It's Time for Serious Talk About the Dollar
By FLOYD NORRIS
Columnist
The New York Times
March 7, 2003
Is it really terrible when a government official tells the truth?
You might think so, at least when the office in question is that of Treasury secretary and the subject is the dollar.
There were horrified reactions this week when John W. Snow allowed that he was "not particularly concerned" about recent weakness of the dollar. "The dollar is going to rise and fall some," he said. "There's nothing unusual about this, nothing alarming about it." The dollar promptly slipped and commentators started talking about Mr. Snow's gaffe, which was compared to all the ones supposedly committed by his predecessor, Paul H. O'Neill.
Mr. Snow's aides quickly said he continued to believe in a "strong dollar" policy, and the next day he dutifully said the same.
The "strong dollar" policy is one of those things that every administration is supposed to follow, whatever the circumstances. The dollar is down 15 percent against the euro since President Bush took office. You don't hear criticism about that, but traders go berserk if a Treasury secretary does not stick to the script.
Mr. Snow did not agree to be interviewed for this column, but his spokesman, asked what the policy was, provided the following statement: "There has been a consistent policy on the dollar going back the better part of a decade, which I support. I favor a strong dollar. A strong dollar is in the national interest. A strong currency provides a reliable medium of exchange and serves as a stable store of value that people choose to hold. Sound pro-growth economic policies and a commitment to free and open markets are the foundation for a strong dollar." Such generalities do not qualify as much of a policy, but in any case nothing that Mr. Snow said could have reasonably been interpreted as a departure from it.
What is sad about this is that we could use some clear thinking on international economic issues, including the dollar. Mr. O'Neill had clearly given a lot of thought to those issues, but rather than consider what he had to say, the knee-jerk reaction was to say he had committed a gaffe by mentioning the subject at all. It is not clear if Mr. Snow has given much thought to the subject, but the reaction to his quite reasonable observations makes it unlikely he will be willing to say anything if he has.
With the trade deficit continuing to soar and foreigners no longer eager to invest in America, there is something to be said for a weaker dollar. In fact, a continued weak world economy could easily see competitive devaluations, as countries fight for competitive advantages in trade.
During the late 1990's, as America ran up huge trade deficits, the dollar was not damaged because foreigners were eager to invest here. But that has changed.
Last year, foreign direct investment in the United States was just $46 billion, down 85 percent from 2000. For the first time since 1995, American direct investment in foreign countries was greater than foreigners' investment here. There was also a sharp falloff in stock purchases by foreigners. Foreigners now lend us the money we need rather than invest it in assets or shares.
To John Paul Rathbone, an economics commentator on breakingviews.com, such borrowing is evidence that the United States is "taking on the financial characteristics of a banana republic."
That's a hostile view from Britain. But borrowers need to worry about what lenders think of them. Instead, there is little talk about our foreign financial position, and an implicit assumption that we can borrow all we want, for as long as we want, at very low interest rates. It would behoove Mr. Snow to give some thought to those issues, and it would behoove the rest of us to not give him grief if he decides to discuss them, rather than simply repeat the all-but-meaningless mantra of a "strong dollar" policy.
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