Travelers will find European vacations more expensive. Toyotas will cost more. There may be a hiccup in interest rates. United States cotton farmers, with a good year under their belts, will have a better year this year. Computer manufacturers will start shipping more machines out of the country.
There is no question that a less-desired dollar will affect the American economy. In most cases it won't be noticeable right away, unless a person is on the way to Europe. ``You should have gone skiing in Switzerland last year,'' says David Wyss, an economist with DRI Inc., a Lexington, Mass., consulting firm.
The falling dollar will take time to have an effect on the trade balance. ``It took us six years to get into this [trade balance] mess,'' Mr. Wyss says. ``I think it will take us six years to get out of it.''
George Wino, chief economist at the American Textile Manufacturers Institute, agrees. ``Sure, textiles exports are up by maybe 10 percent,'' he says, ``but they are up from a low base.''
Further, Mr. Wino notes the currencies of Hong Kong, Korea, Taiwan, the People's Republic of China, and Mexico have not been part of the dollar avalanche.
In fact, economists are convinced the current fall in the dollar, to its lowest level against the Japanese yen and near-record lows for the German mark, will take time to solve the US trade deficit problem. William Cline, a senior fellow at the Institute for International Economics in Washington, says he believes the trade deficit will peak in the next two months, but it will take two years for US companies to regain their roles as Yankee traders. ``It's about a two-year lag in the contracting and delivery of goods,'' he explains.
Economists worry that a snowballing of the dollar could cause a blip up in interest rates. The US counts on foreign capital to help fund the deficit. A lower-valued dollar discourages investors. ``Financing is the real Achilles' heel of this economy,'' says Alan Stoga, an economist with Kissinger Associates in New York. The budget, economy, and dollar are interrelated, he explains, adding, ``If foreign financing slows down, it could cause a recession that no one needs. It's the greatest risk to the economy in the short run.''
There are also some inflation consequences of the dropping dollar. Because the US will continue to import, the cost of foreign goods will rise. Some of these price hikes will work their way into the inflation indexes. Mr. Cline notes the ``rule of thumb'' is that a 10 percent decline in the value of the dollar causes about a 1.5 percent rise in prices over a two-year period. ``You do have to be concerned about overshooting with the US dollar,'' he says.
But over the longer term the falling dollar should be beneficial. ``Almost everyone believed the dollar had to go down further than it did to bring our trade balance back to acceptable levels,'' explains Robert Solomon, a senior fellow at the Brookings Institution in Washington.
The drop in the dollar's value, which has fallen 5.8 percent against the mark since Dec. 31, caught official Washington by surprise. A report that the administration wanted the dollar to fall further was denied Wednesday by the White House.
Separately, Joseph Coyne, spokesman for Paul Volcker, chairman of the Federal Reserve, says the Fed is ``watching with intense interest'' the currency fluctuations. Last Sept. 24, Mr. Volcker told the House Ways and Means Committee the dollar was close to where it should be. Mr. Coyne says Volcker still feels that way.
The official confusion about the dollar is not surprising, some analysts say. Mr. Stoga partly blames the Iran-contra affair. ``There is a perception of confusion,'' he says, ``and no one knows who is the disciplinarian for common economic policy.'' This may not be bad for the volatile currency markets, says Mr. Solomon, who used to be the top international economist at the Fed. ``Sometimes it makes sense for a government to express more than one view,'' he comments.