Panicking about deflation, Treasury lets dollar slide?
Monday, May 19th, 2003
The US has promoted a “strong dollar” for eight years, and the dollar has consistently gained value against other currencies. For the last couple of months, we seemed to have backed away from that position.
Asked what he means by a strong dollar, Sec. of Treasury John Snow said: “You want people to have confidence in your currency. You want them to see the currency as a good medium of exchange. You want the currency to be a good store of value. You want it to be something people are willing to hold. You want it hard to counterfeit, like our new $20 bill. Those are the qualities.”
The Wall Street Journal continues, “More important than what he said was what he didn’t say. Asked whether the U.S. strong-dollar policy still refers to its value against other major currencies, he paused and responded: ‘We’re talking about these qualities that I enumerated.'”
The dollar’s decline has been “fairly modest,” said Snow.
The dollar has dropped 27% over the last year against the Euro and with “support” like Snow’s, will likely continue to slide. For exporters, a weak dollars mean more sales abroad; for US consumers and producers, weaker dollars mean more expensive imports. With the government concerned that the American economy will slip into a depression because people stop spending money in anticipation of cheaper goods next month or year (delation), happy exporters and some import inflation seem attractive.
Some additional notes: a) although the dollar has plunged, it is only back to the level of four years ago, b) weakening the dollar, we may just be exporting recession — Germany, UK, France and Japan will have more trouble exporting and their already tottering economies will be undermined by our move; this could bite us back if they buy fewer goods c) the biggest recessionary force in the US is the overleveraged and aging baby boomer, who will need to save rather than spend for the next ten years to get ready for retirement. $1 = 0.85 euros today.