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Dollar’s decline tops G7 agenda

Steve Henn Oct 19, 2007

Dollar’s decline tops G7 agenda

Steve Henn Oct 19, 2007


TESS VIGELAND: The almighty dollar isn’t looking so mighty these days.
It fell to a new record low against the euro in overnight trading. And since 2000 it’s lost more than 40 percent of its value against that currency. Marketplace’s Steve Henn tells us the dollar was one of the big issues staring the G-7 finance ministers in the face as they met in Washington today.

STEVE HENN: To really understand why the value of a dollar has been slipping for five straight years it helps to keep one fact in mind: Americans and our government tend to spend much, much more than we make. In fact, we had to borrow about $800 billion last year.

Desmon Lachman: The United States hasn’t had a deficit of that size in the post-war period.

Desmond Lachman is an economist at the American Enterprise Institute.

Lachman: It’s more or less double what the previous record was roundabout in the mid-80s.

In the past, financing our profligate ways wasn’t that hard because so many people around the world wanted to invest in this country. In recent weeks, not so much.

Lachman: What’s driving the dollar down right now is a perception that the United States economy is weakening.

In fact, foreigners sold more than $69 billion in U.S. assets in August, and if that trend continues it could have ugly economic consequences.

But Catherine Mann, a senior fellow at the Peterson Institute for Economics, says there is only so far the dollar can fall.

Catherine Mann: At some point the dollar is so cheap that investors go on a buying spree. So there’s a sense in which a crash really isn’t in the offing.

If Mann’s right, that’s good news for policy makers meeting today at the G7. If she’s wrong, a collapsing dollar could trigger an economic double-whammy — rising interest rates combined with rising prices for foreign-made goods.

So stock up on that expensive French wine before it’s too late.

In Washington, I’m Steve Henn for Marketplace.

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