Dollars and Deficits: ECONOMIC IMPACT Depreciating Dollar Creates Financial Jitters
HEADLINES shout the fact that the dollar has dropped in value compared to the German mark, the Japanese yen, the Swiss francÛÓeven, lately, the British pound. With a tone of despair, New York hanker Robert V. Roosa, sometimes mentioned as a possible successor to Arthur F. Burns at the Federal Reserve, makes a ÐÊ sarcastic reference to the ÛÏsinking dollarÛ and what he terms the "benign neglect" policy of the U.S. government.</br></br>Roosa wants the United States, West Germany, and Japan to intervene in foreign exchange markets to support agreed-upon rates for the Big Three nationsÛª currencies. Burns himself, in his best stentorian tones, warns a congressional committee that ÛÏwe dare not be complacent about the current depreciating tendencies of the dollar.Û</br></br>BurnsÛª concerns now are echoed routinely by Treasury Secretary W. Michael Blumenthal, who in every speech and congressional appearance swears on a stack of Bibles that he is not trying to depress the dollar to get a competitive advantage for U.S. exports. Eearlier this year, Blumenthal incurred the wrath of the German and Japanese governmentsÛÓand of BurnsÛÓ</br></br>In an interview with this reporter on July 21, Blumenthal said, "I would be quite happy to live with whatever the result (of exchange rate fluctuation) is.Û</br></br>To our competitors in West Germany and Japan, that sounded as if Blumenthal was talking the dollar down in an effort to reduce the massive U.S. trade deficit, now estimated at $30 billion. Even with offsetting surpluses on services, the net current account deficit will be about $18 billion this year.