Dollar Daze

When Alan Greenspan, the oracle of the Federal Reserve, wrinkles his brow in disapproval at a financial trend, it sends ripples into world markets.

Recently, markets have wondered what Mr. Greenspan thought about pressures on the US dollar exchange rate as a result of Americans importing more than they export and Washington spending more money than it collects in taxes. These two deficits are financed to a large degree by foreigners who buy dollars, and who could just as easily sell them, sending the US economy into a tumble.

On Friday, the central bank chief warned that this dollar buying "cannot continue to increase forever."

What he didn't say was that the government should try to intervene in currency markets to stop the recent decline in the dollar's value. In other words, market forces, for now, can still correct the current account deficit in trade. The US now owes $2.6 trillion to foreigners, which amounts to a quarter of the US economy. That figure should go down as the devalued dollar helps push US exports up.

That deficit could also decline if the US applied more pressure on foreign nations such as China to open their markets further to industries and services where the US is competitive. China, especially, needs to let its currency float on market forces.

Greenspan predicted "a diminished appetite" for foreigners buying the greenback. His warning seemed to come with a certain faith in world markets adjusting to the dollar decline. Congress, however, needs to follow his advice to rein in the government deficit by returning to the budget discipline of the past decade.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK