I guess this would be of interest....

U.S. Goes Along With Dollar's Fall to Alleviate Trade Gap
Quiet Acquiescence Holds
Possible Risks for Market;
Surge in Exports in March
May 13, 2006; Page A1
WASHINGTON -- The Bush adminiion is quietly acquiescing in the dollar's recent slide, a possibly risky egy but one it expects may gently narrow the yawning U.S. trade gap from realigning world currencies.

On Friday, government data showed that gap happened in March. The Commerce Department reported the monthly U.S. trade deficit narrowed to $62 billion, the smallest figure in seven months, spurred by record exports and an import invoice that dropped somewhat despite high oil prices.


Economists' remarks on the transaction report.
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Read the complete text of Friday's economic reports, and analysis from Briefing.com:
• International commerce -- Commerce Department; Briefing.com

• Import prices -- Labor Department; Briefing.com

The adminiion hopes a falling dollar eventually will assist the fad, by producing U.S. exports cheaper for thieves and goods produced abroad more expensive for Americans. The dollar started last year, falling. Since the beginning of April, its drop has accelerated against an assortment of currencies, by the euro to the yen.

But backing currency depreciation can be complied. The dollar's slow slip could grow to be a dip if markets turn against it -- particularly when investors fear the U.S. officials want to engineer a drop. That's why the adminiion is not calling attention except for attempts to press China and its neighbors to strengthen their currencies.

A falling currency also adds to inflationary pressure at home. Fear of the impact is financial markets. The Labor Department said on Friday the U.S. import prices rose 2.1percent in April after two consecutive months of declines -- although the boost was due mostly to a rise in oil prices, not currency shifts.

America's current-account deficit, the gap on commerce and investment earnings, measured a record 6.4percent of gross domestic product this past year. That deficit is considered a possible drag on economic development -- and possible political problem in an election year.

Treasury Secretary John Snow and other members of President Bush's economic staff see continued dollar weakness -- combined with stronger economic expansion abroad -- helping curb the trade deficit, according to individuals familiar with this adminiion's thinking.

If we are going to get our trade deficit down to manageable proportions, it is hard to understand how that could happen without a very considerable depreciation of the dollar, and that means against most currencies, says Princeton University economist Alan Blinder, a former vice chairman of the Federal Reserve Board.

Economists warn that it requires time for shing foreign-exchange rates to make their way to order publiions for exports and imports. But growth has picked up in Japan and other countries overseas, and total U.S. earnings to foreigners of everything from soybeans to software are on the upswing. Excluding the volatile earnings of aircraft and oil products, exports soared to $76.5 billion in March, up 13.8percent from a year before.

'Exports Are Enhancing'

There's no question exports are improving, says Ian Shepherdson, chief U.S. economist for High Frequency Economics, an independent research company based in Valhalla, N.Y.. He credits strong growth away from the U.S. and also a bit of dollar weakening, maybe.

Macroeconomic Advisers, a St. Louis economic-research company, forecasts that the trade deficit will widen through September, then plogist at least at the end of the next year. The effect of a weaker dollar originally will be modest, but it gathers steam in early 2007, '' says Ken Matheny, a senior economist at the company.

The Bush adminiion's egy demands a delie bit of financial diplomacy. With currency traders highly sensitive to any perceived shift in government policy, Mr. Snow should be mindful to prevent remarks that either halt the dollar's gradual decline or unintentionally push it right into a freefall that could further drive up U.S. interest rates, scare off foreign investors concerned about a dip in dollar-denominated resources and slow the economy.

The problem is it is impossible to say anything smart about exchange rates without risking being misunderstood and possibly causing exchange-rate volatility,'' says Kristin Forbes, a Massachusetts Institute of Technology economist and former aide to Mr. Bush. The failure to speak out from the dollar's decline could provoke a market reaction.

Mr. Snow has opted for a multipronged egy: He's retained nearly mum concerning the dollar's overall price, while actively trying to weaken it against the Chinese yuan and currencies from different fields of East Asia that are running big trade surpluses with the U.S.. He has been hectoring Japan and Europe to take steps -- such as loosening labour protections -- that could accelerate their economic development.

To keep from stirring overall currency markets too much, Mr. Snow has adhered to a version of this strong-dollar headline crafted from the Clinton adminiion, an anodyne statement at a time when markets are convinced that Treasury does not want the dollar to strengthen. A strong dollar is in our nation's interest, and currency values should be decided in competitive and open markets in reaction to underlying economic fundamentals, Mr. Snow said Wednesday.

The exact same afternoon, the dollar hit a 28-year low against the Canadian dollar and a nine-year low against the South Korean won. The British pound, which traded at $1.8909 mid-afternoon yesterday along with the euro, which bought $1.2885, would be the strongest they have been in a year from the dollar. Measured from a Federal Reserve index of 19 major currencies, the dollar had shrunk to 81.28 Friday from 85.17 in March.

One reason that the dollar is atmosphere pressure is an increasing sense in markets that the Federal Reserve will soon pause in its campaign to increase interest rates, while central banks in Europe and Japan may be ling their rates in the not too distant future. Economists say that higher interest rates tend to strengthen a country's currency only because they draw in investment.

Mr. Snow and his staff are naturally suspicious of this concept that governments can or should meddle with exchange rates except in extreme instances.

However, the protectionist sentiment sweeping Congress has forced the secretary to become more overt in his attempts to persuade China to allow the yuan to rise in relation to the dollar. The U.S. submitted a $15.6 billion deficit with China in March, up from $12.9 billion a year before and by far the country's single biggest bilateral trade gap.

U.S. exports to China rose during the period, to $4.96 billion in $3.31 billion, amid increased imports of U.S.-made semiconductors and aircraft. But the growth was overrun with a $5.29 billion surge in imports from China, to $47.321 billion, directed by computers, computer components and cellphones.

Chinese officials have vowed to take steps to help correct the imbalance. Early last month, Chinese officials went on a buying spree at the U.S., signing long-term deals to coincide with President Hu Jintao's visit to Washington. They've also promised to take steps to boost domestic demand in China for U.S.-made merchandise. But it might take months, in some cases years, for all those pledges to translate into trade.

Exchange rates are the main focus of bilateral tension. Last week, Mr. Snow said he had been extremely dissatisfied that China, which has taken some steps to make its rigid exchange rate more flexible, hasn't gone further.

Mr. Snow asserts such a move would benefit China's red-hot economy by helping it prevent a sudden crash. He also predicts that it might ripple throughout the other countries of East Asia that are keeping their currencies weak against the dollar and exporting greatly to the U.S. Implicit in his statement is a desire for a extensive depreciation of the U.S. dollar against the currencies of the major economies of East Asia.

Even so, Treasury officials couch their desire in these conditions as flexibility or adjusting. They don't talk about a falling dollar.

Restricted Ability

The U.S. has limited capacity to sway currency prices, whether through action or inaction. Last month, Mr. Snow orcheed a joint statement of the Group of Seven major industrialized countries calling for greater exchange-rate flexibility in China and elsewhere in Asia.

Not long afterward, Japanese Finance Minister Sadakazu Tanigaki, who'd signed off on the statement, seemed to back off by speaking down the yen and -- by impliion touting the dollar. The G7 statement doesn't call for a portion of the dollar, he said at this month's meeting of the Asian Development Bank in India. I am concerned that the market has misunderstood the G7.

Mr. Snow's best international hand, Undersecretary for International Affairs Tim Ad, immediately fired back. We ought to allow markets to set the values of exchange rates, and we all should refrain from not intervening but commenting on exchange rates, he said at Precisely the Same assembly