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Don't Blame Bill
A fall in the value of the dollar versus other currencies has dominated financial news for the last month. There has been a great deal of speculation about the cause of the decline in value, and most has included the assertion that "a lack of confidence in President Clinton" is the problem.
Financial news has a summer silly season, just like regular news, and in finance this year there is no O.J. Simpson to fill the gap in serious news. Money types take summer vacations, too, and with fewer big shot decision-makers around to stir the pot, nothing much bubbles up from the bottom.
Before awarding blame for a weak dollar, a silly season confession is in order. The dollar isn't unusually weak. Against the currencies of European, North and South American, and Asian trading partners, the dollar is worth about what it has been worth for the last seven years. The dollar versus yen exchange rate is the only big negative change.
Nevertheless, it's been hard to find a finance column which hasn't attributed a fall in the stock market, a reversal in bonds, a pending tightening from the Fed, or a rise in mortgage rates to a "dollar crisis," and the crises is supposed to be Bill Clinton's fault.
Though the Clinton administration may seem in disarray to some observers at home, if he is going to be blamed for a fall in the value of the dollar, we ought to examine the leadership of the rest of the world.
Consider the governments of the "G-7" nations, and the regard in which they are held by the financial markets. (Note: please do not consider the following tale of woe as a forecast of doom and gloom. The world economy is really in pretty good shape, its leadership and regional mayhem notwithstanding.)
The oldest government goes first. During the Prime Ministership of John Major, Great Britain has retaken its place at the head of the world's submerging nations. Mr. Major's "popularity" at home is struggling to hold the teens, not least because of an uncontrolled devaluation of the pound sterling shortly after an "over my dead body" speech by Mr. Major in defense of the pound.
France suffered in the same (authentic) currency crisis 18 months ago, and continues to have double-digit unemployment. Francois Mitterand is about to retire, and there is neither successor nor political consensus in sight.
Italy and its lira are hardly bastions of financial strength, and its politics are deeply troubled by a lurch toward fascism. Also, Prime Minister Silvio Berlusconi stands accused of a depth corruption which makes Watergate look like a high school prank (and Whitewater the no-foul-in-office, embarrassing non-event that it is).
Canada has a new, weak government, and an old, weak currency. Remember when those pretty Canadian dollars were worth slightly more than a greenback? Try 73 cents. Canada also may not be a nation for long: beyond the immediate prospect of secession by Quebec is the chance of collapse of the whole federation.
In Germany, Chancellor Helmut Kohl is fighting for his political life, and the strains of ethnic conflict and reunification are well known. The deutschemark is strong, and has recently risen in value against the dollar, but the hard money policies at the Bundesbank are holding unemployment near 10%.
Which leaves Japan. The early July plunge of the dollar below 100 yen was triggered by the rise to power of Tomiichi Murayama and his Socialist party. In an utterly corrupt arrangement, the old establishment party, archenemies of the Socialists for 45 year, threw in with the Socialists to prevent the reformers from making progress.
Instantly, the markets knew that the only real power in Japan was held by bureaucrats in the various ministries who have championed compulsive saving and predatory trade, dead were hopes of help for consumers, taxcuts to stimulate the Japanese economy, and trade reform.
The currency of a nation with no government at all (as we know it) shot up in value against all other currencies.
A shaky dollar may signal coming inflation in the U.S. It may be a warning about accumulated deficits. Perhaps we cannot continue to buy so much more overseas than we sell to others. Maybe we depend too much on foreign oil. More likely, American stocks and bonds appear to be at or beyond a top in value, and investment money is moving to foreign markets in search of capital gains.
Whatever. But don't blame Bill for this one.
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