 1995]
Dollar Keeps Falling Against Yen and Mark--Analysts Call Decline a
Long-Term Trend
(By John M. Berry)
The dollar continued to fall on international currency
markets yesterday, hitting a new low against the Japanese yen
for the third day in a row and weakening further against the
German mark.
Many foreign exchange experts said the dollar's weakness is
not just a temporary problem, but rather part of a long-term
downward trend against the mark and yen, although the dollar
is likely to rally from time to time.
There was broad agreement among experts that there is
little President Clinton, the Treasury Department or the
Federal Reserve can do to give the dollar a boost.
Coordinated purchases of dollars on Friday by the Fed and
other central banks around the world had almost no impact on
the currency's value.
In late New York trading yesterday, it took just 92.80 yen
to buy a dollar, down from 94.05 on Friday. Against the mark,
it took 1.4048 marks to buy a dollar, the lowest level in
more than two years, down from 1.4250 on Friday.
The reasons for the dollar's downward trend, the analysts
said, are complex and varied. Some are real, some are
psychological; some are as new as the financial crisis in
Mexico and some are as old as the tendency of Americans not
to save money.
First and foremost is the fact that the United States is
running a deficit with the rest of the world of more than
$150 billion a year in trade, tourism and similar
transactions, said economist L. Douglas Lee of NatWest
Washington Analysis.
That means that each year foreigners end up with $150
billion that they may not wish to hold and so exchange for
another currency, driving down the dollar's value. In the
view of Lee and many other analysts, as long as the United
States keeps pushing that many dollars into foreign hands
every year, the currency has little chance of strengthening
in a fundamental way.
A second key reason for the recent weakness of the dollar
that many analysts cited is an abrupt shift in expectations
about the level of U.S. interest rates compared with those in
other countries, especially Germany.
``The dollar's decline this year has coincided with the
evaporation of earlier expectations of future sharp increases
in U.S. short-term rates,'' said John Lipsky, chief economist
at Salomon Brothers Inc. in New York.
The level of interest rates is important for a currency
because higher rates can encourage investors to move their
money from one country to another. Until a few weeks ago,
many analysts and investors had expected that the Fed would
continue to raise interest rates as it did all last year to
cool off the U.S. economy and prevent a surge of inflation.
However, recent statistics suggest that U.S. economic growth
is slowing and many analysts are no longer looking for higher
rates.
A third major reason the dollar is being hammered is that
its value has been declining for many years compared with
German and Japanese currencies, and some foreign central
banks are switching their foreign exchange reserves out of
dollars.
``The track record of the dollar in recent years has been
poor, and that's what these investors look at, the record,''
said Scott E. Pardee, special adviser at Yamaichi
International (America) in New York. ``The U.S. economy is
doing fine, but dollars that have been in other hands for
many years are being converted into marks and yen.''
A fourth key development hurting the dollar, the analysts
said, is the political and financial crisis in Mexico, which
led the Clinton administration to forge a huge international
rescue package, with the United States putting up $20 billion
in loans and loan guarantees.
There is a widespread perception that the United States
will suffer in a variety of ways because of its close links
to Mexico, including a likely large decline in U.S. exports
that will make the U.S. trade deficit worse.
Yet another reason mentioned by the analysts is the
currency turmoil within Europe that led to a devaluation
yesterday of the
[[Page S3661]] Spanish peseta and Portuguese escudo relative
to the mark, which is seen by investors and speculators as a
``safe haven.''
Meanwhile, many Japanese firms are selling the dollars they
are earning from exports to the United States in exchange for
yen. They are using that yen to cover losses or operating
expenses at a time when Japanese banks are reluctant to make
new loans.
Analysts such as Lee noted that so long as Americans save
such a small portion of total national income that they
cannot finance the nation's investment costs--plus the
combined deficits of federal, state and local governments--
foreign investors must make up the difference. In an
accounting sense, the gap between saving and investment is
equal to the U.S. deficit in trade, tourism and other
transactions.
``The way to address the problem is to do something to
bring savings and investment closer together--such as reduce
the federal [budget] deficit'', Lee said. And that pointed to
yet another reason for the dollar's weakness--last week's
Senate defeat of a constitutional amendment to require a
balanced budget, which ``was read as a negative by the
currency market,'' Lee said.
____
[From the Wall Street Journal, Mar. 7, 1995]
Dollar Falls Against Yen and Mark, But United States Declines to
Intervene in Market
(By David Wessel)
Washington.--The dollar fell again yesterday against the
yen and mark, but U.S. officials kept their mouths shut in
public and didn't intervene in currency markets to support
the struggling currency.
