[Congressional Record Volume 141, Number 50 (Friday, March 17, 1995)]
[Senate]
[Pages S4150-S4151]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                          DOWN GOES THE DOLLAR

 Mr. SIMON. Mr. President, I appreciate the column of James 
Glassman, which has appeared on the financial pages of the Washington 
Post twice a week and, I was pleased to see, on the editorial page the 
other day.
  In a column titled, ``Down Goes the Dollar,'' he suggests that we 
ought to be looking at our deficit if we really want to do something 
about the dollar.
  Unfortunately, the lesson of recent history is that we will pay 
attention to the deficit for a short time, then other things will 
preoccupy us, and our interest in reducing the deficit will diminish. 
That is why we need a constitutional amendment.
  In his excellent column he quotes Alan Greenspan in response to a 
question by Representative John Kasich about what would happen if we 
actually moved to balancing a budget. The Chairman of the Federal 
Reserve Board, Alan Greenspan, replied ``There would be some strain.'' 
Then, he says, as borrowing fell, so would interest rates, and ``the 
effects would be rather startling.'' Real incomes would rise, and we'd 
be ensured that our kids would live better than we have, he said.
  Alan Greenspan's remarks coincide completely with what Data 
Resources, Inc., the Congressional Budget Office, and the General 
Accounting Office [GAO] have told us. The GAO report to us in June 1992 
said that two decades after we balanced the budget, the average 
American would have an increased income of 36 percent. That is a 
startling figure. And they suggest, if we simply stumble along as we 
are doing now, that's what we will do in terms of our standard of 
living, with a possible slight increase or slight decline; or, as 
appears more likely, the deficit gradually grows, their prediction is 
for economic chaos.
  No one should have any illusions. Our failure to address our fiscal 
problems discourages financial markets in this country and around the 
world.
  I urge my colleagues to read the James Glassman column, and I ask 
that it be printed in Record.
  The column follows:
               [From the Washington Post, Mar. 14, 1995]

                          Down Goes the Dollar

                         (By James K. Glassman)

       Dinner for two at Aubergine in Munich now costs more than 
     400 American dollars (including a half-decent wine), and a 
     room at the Imperial Hotel in Tokyo runs $600 a night. But if 
     you aren't planning a trip to Germany or Japan, the recent 
     decline in the dollar won't affect you much. At least not 
     yet.
       Benign neglect can sometimes solve currency problems, but 
     the dollar is so weak right now that the only way to preserve 
     its status as the world's reserve currency may be a sharp 
     increase in interest rates. ``We fear that the ending of this 
     will not be pretty,'' wrote Ray Dalio, an astute financial 
     analyst, in a fax to his clients last week.
       Exchange rates are a complicated and emotional subject. No 
     one really knows why they go up and down, but there's 
     certainly a glut of explanations for the latest crash in the 
     dollar:
       ``The Mexican crisis is almost certainly the single biggest 
     factor,'' said economist John Mueller of Lehrman Bell Mueller 
     Cannon in testimony before a Senate committee.
       ``It comes down to a lack of confidence'' in the ability of 
     new Treasury Secretary Robert Rubin, wrote Hobart Rowen of 
     The Post on Sunday.
       Charles Ramond, whom runs the currency consulting firm 
     Predex in New York, says that the dollar will keep falling 
     simply because it's too popular, especially in emerging 
     countries--``the best U.S. brand since Coca-Cola.'' And with 
     so many greenbacks floating around the world, the dollar has 
     been cheapened as a ``store of value.''
       But there's another explanation that's easier to 
     understand: Our twin deficits--in trade and in the federal 
     budget--are forcing us to borrow too much. Through the early 
     1980s, the United States was the world's biggest creditor; 
     now we're the world's biggest debtor.
       When foreigners lend to us, they have to trade their own 
     currencies for ours. Now, the Japanese, for example, are 
     saying that they'll only part with about 90 yen to buy a 
     dollar, in 1985, they pared with 263 yen.
       If the dollar keeps falling fast, these lenders my become 
     reluctant to make dollar investments at almost any price 
     (that's what happened with peso investments in Mexico). The 
     only way to lure them will be with higher interest rates.
       Dalio believes that if the Federal Reserve moves quickly 
     (it meets March 28), then the rate hike may only have to be 
     one percentage point, or two or three. That would probably 
     mean a recession, but if the Fed waits longer, ``the eventual 
     rate hikes and economic damage will have to be more severe.''
       The truth is that the Fed has shown little appetite for 
     raising interest rates to attract foreigners to the dollar. 
     But the dollar's weakness may force the Fed's hand for a 
     different reason--something economists call ``imported 
     inflation.''
       To make up for a falling dollar, foreign manufacturers have 
     to raise the prices they charge for goods they import to the 
     United States. Thus, it's likely that Japanese cars, for 
     example, will cost more here. If that happens, U.S. 
     automakers will raise their prices, too, slipping under the 
     Japanese umbrella.
       In his testimony before the House Budget Committee last 
     Wednesday, Alan Greenspan, the Fed's chairman, admitted that 
     imported inflation could be a problem and that ``it is 
     important to contain such pressures''--which the Fed does by 
     raising interest rates to dampen economic activity.
       Of course, there's a better way to strengthen the dollar: 
     The government could stop borrowing $200 billion a year by 
     balancing the budget.
       In fact, the defeat in the Senate of a constitutional 
     amendment to do just that--and the subsequent beatification 
     in the press of Saint Mark Hatfield, the only Republican 
     dissenter--may even have ignited the dollar selloff.
       If so, then Congress will soon get a chance to show the 
     international markets that it's serious. Tomorrow, the House 
     Appropriations chairman, Rep. Bob Livingston (R-La.), is 
     bringing a bill to the floor that will cut spending by $11 
     billion immediately. That may not sound like much, but
      it's actually revolutionary. In the past, Congress has used 
     floods and earthquakes as excuses to raise spending in the 
     middle of the year through ``dire emergency'' supplemental 
     bills.
       Also tomorrow, Rep. John Kasich (R-Ohio), the budget 
     chairman, will produce a list of reductions totaling nearly 
     $200 billion. Those cuts would merely pay for the tax 
     reductions in the ``Contract With America,'' but again, they 
     should encourage the markets. Then, in May, Kasich will 
     present what he calls ``The Big One''--the spending cuts to 
     bring the budget into balance by 2002.
       Even if the tax reductions are trimmed by the Senate--and 
     many House Republicans privately hope they will be--balancing 
     the budget won't be easy. That's why Kasich asked Greenspan 
     for some spine-stiffening words for rubbery members of 
     Congress.
       ``What would you tell the American people the reasons would 
     be for making some tough 
     [[Page S4151]] choices up front?'' Kasich asked last 
     Wednesday.
       In the short run, Greenspan replied, ``There would be some 
     strain.'' Then, as borrowing fell, so would interest rates, 
     and ``the effects would be rather startling.'' Real incomes 
     would rise, and we'd be ensured that our kids would live 
     better than we have.
       ``That's an awesome statement, Mr. Chairman!'' said Kasich, 
     practically bouncing out of his seat.
     

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