Reply #1: "The dollar's decline " from the New York Times [View All]

Dollar's Steep Slide Adding to Tensions U.S. Faces Abroad


http://www.nytimes.com/2005/01/25/business/25dollar.html?ex=1264395600&en=b24ce6b9786cbaac&ei=5090&partner=rssuserland


By DAVID E. SANGER

Published: January 25, 2005


his article was reported by David E. Sanger, Mark Landler and Keith Bradsher and written by Mr. Sanger.

WASHINGTON, Jan. 24 - After a first term in which terrorism and war dominated President Bush's foreign policy agenda, his allies in Europe and Asia suspect that his next confrontation with the world could take on a very different cast: a potential currency crisis, in which a steep plunge in the value of the dollar touches off economic waves around the world


Already, the tensions over the dollar are becoming a recurring source of friction, a conflict that does not reverberate as loudly as the differences over Iraq but may be as deeply felt. At a meeting in Paris on Monday, the finance ministers of Germany and France complained that Europe had unjustly borne the brunt of the dollar's decline, and called for coordinated action to stop it.

"Europe has until now paid too big a share in this readjustment," Hervé Gaymard, the French finance minister, said. His German counterpart, Hans Eichel, said the United States needed to reduce its deficits, adding "each one has to play its role."

Two months ago, similar sentiments came from China's prime minister, Wen Jiabao, whose nation is at the center of a struggle with Washington over currency policy. He complained about the fall of the dollar, asking, "Shouldn't the relevant authorities be doing something about this?"

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But should the dollar continue to fall - if, for example, global investors determined that Mr. Bush did not have the will to hold spending down - it would not only add to tensions, analysts said. It might also force up interest rates at home to keep foreigners interested in financing America's need to borrow more than $600 billion a year to cover its gap in the current account. The current account is the broadest measure of the trade and financial flows into and out of the country.

To be sure, the dollar's fall may never reach crisis levels, and in the last few weeks, after a more or less steady fall of almost 35 percent against the euro and 24 percent against the Japanese yen over the last three years, the dollar has stabilized a bit. Many experts argue that a further decline, if relatively modest and gradual, is entirely manageable.

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on edit ( T. Sec Snow of the la la land administration saying US economy in wonderful shape and they're just jealous.....)