The dollar set another post-World War II low against the
yen yesterday, touching 92.70 yen in Asia before rebounding
to 92.90 late yesterday, down from 94.05 late Friday. The
dollar, flirting with its postwar low against the mark of
1.3870 set in September 1992, was trading at 1.4048 marks
yesterday, down from 1.4240 Friday.
Having failed to stop the dollar's slide with rhetoric and
money, the U.S. government simply watched nervously
yesterday. At earlier moments of market turmoil, Treasury
Secretary Robert Rubin, once a currency trader himself, has
advised: ``Stay calm and focus on the fundamentals.''
Apparently he was doing just that yesterday. Neither he nor
his aides would talk about the currency.
While Mr. Rubin was consulting with his German and Japanese
counterparts, U.S. officials are holding off on further
dollar-buying efforts until the officials sense such
intervention is likely to work. Having demonstrated that the
U.S. is unhappy about the sliding dollar and convinced the
market has gone too far, the officials may now just wait for
the market to bring the dollar back up.
two options
If words and intervention won't work, then the government
has only a couple of other options should it decide to try to
strengthen the dollar: The Federal Reserve could raise short-
term interest rates to try to attract global investors, or
President Clinton and Congress could reduce the federal
budget deficit to shore up confidence in U.S. macro-economic
management. Neither policy change appears imminent.
Economists' list of explanations for the dollar's decline
is growing longer every day. Rudiger Dornbusch, a
Massachusetts Institute of Technology economist, figures that
expectations about interest-rate trends in the U.S. and
Germany account for 70% of the dollar's woes. Based on
comments by Fed Chairman Alan Greenspan and other Fed
officials, the markets have decided that the Fed isn't going
to raise short-term rates anytime soon--and might even cut
them. That tends to draw investors to the mark.
The failure of the U.S. to reduce further its government
budget deficit accounts for 30%, he estimates. The recent
slump in the dollar coincides with the Senate's rejection of
a constitutional amendment that would have required a
balanced budget. ``Germany is balancing the budget without
big talk over the next four years. We are widening the
deficit with big talk,'' Mr. Dornbusch said. ``They are
concerned about inflation at 2\1/2\%. We declare it dead at
3\1/2\%.'' Global investors, not surprising, prefer marks to
dollars, he reasons.
``If you need a third [reason for the weak dollar],'' he
said, referring to Mexico's economic crisis, ``the mess in
our backyard gives you one more reason.''
Other economists and traders, however, aren't so confident
that they can discern the causes of the dollar's fall. ``I'm
puzzled. I didn't expect it. I don't claim to know [the
reasons] after the event,'' said Deutschebank economist
Norbert Walter. ``Wall Street doesn't like Washington.
Everything that happens is considered to be negative for the
dollar.''
global lack of confidence
The U.S., as Mr. Rubin made clear last week, sees ``a
strong dollar'' to be in ``its national interest.'' A falling
dollar does help U.S. exporters by making their goods more
attractive overseas, but it tends to push up import prices.
It also tends to push
up long-term interest rates in the bond market even if the
Fed doesn't move the short-term rates it controls. A
weaker dollar also suggests a global lack of confidence in
the U.S. and its government, hardly a welcome development
for Mr. Clinton or Mr. Greenspan. In Germany and
particularly in Japan, strong currencies could hurt
exports at a time when both nations are counting on them
to buoy economic growth.
While the dollar is sinking against the mark and yen, it
has strengthened against two of its major trading partners.
The Canadian dollar closed at 1.4168 Canadian dollars to the
U.S. dollar yesterday, compared with 1.3557 Canadian dollars
to the U.S. dollar a year ago. The Mexico peso closed at
6.575 pesos to the dollar, compared with 3.25 pesos to the
dollar a year ago. As a result, the value of the dollar
against all its trading partners hasn't fallen much, reducing
the risks of imported inflation and making it easier for the
Fed to ignore the weakness against the yen and mark.
Until the dollar plunged last week, the Fed had been widely
expected to hold short-term interest rates steady when
officials hold their next scheduled meeting on March 28. And
if signs of a slowing pace of growth continue to emerge, the
Fed isn't likely to raise rates at that meeting. Just
yesterday, Fed Vice Chairman Alan Blinder, speaking to
bankers here, tentatively predicted the sort of ``soft
landing''--an economy that slows, but not too much--that
central bankers are always trying to engineer. ``There are
indications, but certainly not definitive sort of
indications, that makes me think we have a fighting chance of
achieving this sort of soft landing.''
