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Strategies & Market Trends : MDA - Market Direction Analysis
SPY 659.03+1.0%Nov 21 4:00 PM EST
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To: pater tenebrarum who wrote (34999)12/10/1999 4:15:00 PM
From: Les H  Read Replies (2) of 99985
 
EX-FED'S BLINDER: SEES 'MUCH LOWER' DLR AHEAD FROM TRADE DEFICIT
By John Shaw

WASHINGTON (MktNews) - Former Federal Reserve Vice Chairman Alan Blinder said Friday that so far the burgeoning U.S. trade deficit has had "benign" consequences, but added that a sharp adjustment to the dollar to help reduce that deficit is looming.

In testimony before a special panel examining U.S. trade policy, Blinder said that he expects that "a lower dollar - make that a much lower dollar - will ultimately play a major role in whittling our trade deficit down to a manageable size."

Blinder said that the differential between 10-year government bond rates in the U.S. and Japan is implicitly forecasting that the dollar will be worth only about 70 yen a decade from now.

"Getting the dollar down will not require what some people call a weak dollar policy. Rather, the markets will do the job for us. The key question is whether the necessary exchange rate adjustments will come smoothly or abruptly. My guess is the former - which is the way it happened in the 1980s," he said.

Blinder noted that while the effects of the large U.S. trade deficit have been very modest so far, he said there are "incipient worries" that should be considered.

The former Fed vice chairman said his greatest fear is that the trade deficit will "reawaken protectionist sentiment in the United States. You can see stirrings of this now, though so far they have been muted." He said his other concern is that the trade deficit, "may be setting the dollar up for a big fall."
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