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Bush weak dollar policy receiving praise Original Source Link: (May no longer be active)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAvJcDT9u8NU&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=aAvJcDT9u8NU&refer=home
Dollar Bear Market Slide More Boon Than Bane for Bush (Update1)
By Bo Nielsen
July 23 (Bloomberg) -- Everyone from Nobel Prize laureates to the world's biggest bond investor says the Bush administration has reason to cheer the dollar's slide to historic lows.
The currency has lost 13.2 percent since January 2001, when George W. Bush took office, the most under any president since at least Gerald Ford, who left the White House in 1977. That's based on a Federal Reserve index that tracks the dollar against the currencies of 38 U.S. trading partners, including Germany, Japan and Canada.
A weaker dollar is helping the economy and may bolster voters' confidence in the Republican party as the U.S. heads into a presidential election year. Rather than causing foreigners to flee U.S. securities, the depreciating currency is making American goods less expensive abroad and helping offset the worst housing recession in 16 years. Exports reached an all- time high of $132 billion in May, the government said this month.
``The early line of the George Bush administration was that we want a strong dollar,'' said Paul Samuelson, the 1970 recipient of the Nobel Prize in economics and professor emeritus of economics at the Massachusetts Institute of Technology in Cambridge, Massachusetts. Over time ``they began to want a depreciated dollar,'' he said.
Treasury Department data going back to 1978 show that every administration except Bush's entered the foreign exchange market to buy dollars in an attempt to support the currency.
No Change
Treasury Secretary Henry Paulson's stance hasn't changed since he said in May that ``a strong dollar is in our nation's interest and that our currency rates, like all currency values, should be set in a competitive marketplace, based on economic fundamentals,'' according to Brookly McLaughlin, a spokeswoman. The Treasury has stuck to its strong-dollar mantra for the past decade.
The dollar set a new low of $1.3845 per euro today, and is the weakest in 26 years versus the British pound. A U.S. tourist heading to England will pay more than $2 for one U.K. pound, up from about $1.65 at the end of 1997. Against the Canadian dollar, it's the lowest since 1977 and it's the weakest in seven years versus Brazil's real.
``A weak dollar is in the interest of the United States and in fact the world economy,'' as a means of spurring demand for U.S. goods at home and from abroad, said Jan Hatzius, chief U.S. economist at Goldman, Sachs & Co. in New York.
Coca-Cola and Caterpillar
The economy grew 3.3 percent last year, after expanding by 3.2 percent in 2005. Housing subtracted 0.27 percentage point from growth last year, after adding a half percentage point in 2005. Exports added 0.93 percentage point, up from 0.68 percentage point in 2005, Commerce Department data show.
Prospects for higher profits from exports helped push the Dow Jones Industrial Average to a record high last week.
Peoria, Illinois-based Caterpillar Inc., the world's biggest maker of earth-moving equipment, said last week the dollar's drop added $198 million to its sales in the second quarter.
Coca-Cola Co., the world's biggest soft-drink maker, said the weaker dollar increased its operating income by about $60 million last quarter. About 70 percent of Atlanta-based Coca- Cola's revenue is from outside the U.S.
``We saw a positive impact from currencies,'' in particular the dollar versus the pound and euro, Coca-Cola Chief Financial Officer Gary Fayard said on a conference call on July 17.
International Appetite
The decline in the dollar has helped trim the U.S. trade deficit. The shortfall in the current account, the broadest measure of trade, has shrunk to $192.6 billion in the first quarter, equivalent to about 5.7 percent of the economy, from a record 7 percent in 2005.
Treasury officials have complained the dollar is too strong compared with the currency of China, which accounted for 30 percent of the U.S. trade deficit in 2006. The Treasury last month called the yuan ``undervalued.''
The 13.2 percent tumble under Bush compares with a 18.3 percent gain under Bill Clinton and declines of 0.2 percent under George H. W. Bush, 0.4 percent under Ronald Reagan, 3.0 percent under Carter and 2.3 percent during Ford's tenure, the Fed's U.S. Trade-Weighted Real Broad Dollar Index shows.
The dollar's drop hasn't dented international investors' appetite for U.S. securities. They added a record $126.1 billion in May, Treasury data showed last week. The prior monthly record inflow was $120.9 billion in August 2006.
The currency may end the year at $1.36 per euro, according to the median forecast of 36 analysts in a Bloomberg News survey published July 9.
Central Banks
OppenheimerFunds Inc., which is based in New York and manages $250 billion, and Newport Beach, California-based Pacific Investment Management Co., which manages the world's biggest bond fund, say the dollar may reach $1.45 per euro this year as the Fed keeps its benchmark interest rate unchanged at 5.25 percent.
Central banks in the euro region, the U.K. and Japan may lift their benchmark rates from 4 percent, 5.75 percent and 0.5 percent. Rate increases can draw investors to a nation's deposits.
The potential for an even weaker dollar may sour investors on the world's biggest economy, said David Malpass, chief economist at Bear Stearns & Co. in New York.
``People want to invest into strengthening currencies,'' said Malpass, who worked in the Treasury Department under Secretary James Baker.
`Helping the U.S.'
Foreign buying of U.S. securities is a result of overseas producers recycling export proceeds into dollar-denominated financial assets, he said. Direct investment by foreigners into U.S. businesses and real estate fell to $22.9 billion in the first quarter, the lowest in almost two years and about 50 percent of the year-earlier period, according to the Bureau of Economic Analysis.
The dollar's ``trend will be down over the next couple of years,'' said Richard Clarida, a former assistant Treasury secretary under Bush and now a global strategist at Pimco. The firm manages $687 billion, including the $102 billion Total Return Fund. ``A weaker dollar in conjunction with strong demand in the rest of the world is helping the U.S. rebound.''
Last Updated: July 23, 2007 08:24 EDT
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