THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Tuesday, May 9, 1995 TAG: 9505090001
SECTION: FRONT PAGE: A14 EDITION: FINAL
TYPE: Editorial
LENGTH: Medium: 68 lines
The United States, usually the lecturer on world affairs, became the lectured last month, as finance ministers from the six other leading industrial nations gathered in Washington, D.C., to talk money - specifically the weakness of the dollar.
We deserved to be lectured, said Jesse Hughes, associate dean of the Old Dominion University College of Business and Public Administration. ``Until our government decides to meet its fiscal responsibilities and face up to the large debt we're carrying,'' he said, ``the other governments have every right to be critical.''
Deserved or not, the lectures weren't pleasant.
The dollar has dropped to a historically low point compared with the German mark and the Japanese yen. In 1971, for example, a dollar bought one 361 yen; today it buys 83. ``If that's not debasement of a currency, what is?'' asked Mark R. Eaker, a professor of business administration at the University of Virginia Darden School of Business.
Because of the dollar's relative frailty, German and Japanese products cost more when sold here, and American products cost less when sold there. Germany and Japan want the United States to pump interest rates to add muscle to the dollar. But such a hike might take the hum out of the U.S. economy, so Clinton said no thank you.
Instead, we smiled and promised to work to reduce the federal deficit. U.S. Treasury Secretary Rubin noted that President Clinton already has shrunk the budget deficit to 2.7 percent of the nation's economy, down from about 5 percent in 1992. That's the lowest or second-lowest percentage of debt to economy among the seven leading industrial nations.
After a while, the other finance ministers went home grumbling, and nothing much changed.
There may come a time, however, when the United States will have to not just listen to but heed foreigners' lecturers, when we will not be masters of our own fate.
Here's the problem. Other nations have huge budget deficits, too, but their citizens save, so the countries can borrow from themselves.
Americans don't save much - less than 3 percent of income, half the rate saved in the 1970s and far less than Europeans and Japanese stash away. That means our government has to borrow significantly from foreigners to continue spending more money than it takes in in taxes.
When we owe others money and need to borrow continually from them to stay afloat, we must keep them happy. And at some point, they instruct us what would make them happy, what we must do to make the dollar worth a hill of beans.
We remain masters of our own fate for now. But if the deficit is not dealt with, and if we are not persuaded to save more money, down the road maybe eight or 10 years, our goose could be cooked.
``We stop being masters of our own fate,'' Eaker said, ``when other countries require us to borrow in their currency instead of in dollars.''
That happened on a small scale during the Carter administration, Eaker said. Before it happens on a large scale, domestic savings must go up, and it would help if the deficit came down.
Eaker opposes an income-tax cut at this time because it would increase the deficit and further weaken the dollar, but he favors changing the tax system so it no longer discourages savings and capital formation.
Something else that might help: For every 100 or so TV commercials urging us to buy something, we should sneak in one or two giving reasons to save. by CNB