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Fiscal Policy A Sinking U.S. Dollar Dominates The Debate At Davos

657 words - 3 pages

The article I have chosen to analyze is from nytimes.com printed on January 27, 2005. The title of the article is A Sinking U.S. Dollar Dominates the Debate at Davo. This article discusses the relentlessly sinking dollar and the inability to find and an answer to the problem. It indicates how economists, politicians and business executives are very concerned about the imbalances in the global financial system, which is reflected in the dollar's steep fall against the euro and other currencies. But most were unsure that the Bush administration would reduce the trade and budget deficits, which have led to those imbalances. The article indicates that The White House has said that it does not view these issues as a major problem because foreigners still view the American economy as a good investment. Some at the forum said they doubted that China, which is financing much of the American debt, would bow to ...view middle of the document...

The article states that it depends upon how well fiscal policy is applied, I believe there needs to be some change in U.S. fiscal policy, with the dollar already trading at $1.30 to the euro, near the level of economic unacceptability for Europe the United States could not rely on currency markets to right the imbalance between it and the Asian countries that finance American deficits by buying Treasury bills. Many think that the answer lies with the Federal Reserve, which is said to raise rates aggressively to curb the spending binge. Whether it could do that without triggering a recession is the question. Certainly, Europe cannot rely on Asia to take the pressure off the euro. While people there said they were guardedly optimistic that China would eventually allow its currency, the yuan, to rise against the dollar, few were willing to take a guess as to when or to what extent. "That will need a political commitment and a political will, and I don't see that happening this year,'' said Takatoshi Ito, a specialist in international economics at the University of Tokyo. Some economists warned that the expanding trade deficit and weak dollar could cast a shadow over negotiations to liberalize world trade, which have been slow for many reasons in the last year.China's record trade surplus with the United States could fuel protectionist forces in the United States, said C. Fred Bergsten, the director of the Institute for International Economics in Washington. He said he could foresee moves to impose import barriers on Chinese wood and shrimp. ''This is a poisonous environment for trade policy and for domestic politics in the United States.'" In the last couple of years, with the White House's march to war in Iraq, Davos itself has been a rather bad environment for Americans. Those tensions have only gotten worse this year and no real solution was found.Referencesnytimes.com, (2005). INTERNATIONAL BUSINESS; A Sinking U.S. Dollar Dominates the Debate at DavosRetrieved February 10, 2005.From: http://query.nytimes.com/search/restricted/article?res=F40716FF3C5F0C748EDDA80894DD404482

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