Word: dollarization
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Dates: during 1980-1989
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Howard Wachtel, professor of economics at American University, is worried that if the trade deficit does not show some signs of improvement soon, the dollar might tumble further. That could force the Federal Reserve to raise interest rates to stabilize the U.S. currency, whatever the toll on economic growth. Admits a top Administration official: "There has never been a trade deficit of this magnitude that has not been corrected by a recession...
...increased competitiveness of American firms in overseas markets comes not only from the cheaper dollar but from a dramatic streamlining of U.S. industry over the past five years. Companies have closed down outmoded factories, and are squeezing more output from those that survive. As a result, America's manufacturing productivity has risen faster than West Germany's and nearly matched Japan's increase during the past two years...
Finally, the declining dollar could rekindle inflation, even as it revitalizes U.S. companies. As the cost of imports rises, domestic manufacturers could see that as an opportunity to boost their prices as well. For that reason, the inflation fighters at the Federal Reserve may try to prevent the dollar from falling too fast...
...Westerners watched in horror as the images of death filled their TV screens: the rows of fly-haunted corpses, the skeletal orphans crouched in pain, the villagers desperately scrambling for bags of grain dropped from the sky. What started out as a trickle of aid turned into a billion-dollar flood. The U.S., the largest donor, sent $500 million, and that does not include millions in private contributions. Irish Rocker Bob Geldof enlisted the help of his fellow musicians, dubbed his crusade Band Aid and raised $140 million. The rescue effort was plagued by delays and controversy, and some...
...will not be easy -- or painless -- for the U.S. to resolve its economic problems. Even if the country avoids a recession in the near future, it faces a long period of slower than normal growth, which will be necessary to bring down the trade deficit. The decline in the dollar will help, but only by curbing the rise in the U.S. standard of living. If Americans cannot lower their expectations now, they face faster inflation and a truly nasty recession somewhere down the road...