US calm despite growing deficit

The United States’ trade deficit is soaring and the once high-flying dollar has sunk to record lows against Europe’s common currency but US President George Bush’s administration has reacted with remarkable calm to developments that raise worries about a possible dollar crisis.

US Treasury Secretary John Snow, when asked, sticks to his standard comment that the administration’s position in favour of a strong dollar has not wavered.

Beyond such comments has come no single government action. During its four years in power, not once has the administration intervened in currency markets to support the dollar or done anything else to stop the dollar’s slide.

At one point last week, the greenback hit an all-time low when it took $1.30 to buy €1. That rate was down 8% from where the dollar stood in relationship to the euro just three months ago.

The slide means that a vacation for Americans in Europe is now more expensive, and European products coming into the US will cost more.

Most economists say the dollar, already down by about 10% over the past two years against a market basket of foreign currencies, has yet to reach its lowest point.

In fact, some think the dollar needs to decline by 10% more to deal with climbing US trade deficits.

“The trend to a weaker dollar is going to continue. The trade deficit is just too big,” said David Wyss, chief economist at Standard & Poor’s in New York.

The dollar’s record low against the euro coincided with the US government’s report that the United States was running a trade deficit through September at an annual rate of $592bn (€456bn).

That compares with last year’s record $496bn (€382bn).

As a result, the US is having to borrow from overseas this year to pay for the imported cars, televisions and other items Americans are buying.