Irving Fisher reincarnated -- Treasury Sec. Bullish on US Economy
WASHINGTON (AP) - Treasury Secretary Paul O'Neill told Congress on
Wednesday that the U.S. economy, rocked last year by a recession and
the Sept. 11 terrorist attacks, ``has regained its economic footing.''
O'Neill predicted that the U.S. rebound would help lead the global
economy to stronger growth by the second half of this year.
O'Neill delivered an optimistic assessment of U.S. growth prospects to the
Senate Banking Committee. The hearing was called to air complaints from
American companies that they are being hammered by the high value of
the U.S. dollar, which has priced their goods out of overseas markets and
opened them up to a flood of cheaper-priced imports.
However, O'Neill made it abundantly clear during the hearing that the
administration had no intention of changing its view that a strong dollar is
in the best interests of the United States.
``There is no intent with anything I say to give comfort to those who think I
am going to change our policy,'' O'Neill said in response to committee
questions.
The Bush administration's allegiance to a strong dollar policy is copied
from the Clinton administration. Both the Democratic and Republican
administrations maintained that the U.S. economy reaps enormous
benefits from a strong dollar, which helps to hold down inflation, provides
consumers with a wealth of product choices from all over the world and
attracts the billions of dollars in foreign investment the country needs to
offset its huge trade deficits.
``I am convinced that the United States has regained its economic
footing,'' O'Neill said, noting last week's report that the economy in the
first three months of this year was surging ahead at a 5.8 percent annual
rate, the fastest performance in two years.
``This performance is a testimony to the inherent resilience of our
economy that over the past six months has continually surprised on the
upside,'' he said.
O'Neill in his testimony took issue with a recent warning by the
International Monetary Fund that the country's huge trade deficits were
one of the biggest risks facing the recovery in the United States and the
rest of the world.
O'Neill said the rise in the current account reflected the fact that investors
around the world saw the United States as offering ``extremely attractive
rates of return'' and was a testament to the ``long term soundness and
relative strength of our economy's fundamentals.''
However, the committee heard a far different view from officials of the
National Association of Manufacturers, the AFL-CIO, farmers groups and
others who warned that the huge U.S. trade deficit was a threat to the
economy that had already cost thousands of jobs. They blamed much of
the increase in the deficit on a 30 percent rise in the value of the dollar
since early 1997.
NAM President Jerry Jasinowski said the administration had to recognize
the suffering an overvalued dollar was creating in the manufacturing world
and work with U.S. allies to gradually reduce the dollar's value against
other currencies, such as the Japanese yen and the European euro.
``The overvalued dollar is .... perhaps the single most serious economic
problem facing manufacturing in this country,'' Jasinowski said in his
testimony. ``It is decimating U.S. manufactured goods exports, artificially
stimulating imports and putting hundreds of thousands of Americans out
of work.''
C. Fred Bergsten, a prominent economist who heads the Institute for
International Economics, a Washington think tank, told the committee
that every 1 percent rise in the value of the dollar produces an increase of
at least $10 billion in the current account trade deficit and he estimated
currently that the dollar is overvalued by 20 percent to 25 percent. The
U.S. current account deficit, the broadest measure of trade, stood at
$417.4 billion last year, near its all-time high of $444.7 billion set in 2000.
If the dollar remains overvalued, Bergsten said, the U.S. current account
deficit is likely to approach $500 billion this year and could hit $800 billion
by 2006, an amount equal to 7 percent of the entire U.S. economy.
Bergsten said the ``worst policy'' for the administration, faced with these
enormous deficits, would be to continue its support for a strong-dollar and
wait for market sentiment to change and start bringing the dollar down in
what could be a very disruptive fall.
``It is time for the administration to change its policy toward the dollar ...
to reduce the risk of the much more severe adjustment that will inevitably
hammer us later if it continues to ignore the problem,'' Bergsten said.
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