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To: Les H who wrote (4276)	12/23/2002 12:49:20 PM
From: Les H	Respond to of 29597

Treasury Trapped in Faustian Bargain With Dollar quote.bloomberg.com extract: Truth Hurts The idea that the Bush administration would be happy with, or not upset by, a weaker dollar is not new. The problem is, the market got hooked on the empty words uttered by former Treasury Secretary Robert Rubin: ``A strong dollar is in the best interest of the U.S.'' The market's addiction to the Rubin mantra and the administration's willingness to comply have locked all parties into a dangerous game. Treasury Secretary Paul O'Neill lost his job because he dared to speak the truth about dollar policy (among other things). Even someone as idiosyncratic as O'Neill had to be brought into line: Destabilizing the currency market was unacceptable at any price. The first peep that the U.S. may be softening or abandoning its ``strong dollar policy,'' and the dollar might plummet. That would satisfy the economists and strategists, not to mention hedge funds, who have been predicting the dollar's demise for a few years. And it would be a gift to manufacturers, given the factory sector's depressed state. But the collateral damage on the stock market might be more than policy makers can stomach as the U.S. prepares for war with Iraq. Risk Factors The dollar is down 8 percent year-to-date against a basket of weighted currencies of the U.S.'s largest trading partners. That's an impressive performance given that the U.S. current account deficit, near a record high of almost 5 percent of gross domestic product, was supposed to mean death to the dollar -- one of these years. The U.S. overnight interest rate adjusted for inflation is negative, which is a disincentive for overseas investors to park money here. The U.S. stock market is finishing its third consecutive year with losses, the first such occurrence in 60 years. Commodity prices are behaving as if stimulative monetary policy is starting to find its way into hard assets. So there are a lot of reasons the dollar might be feeling queasy on its own, without any official guidance. The Treasury may very well be looking for a new dollar slogan, as opposed to a new dollar policy, since ``the old one doesn't make sense,'' Crandall says. ``But they need a slogan that is not destabilizing. And they need a slogan they can say with a straight face.'' The trouble is, they made a Faustian bargain, and those sorts of wagers aren't easily reversed -- at least not without dire consequences. Also Deflation? Too Much Price Competition? Forget It quote.bloomberg.com