With the dollar weak, strong evidence that the U.S. economy
hasn't cooled off--which could come as soon as this Friday's
Labor Department report on employment in February--could tilt
the Fed toward higher rates. Mr. Blinder wouldn't talk about
the dollar, but House Banking Chairman Jim Leach (R., Iowa)
did: ``Obviously a weak dollar enhances prospects of
[interest rates] going up again,'' he said. ``No one likes
that. But no one likes a weak dollar either.''
Economists who are adherents to the monetarist school,
gathered in Washington yesterday, cautioned the Fed against
raising rates to defend the dollar. ``Why is the dollar going
down? We don't know. But it isn't a monetary phenomenon,''
said Lee Hoskins, chairman of Huntington National Bank and
former Cleveland Federal Reserve Bank president. ``What
should the Fed do? Nothing.''
But David Hale, economist at Chicago's Kemper Corp., said
the Fed could help the dollar by making clear it doesn't
intend to cut rates soon.
Mr. Leach also said that the dollar ``underscores the
absolutely mandatory need to get the fiscal house in order so
that the monetary side doesn't have to do everything.''
Economists reason that a move to shrink the U.S. budget
deficit would increase overall savings in the U.S. and that,
in turn, should reduce what is known as the current-account
deficit, the broadest measure of international financial and
trade flows. That big and growing deficit is, economists say,
a major long-run factor in the dollar's weakness.
Although the defeat of the balanced budget amendment was
seen in Washington as a sign that Congress is less likely to
attack the deficit this year, traders and economists disagree
about its impact on the dollar. ``You can point to that as a
trigger,'' said Virginia Parker of Ferrell Capital
Management, Greenwich, Conn. ``But the dollar has been in a
pretty significant downturn since the end of 1994.''
Mr. Hale suggested the defeat ``played a role at the
margin,'' but called other factors more important. Most are
beyond the Clinton administration's control. Among them: the
likelihood that U.S. exports to Mexico will be hurt by the
economic crisis there, the side effects on the dollar of
internal European currency tensions, the evaporation of the
Soviet threat (which makes investors more confident about the
mark) and Japanese investors' seasonal urge to repatriate
capital in advance of the March 31 end of their fiscal year.
____
[From the Washington Times]
Dollar Again Plunges, Setting Off Stock Selloff--Economy: Record Lows
Against Mark, Yen Stirs Doubts About Currency's Premier Status--Dow
Loses 34.9 Points
(By Jonathan Peterson)
The U.S. dollar continued its extraordinary slide Tuesday,
plunging to record lows against the German mark and Japanese
yen, as currency worries slammed the stock market and eroded
the greenback's once-lofty status throughout the world.
For the second straight day, U.S. Government officials
choose not to resist the anti-dollar mania, fueling
speculation that the currency could hurtle even lower in the
coming days.
And unlike recent dollar-selling stampedes, high-rolling
speculators were joined Tuesday by corporations, banks and
mutual funds in the selloff, traders said.
``Right now it's a panic situation--we're in uncharted
territory,'' declared Frank Conte, a currency dealer at Royal
Bank of Canada in New York. ``There's no sign from the
Federal Reserve. There's no talk from the Administration. So
traders are wondering: `Where's the bottom for the dollar?'''
Such questions spread to the stock market * * *.
The punishing treatment of America's long-trusted currency,
combined with investors' decided preference for German marks
and Japanese yen Tuesday, startled veteran
[[Page S3662]] traders who wondered aloud how the episode
would unfold.
``It's pandemonium, isn't it?'' said Robert A. White,
senior vice president at Standard Chartered Bank in New York.
``It's shocking to a lot of us old-timers in the market to
see the dollar ostensibly removed as the reserve currency of
the world.''
The dollar hasn't suffered alone. In what has become a
massive, global shuffling of money, currencies of Canada,
Mexico, Italy, Sweden, Belgium and other nations have all
been walloped. Germany's surging mark, meanwhile, has reached
post-World War II highs against the British pound, French
franc, Spanish peseta, Portuguese escudo and Swedish krona.
In New York trading Tuesday, the dollar closed at 1.3702
marks, down from 1.4048 late Monday. It closed at 90.05 yen
after falling as low as 89.05, down sharply from 92.80, the
previous post-World War II low.
The buck has slipped 6% against the mark and yen this month
alone, compared to an 11% loss against both currencies for
all of last year.
``What can we do to stabilize the dollar or cause it to go
up without doing long-term economic damage?'' asked Monica
Williams, vice president and foreign exchange manager at
Sanwa Bank California.
While that answer seemed elusive Tuesday, economists cited
several reasons for the problem that has erupted in recent
days. German interest rates are expected to rise this year,
benefiting lenders. By contrast, Fed Chairman Alan Greenspan
recently hinted that U.S. rates were at or near their peak
levels.
