Dollar's Drop Gives Industry a Position In World Markets: Yolcker ...
Federal Reserve Chairman Paul A. Volcker yesterday said that, the value of the U.S. dollar has declined far enough in the past 18 months to make American industry competitive again in world markets.</br></br>However, Volcker cautioned id testimony before the House Ways and Means trade subcommittee that other economic policy actions must be taken both here and abroad before the swollen U.S. trade deficit can be reduced to acceptable levels.</br></br>Those steps include reducihg consumption in the United States in favor of more investment, beginning with cuts in the federal governmentÛªs budget deficit, he said. Û÷Tor other countries, some appropriate mix of monetary, fiscal and other policies to sustain and enhance domestic demand are required if their trade surpluses are to decline in a context of healthy world growth,Û he continued.</br></br>Treasury Secretary James A. Baker III and Volcker have been pressing the Japanese and West German governments to stimulate domestic demand in their countries, and both have been resisting. Last week, Baker said that the alternative would have to be still further depreciation of the dollar, and his remarks temporarily knocked the currency down on foreign exchange markets.</br></br>Volcker, as he has frequently-in the past, warned that "without support of other policies, exchange rate changes can be counterproductive in important respectsÛÓinflationary in the United States, and a restraint on demand and economic activity abroad.Û