Weak dollar lifting exports, not inflation
Currency has slid 8% during Paulson's term
WASHINGTON - Treasury Secretary Henry Paulson, whose signature appears on every new dollar bill, may find the weak currency with his name on it helps the US economy more than the strong one he publicly endorses.
The dollar's 8 percent slide during Paulson's 15 months in office is good news on the docks of Long Beach, Calif., where shipping containers are making their return trip to Asia filled with US-made computer, auto, and aircraft parts whose prices have become more competitive abroad. What's more, economists don't foresee the weaker currency generating higher import prices and accelerating inflation.
"The dollar is in a quasi-sweet spot," says Joseph Quinlan, chief market strategist at Bank of America Corp. in Charlotte, N.C. "It's dropped enough that it's creating an earnings upside for US multinationals, while I expect many foreign companies to hold the line on prices they charge US consumers."
Exports by General Motors Corp., Boeing Co., and other US companies were up 11 percent in the second quarter from a year earlier, shrinking the nation's first-half trade deficit in goods by $14 billion, to $405 billion. Exports of goods grew more than twice as fast as imports in the first half of 2007.
The government will report August trade figures Thursday, and a Bloomberg survey of economists says they will show a further narrowing of the gap.
Asked how Paulson, 61, views the dollar's slide, his spokeswoman, Brookly McLaughlin, refers to his recent statements reiterating the official US policy since Robert Rubin ran the Treasury under President Bill Clinton: "A strong dollar is in our nation's interest."
As Treasury secretary, he can't be expected to say anything else, says Tom Fitzpatrick, global head of currency strategy at Citigroup Inc. in New York.
"You have to say a strong currency is in your interest, because if you go the other way, why the hell would anyone want to invest here?" he says.
At the same time, Paulson has reason to be privately pleased with the dollar's decline, says Sophia Drossos, currency strategist at Morgan Stanley in New York and a former Federal Reserve economist.
Noting that Congress is considering sanctions to redress the trade imbalance with China, she says, "If you are the US administration and you don't want to see protectionism take hold, what is your incentive to change anything? It doesn't seem like it's in the interest of the US Treasury to arrest the decline of the dollar. They are accepting it as a move based on fundamentals." 