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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (95772)	5/1/2002 1:06:12 PM
From: Edmond Katonica	Read Replies (1) \| Respond to of 132070

Dollar Drop WASHINGTON (Reuters) - U.S. Treasury Secretary Paul O'Neill said on Wednesday that governments cannot permanently sway currency values with rhetoric or market intervention, but his own words sent the U.S. dollar plunging against the world's major currencies. O'Neill, in an impromptu statement at the beginning of testimony before the Senate Banking Committee, flatly warned that he was not about to give currency speculators any "ammunition" by implying any change was forthcoming in the strong-dollar policy of the United States. He said only speculators benefit from swings in foreign-exchange values and "I don't want to give them any ammunition to say that there's a basis for roiling the world currency markets out of our conversation here this morning." That "conversation" brought turmoil as markets were disappointed that O'Neill did not call for a strong dollar more forcefully. The U.S. dollar fell sharply against other currencies as a result, and also because markets inferred that O'Neill's comment that intervention was not effective meant he had no intention of opening his tool kit to counteract the recent slide in the dollar. O'Neill said real economic performance was far more important in setting currency values than was any rhetoric from governments. "I'm talking directly about interventions in world financial markets," he said in response to questions. "I'm saying I think there's a real doubt about the effectiveness of interventions or words about intervention." O'Neill also played down fears a huge gap on the U.S. current account -- the broadest measure of trade -- left the country vulnerable to a sudden reversal in fortune and said it reflected a productivity-driven U.S. investment boom over the past decade. O'Neill said the U.S. economy was fully recovered from its weak spell last year and said it was vital to concentrate on creating conditions that allow competition to thrive regardless of changes on foreign exchange values. "I am convinced that the United States has regained its economic footing," O'Neill told the hearing, convened ostensibly to discuss a semiannual report from Treasury but that pitted opponents of a strong U.S. dollar against O'Neill. DOLLAR COMPLAINTS TO BE AIRED Manufacturers charge that the strength of the currency is costing Americans jobs because foreign producers are able to sell their goods more cheaply into U.S. markets. Jerry Jasinowski, president of the National Association of Manufacturers (news - web sites), told the committee there was no question the dollar was "overvalued" in relation to other leading world currencies. "This overvaluation is having a devastating effect on U.S. manufacturing and on jobs," he said. Fred Bergsten, director of the Institute for International Economics -- and like Jasinowski a long-time critic of strong-dollar policy -- similarly said in prepared remarks that the dollar was overvalued by as much as 20 to 25 percent. O'Neill said fears about a threat from the current-account deficit "ignore forces that are working in the market." The deficit has swelled to around 4 percent of the value of the nation's total economic output from about 1-1/2 percent of gross domestic product in the mid-1990s. "The current-account represents the gap between domestic savings and investment and has grown in the face of a productivity-fed U.S. investment boom for the past decade," O'Neill said. "It is financed by international capital inflows that have risen over this period due to strong foreign interest in investing in the United States," he added. MONEY POURING IN Capital inflows into the United States have remained strong even when economic activity slowed, interest rates fell and stock prices were down, O'Neill noted. "This is a clear demonstration that foreigners regard investment in the United States as continuing to offer extremely attractive rates of return," he said. O'Neill added the money was coming to the United States because of the continuing long-term soundness of the U.S. economy as well as the fact that its deep and stable financial markets made investing in America safe. Speaking of global economic prospects, O'Neill said Europe also was recovering but its expansion was likely to lag the United States and to be slower paced. Japan was still lagging, and despite efforts to increase liquidity was experiencing "entrenched" price deflation, O'Neill said. He said Japan, with the world's second largest economy, must come to grips with its problems of massive bad bank loans and should deregulate industries to encourage greater price competition within its economy. Prev. Story: Construction Spending Fell in March Wed May 1,10:32 AM ET - (Reuters) Next Story: Kmart May Restate 2001 Results Wed May 1,12:14 PM ET - (Reuters)