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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (18744)	5/2/2003 4:51:06 PM
From: abuelita	Respond to of 89467

U.S. dollar slide seen continuing ANALYSIS: Economists think currency will keep sinking for months, or even years By BRUCE LITTLE ECONOMICS REPORTER The glow of national pride that goes with a rising currency can been seen around the industrial world these days. The mighty U.S. dollar -- against which almost all countries measure their own money -- is on the ropes, staggering yet again after two years of waning strength. This week, the greenback has taken a special drubbing. The Canadian dollar -- which went over 70 cents (U.S.) yesterday for the first time since April, 1998 -- is at a five-year high against the U.S. dollar, as is the New Zealand dollar. The euro is at a four-year high and the Australian dollar at a three-year high. But most economists believe the slide will continue -- perhaps for months, maybe even years -- before it settles back into some kind of semi-stable relationship with the currencies of its major trading partners. "This is the earthquake we've been waiting to see happen," said Stephen Poloz, chief economist at Export Development Canada. Currency markets are like that; pressures build and suddenly currencies lurch, he added. The dollar's decline may be painful for the rest of us -- because it makes our exports to the United States more expensive and thus less competitive -- but it might also be very good news for the U.S. economy. "The U.S. consumer is pretty responsive to prices," said economist Martin Murenbeeld of M. Murenbeeld & Associates Inc. in Victoria, so they will be more inclined to buy U.S.-made products rather than imports. Washington has been using low interest rates, tax cuts and higher spending to stimulate the sluggish U.S. economy, but there's another option, he noted. "One way to inflate an economy is to devalue the currency." Top U.S. government officials might talk of their devotion to a strong dollar, but most Americans don't care what the greenback is worth elsewhere. Those who do pay attention -- like manufacturers who blame the high dollar for their abundant woes -- are probably quietly cheering the dollar's long slide back to where it was in early 2000, when the world was a much kinder place for the U.S. economy. There has been a kind of neat symmetry to the past 40 months since the beginning of 2000, when the U.S. dollar suddenly took off after several years of steady, but gentler increases. For 25 months -- from January, 2000, through January, 2002 -- the U.S. dollar climbed by almost 19 per cent against a basket of its main trading partners' currencies. Over the 15 months since then, the dollar has given up all those gains, tumbling by more than 16 per cent back to where it started. The final "up" phase coincided with the last gasps of the technology boom and persisted through the U.S. recession and the aftermath of the Sept. 11 terrorist attacks. For its problems, the United States still looked to global investors like a safer place than anywhere else to park their money. Since then, with only a few interruptions, the dollar's direction has been steadily down. Mr. Poloz figures the decline is simply the flip side of the U.S. dollar's rise after the mid-1990s, which was driven by strong U.S. growth and a series of crises in Asia, Russia and Latin America. The United States needs to suck in huge gobs of foreign money to finance its record current account deficit -- now over $500-billion a year or 5 per cent of gross domestic product. But these days, Mr. Poloz noted, most of that money is going into U.S. bonds, where corporate malfeasance is not an issue. Mr. Murenbeeld thinks the bursting of the tech bubble was the real turning point, but investors are also worried about the current account. There was a deficit in the late 1990s as well, "but no one cared because there was good money to be made in the U.S. market. Now, everyone has started to care." How long will the dollar keep dropping? Mr. Poloz thinks it will continue until currencies are roughly back to where they were in relation to each other in the mid-1990s. That would put the Canadian dollar at around 70 or 71 cents, the euro at $1.15 to $1.17 and the Japanese currency trading at about 117 yen to the dollar. Mr. Murenbeeld said the U.S. dollar could decline for another two years. And he can easily sketch a scenario -- although he doesn't think it very likely -- in which the Canadian dollar goes as high as 80 cents. That would surely delight an American manufacturer, but the very thought would chill a Canadian factory owner to the bone. globeandmail.ca