Checking the dollar's fall

BENIGN neglect is seldom the best policy, such as when your motorboat is heading toward the waterfall with the engine deliberately turned off. In circumstances like that, who wouldn't crank up the engine and reverse course? The American economy is not yet at the waterfall, despite concern about the dollar, which has been plummeting these past few days against the Japanese yen and the German mark, to name just two currencies. The dollar has fallen 30 percent or so in a year and a half and is now at a six-year low against the mark and a record low against the yen. Nor is the bottom in sight.

The situation in Tokyo, where the Japanese government is intervening to shore up the yen, is described as grim. Anti-Americanism has resurfaced. In Bonn, government officials are said to be dismayed at this week's dollar ``free fall,'' which is apparently occurring with the consent of the Reagan administration; the administration wants a lower dollar to help spur exports.

The danger in a rapid downward spiral, such as that of the past few days, is obvious: Imports will become more costly, adding to inflation. Should foreign investors pull back from US financial markets, interest rates would be expected to climb back up. (The budget deficit, after all, has to be financed, one way or the other.) But higher interest rates could prompt a slowdown. And a slowdown in the United States could not help having adverse impact on overseas nations: on third-world nations with heavy foreign debt burdens, but also on major US trading partners such as West Germany, which are more dependent on exports than is the US.

But that is the worst-case scenario, which need never occur. The US government has time on its side. Despite its extensive, although gradual, drop over the past two years, the dollar is still high - estimated to be about 15 percent above where it was back in 1980. The US Treasury and or the Federal Reserve Board could yet intervene, independently or jointly, to stem any further decline. And indeed, if a sharp fall were to continue well into next week, such an intervention should not be ruled out.

Fortunately, the long holiday weekend approaching in the US comes at just the right moment, since trading activity is expected to slow over that period.

There is no denying that the dollar had to come down, if the US trade deficit - which will probably exceed $170 billion this year - was to be reduced. So far, the trade deficit benefits have not been achieved, despite currency agreements with the main US trading partners. West Germany and Japan should take further steps to expand their economies, as Washington has long urged. Still, encouraging a greenback free fall hardly seems a cooperative, neighborly way to bring about economic cooperation from West Germany and Japan. Further, would additional dollar devaluation alone, or even primarily, boost US exports all that much? American industry still has to do a far better job in designing, manufacturing, and marketing products - at whatever cost - that will be sought out abroad.

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