December 6, 2004
By JIM LANDERS
The Dallas Morning News
WASHINGTON – A weakening dollar is raising alarms.
Is the delicate balance that has kept the global economy going despite jaw-dropping U.S. debts about to give way? A growing number of economists think so.
Harvard University president Larry Summers has dubbed this the "balance of financial terror." He and other economists fear a crisis that will lower U.S. living standards.
The current arrangement, where America buys and borrows while Asia sells and saves, is creaking under the weight of exchange rates that many analysts say are coming apart.
If the analysts are right, American consumers may soon confront sticker shock at favorite retailers such as Wal-Mart and Home Depot. American automakers, on the other hand, might get a chance to climb out of a bathtub of red ink.
The Bush administration says don't panic: White House advisers say global debts and exchange rates would sort out smoothly if the rest of the global economy would follow the growth path America is walking.
Economists with Germany's Deutsche Bank say recycling dollars from America to Asia and back again will keep rewarding both sides. Michael Dooley, David Folkerts-Landau and Peter Garber see it as a new Bretton Woods Agreement, an international system devised in 1944 to stabilize exchange rates that lasted for almost 30 years.
"Our story has been that the countries in Asia that have been lending us money will find it in their interest to continue to do so," Mr. Dooley said. "And the United States will still get enough foreign money to keep interest rates low and continue to use world savings for both investment and consumption."
Fort Worth-based Pier 1 Imports Inc. has turned away from Italian designs because of the high value of the euro, but it otherwise weathering the storm without raising prices, said executive vice president Jay Jacobs.
"Obviously we're not real happy with it, but we compete with other U.S. retailers, and we're all in the same boat," he said.
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