European Stars And Stripes (Newspaper) - February 11, 1987, Darmstadt, Hesse Wednesday february 11, 1987 the stars and stripes Page 3 Dollar s decline hurting German exports from Page i the waging of i silent Trade War through the International currency markets Haki r has denied such claims say ing that the Dollar has made an orderly still the Treasury Secretary s announcement monday that ministers of the so called g-5 the United Stales Germany Japan France and England would not meet this month As had been rumoured sent the Dollar plummeting in new York. The Dollar dosed at 1.8166 Marks in Frankfurt tuesday Karl Prochl director of the Bundesbank in Frankfurt has said the United states is clearly playing with fire with its policy of Herunter Ryden or talking Down the Dollar s value on the International markets. Stability on the currency exchanges focal said in a january press conference can Only begin when the United Stales starts acting like a country with a the United Stales must accept the consequences of its fiscal and monetary policies which derive from the fact that they have a growing debt with the rest of the world he said. German Industry a frequent critic of Bonn s economic policies in the past is in agreement concerning the question of How big a Rote the Federal Republic should play in reducing the american Trade deficit. Yes Germany would like More growth More growth than we had last year but not at the Price the United Stales would have us pay said Wolf gang Baumann director of credit and economics at the federation of German Industry in Cologne. We would Tike More growth but by Market forces and not by government demand not by new inflation and not by Medicine from higher Baumann estimate that Germany s Economy Wil grow by perhaps Only 2 percent in 1987, a half percentage Point lower than the rate posted last year and Well Short of he 4 percent the United states says would be needed to trim its Trade deficit to a More manageable 160 billion to $70 billion. We can do what we cad do in the framework of our economic strength Baumann said. But do not ask Ger Many to solve the problems of the United states the strongest most complicated country in the world. Sets photo by Gua scholar we can do something for the . Trade deficit but nol very much because the demand in the United Stales is still too High for foreign goods. Japanese aulos Are now very expensive. My i l they sell and sell and sell in the uni cd Stales he said. Tax cuts a further drop in German interest rules and other moves sough by Washington arc risky Baumann said be cause they serve to enlarge the German Money Supply and ultimately Lead to inflation. This is something the United states does not understand about the Ger mans he said. We arc a Middle class society. These arc the people in our country who work and save. And 1wic in this Century in Germany nol in the United states the Middle class lost All of ils wealth through inflation. That is something we do not want to Ever happen Many economists predict that the Dol Lar buoyed in the last week by talk that the g-5 planned to Mucci later this month will decline sharply should such a meeting take place since the participants Are unlikely to reach agreement on Shor ing up the Dollar. The Points of View arc just too differ enl an economist at an american Bank in Frankfurt said. There will be no agreement at a g-5 meeting and the Dol Lar will sink even lower following it when the Market sees that Lack of Baumann agrees. The g-5 can meet whenever they want in whatever great City of the world and spend their Money on Nice hotels he said. They can say they would like a Dollar of 170 yen and a Dollar of 2. To Murks. But a meeting alone will nol do should the United states stick to its policy of reducing the Trade deficit through a weaker currency some economists warn the Dollar Likely will sink Back below 1.so Marks. "1 hear Marks i hear 1.30 Marks a Frankfurt banker said. Lei s ignore the extremes. I think 1.70 Marks to the Dollar is the Low and that it will stay that Way until about the Middle of the year. After that a gradual move up Ward to about 2 Marks to the Dollar and then stability two Marks to the Dollar is Good for japanese and German exporters and the americans should be Able to live with it he said. Economists foresee Little change in . Interest rotes Washington a interest rates which fell dramatically last year Are Likely to show much less movement in 1987 amid concern by the Federal re serve Board Over a weaker Dollar and rising inflation economists predicted monday. During 1986, a variety of interest rates including Home mortgage rates fell to their lowest Levels in nine years As the fed pursued an aggressive policy of lowering rates in order to stimulate a sluggish . Economy fed policy makers Convene again tuesday for their first strategy session of the new year a key meeting at which they will establish Money growth targets for 1987. While the results of the session will not be revealed until fed chairman Paul Volcker testifies before the Senate banking committee on feb. 19, Many private economists Are looking for a More cautious fed approach. While these analysts Don t believe the Central Bank will try to push interest rates higher they Don t i pct an Effort to pull Rales lower either mainly because of concern by fed officials Over he Sharp drop in the value of the Dollar. Reagan administration facing political heat because of the record 1170 billion . Trade deficit last year has allowed Market forces to push the value of the Dollar lower contending that a weaker Dollar is needed to Stem protectionist pressures in Congress. A lower priced Dollar theoretically makes imports More expensive White making american products More competitive on overseas markets. But a weaker Dollar also carries a threat of higher inflation and loss of the foreign capital America needs to finance its huge Federal budget deficit. The belief is that foreigners the Dollar s decline is. W. German Mark 3.d5 2.00 1.35 1.90 1.85 1,90 1.75 15 a in number of it Wall German v Marks to one a a a Dollar vol a Holiday Mellil Lull Lull slim 21 29 s 12 19 in Jan. pm �4"4b i is. Japanese yen 1i"5 16d ibs Iso 145 1 do Tkv to out or of \ Yon w one . Dollar it a Tokyo a close i 22 m 5 12 19bc. Jan o Trust ten i Porti would be less willing to invest in this country if a Dollar devaluation Cut into their profits. Volcker in recent appearances has been Hilling hard at this theme stating last week thai economic history is littered with examples of countries Tiit tried and failed to solve their Trade problems through currency devaluation alone. Up until recently Many analysts had been expecting a Cut in the fed s discount rate the rate it charges to loan Money to Banks. The fed Cut the discount rate four limes in 1986, but Michael Evans head of a Washington economic consulting firm said he did not Sec any further cuts. The fed can t afford to alienate foreign investors he said that is the main thing Volcker is concerned other analysts agreed also noting that recent eco nomic statistics have hinted Al stronger growth in 198 alleviating fed concerns that More stimulus was needed to Avert a recession. The latest data on the Economy suggest enough strength especially in the previously weak Industrial sector to make it a unanimous decision nol to relax policy said Allen Sinai chief economist for Shearson Lehman Brothers of new York because of these views analysts said there will be no replay of last year s plunge in interest rates. Mortgage rates dropped to their lowest level since january 1978, just Over 9 percent at the end of the year while the prime rate the Benchmark business tending rate fell to 7.s percent 2 percentage Points lower than it Begum the year with various other rates also falling to their Low est Levels of this decade. David Wyss. An economist with data resources inc. Said we Are looking for a basically Flat interest Rale picture with some increases in the second half of the year As inflation picks up. But nothing the fed seeks to influence economic growth by con trolling the Cost of Money interest rates. It does this through changes in its discount rate and by controlling How fast the Money Supply increases. Analysis predicted thai the fed will reaffirm Tenta Tive 1987 monetary targets that it set six months ago. Those targets Call for growth in the Basic measure of Money known As m-1, of 3 percent 10 8 percent and growth of 5.5 percent to 8.s percent for two broader measures known As m-2 and m-3
