Boston — The decline in the value of the United States dollar threatens to turn into a free fall. ``The exchange-rate change - it's too fast!'' grumbles Deutsche Bank economist Martin H"ufner during a phone interview to Frankfurt.
In the last week, the West German mark has risen in value against the US dollar by about 5 percent. The shift is raising fears of an economic slowdown in that nation of 60 million mostly prosperous burghers as their exports become more difficult to sell.
``It has been pretty traumatic,'' says J. Paul Horne, Paris-based economist for the brokerage house Smith Barney Harris Upham & Co. ``The slide of the dollar has been unexpectedly steep. That change would have been acceptable over three months.''
Europeans are afraid the sharp plunge of the dollar could worsen their unemployment situation. The Japanese, their exports hurt by the strengthening yen, fear a genuine recession for the first time in 11 years. (Impact of falling dollar in US, Page 3.)
The four major European countries - West Germany, France, the United Kingdom, and Italy - already have an average unemployment rate of 10.25 percent. Before the dollar's dive, the Organization for Economic Cooperation and Development (OECD) predicted in its December ``Economic Outlook'' that this jobless rate would increase to 10.5 percent this year.
Moreover, there are widespread fears the dollar's drop could continue.
``The pyschology of the market has turned quite skeptical and bearish about the dollar,'' notes Mr. Horne.
Indeed, some Europeans see the US failure to stem the dollar's fall as a ``power play'' by US Treasury Secretary James A. Baker III.
At last autumn's annual meeting of the International Monetary Fund, Mr. Baker warned the Europeans and the Japanese that more would have to be done to reduce the American trade deficit - which reached about $175 billion last year. If these key trading partners did not stimulate growth rates and thereby encourage more imports, he said, then the dollar would have to fall further.
On Oct. 31, the Japanese agreed to reduce their discount rate (the interest the central bank charges on loans to commercial banks) as part of a program of tax revisions and extra spending to boost the economy. In return, the US agreed to a joint statement saying the yen-dollar exchange rate had shifted enough and was ``now broadly consistent with the underlying fundamentals.''
In effect, the US promised not to try to talk up the value of the yen further. Now the Japanese accuse the US of violating its promise. US officials reportedly say circumstances have changed.
West Germany refused to follow Japan's example and stimulate its economy. With a federal election scheduled for Jan. 25, the government did not want to stir things up. Officials argued that the economy was expanding fast enough and that the money supply was growing too fast to justify trimming interest rates.
Economic events, however, have changed since autumn.
The West German economy - Europe's powerhouse - grew more slowly than expected, 2.5 percent instead of the 3 percent forecast by the government. Japan's trade surplus narrowed as exports weakened, but not by enough to satisfy the US.
Further, US trade figures suddenly worsened in November. Managers of multinational corporations, investors, and speculators, who had thought the trade deficit was moderating, began to fear a greater dollar decline.
Money flooded into the deutsche mark and the Japanese yen. Central banks within the European Monetary System have spent more than 36 billion marks (almost $20 billion at current exchange rates) since Dec. 1 to prevent the mark's value from breaking above the boundaries set by that system. The Japanese central bank also spent huge sums to support the dollar.
It didn't work. The currency flows were too great to staunch. At a meeting last weekend, West Germany and the Netherlands agreed to upgrade their currencies by 3 percent in respect to the French franc. Now the dollar has come under pressure for further devaluation.
``We think it necessary for the German economy to get a breather to adjust to the exchange rate situation,'' said Deutsche Bank's Mr. H"ufner.
With a US dollar costing only 1.83 marks on Thursday, German economists now anticipate slower growth. Deutsche Bank predicts real gross national product to rise between 2 and 2.5 percent this year, compared with earlier forecasts of 3 percent. Commerzbank talks of only 2.2 percent growth in 1987. ``That is not as good as we would like,'' said a Commerzbank economist from Frankfurt.
Now it is widely anticipated that the Bundesbank will attempt to lower interest rates, perhaps even cut the discount rate, once a decent amount of time has passed after the election.
Horne and other European observers suspect the government of Chancellor Helmut Kohl - which the pollsters say should be reelected - will move up a tax cut now scheduled for Jan. 1, 1988.
Japan has instructed a high-level official to press the US for concerted efforts to halt the dollar's depreciation when he arrives in Washington on Monday. There is talk of another meeting of the finance ministers of the Group of Five industrial nations - the US, Japan, West Germany, France, and Britain - following the West German election. A ``crisis atmosphere'' is building.