The prospect of a ``soft landing'' for the U.S. economy--
slower growth but no recession--suggests that U.S. consumers
will continue to gobble up imports, keeping the nation's
trade balance deep in the red this year.
What is more, highly visible news from Washington seems to
have convinced speculators that the dollar is a less
attractive haven than in the past. Traders have repeatedly
mentioned the rescue plan for Mexico and the defeat of the
balanced-budget amendment in Congress in recent days as
reasons to abandon the dollar.
``There's a complete lack of faith in the Fed, the
Administration and in Congress to get the budget in order, to
get the trade balance in order,'' White contended.
The controversy spread on Capitol Hill Tuesday, as members
of Congress worried about the dollar and also complained
about the rescue plan for Mexico, entailing $20 billion of
U.S. loans and loan guarantees for the peso.
``It appears that the currency speculators, the vultures of
the world, are beginning to circle around the U.S. currency
because they seem to sense that our currency is vulnerable,''
Rep., Dana Rohrabacher (R--Huntington Beach) said during a
hearing of the House International Relations Committee. * * *
____
Mr. SIMON. Yesterday's Washington Post, in an article by John Berry,
``Dollar Keeps Falling Against Yen and Mark,'' quotes a Washington
economist, L. Douglas Lee:
``The way to address the problem is to do something to
bring savings and investment closer together--such as reduce
the federal [budget] deficit,'' Lee said. And that pointed to
yet another reason for the dollar's weakness--last week's
Senate defeat of a constitutional amendment to require a
balanced budget, which ``was read as a negative by the
currency market,'' Lee said.
The Wall Street Journal, the day before yesterday, in an article by
Michael Sesit, ``Currency's Slide May Mark End of Reserve Role.''
The basic problem for the dollar is that there are just too
many of them sloshing around, says George Magnus, chief
economist at S.G. Warburg & Co. in London. The U.S. current
account deficit--a broad measure of trade in goods and
services plus certain financial transfers--is huge and
growing. In addition, ``there is still an underlying outflow
of investment capital'' as U.S. companies continue to invest
in plants and equipment overseas, he says.
Here I might add what encourages that outflow is when you do not have
a decline in interest here and when it is more productive, when you get
more for your capital, to invest in other countries. The balanced
budget amendment, every projection said, would send interest rates in
this country down.
Then the article continues, quoting this London economist:
``And don't forget that the U.S. is the world's biggest
debtor nation, with external liabilities of $750 billion at
the end of 1994,'' he adds. Last week's defeat of a
constitutional amendment that would have required a balanced
budget by 2002 only underscored the country's lack of will to
reform its ways.
Here is another one, an article from yesterday's Wall Street Journal,
quoting Rudiger Dornbusch, a Massachusetts Institute of Technology
economist, listing the budget deficit accounts as one of the two major
reasons for the drop in the dollar.
The recent slump in the dollar coincides with the Senate's
rejection of a constitutional amendment that would have
required a balanced budget. ``Germany is balancing the budget
without big talk over the next four years. We are widening
the deficit with big talk,'' Mr. Dornbusch said.
And today's Los Angeles Times, ``Dollar Again Plunges, Setting Off
Stock Selloff.''
In the middle it says,
``It's pandemonium, isn't it?'' said Robert A. White,
senior vice president at Standard Chartered Bank in New York.
``It's shocking to a lot of us old-timers in the market, to
see the dollar ostensibly removed as the reserve currency of
the world.''
* * * * *
* * * highly visible news from Washington seems to have
convinced speculators that the dollar is a less attractive
haven than in the past. Traders have repeatedly mentioned the
rescue plan for Mexico and the defeat of the balanced-budget
amendment in Congress in recent days as reasons to abandon
the dollar.
``There's a complete lack of faith in the Fed, the
Administration and in Congress to get the budget in order, to
get the trade balance in order,'' White contended.
The reality is, if we had our fiscal house in order the $20 billion
loan guarantee for Mexico would just be a blip out there. It just would
not have any kind of an impact. In a $6 trillion economy that is not a
big thing.
But when you compound it with our failure to address our fiscal
deficit, then the little things become big things.
I hope we learn the lesson. My hope is that 1 of the 34 who voted
against the balanced budget amendment will recognize that a great
mistake has been made, and that we are harming our country right now.
We are now talking about calling on the Federal Reserve and many other
nations to come to the rescue of the dollar, and that is going to cost
us a great deal. There is a much less expensive way to do it--pass the
balanced budget amendment.
Mr. President, if no one else seeks the floor, I suggest the absence
of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. HELMS. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
____________________