[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.

                          ____________________