Word: dollarization
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Dates: during 1980-1989
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...American economy -- and there will be some blow -- by easing Federal Reserve monetary policy and allowing interest rates to come down. Meanwhile seek the cooperation of foreign nations to ease their own interest rates and stimulate their home economies -- and perhaps let the exchange value of the U.S. dollar gradually nudge lower. It will not be an easy policy to carry out, since it calls for a degree of coordination in meshing intricate moves that policymakers rarely achieve. But it might work, and it is difficult to see what else would...
Many American experts now believe that was a serious mistake. The dollar, its real value undermined by budget and trade deficits, has continued to attract more sellers than buyers. Central banks have spent something like $90 billion this year buying greenbacks to prop up the price. Worse, the Federal Reserve was forced into the high-interest-rate policy that proved to be poison to world stock markets. And still the Louvre values could not be sustained. ( Last week the dollar fell to new lows against the West German mark and Japanese yen; foreign governments seemed willing to buy only enough...
...economists generally believe any attempt to restore the Louvre values would push the Federal Reserve back into a dangerous high-interest-rate policy and would be bound to fail anyway. "Willy-nilly the dollar is going to fall in the next two to three years," says Charles Schultze, who headed the Council of Economic Advisers under Jimmy Carter. Feldstein figures that the dollar would have to drop 30% in five years to reach a sustainable value and adds that if natural market forces were left to work unhindered, most of that decline would occur in the next twelve months...
Free-marketeers like Feldstein would just as soon let that happen and get it over with. Says Herbert Stein: "The dollar should be allowed to decline as far and as fast as it will." But that course runs a gigantic risk: a free- falling dollar could easily touch off a panic flight of foreign capital from the U.S. That is about the last thing anyone wants, since it could trigger a worldwide financial collapse. It would be much better to renegotiate the Louvre accord to allow a gentle, managed decline in the dollar. As part of such an agreement, foreign...
When the world needs him most, Reagan seems weirdly lost. Neither Congress nor the 1988 candidates appear ready to take charge. -- Raise taxes? Cut spending? Or what? After years of festering, economic problems are far harder to cure. -- Wildly fluctuating, the market rallies slightly despite a collapse of the dollar. -- Some firms cut back, fearing a recession. See THE CRASH...