European Stars And Stripes (Newspaper) - July 3, 1988, Darmstadt, Hesse                                Page 18 the stars and stripes business hews Bank sell offs fail to Stop Buck s rally the Dollar continued to rally on International currency markets in the past week battling repeated Central Bank sell offs to close Fonda above 1.80 West German Marks and at $1.7005 against the British Pound  lower than the eight month highs posted earlier in the week the Dollar was still about 7 percent higher than two weeks ago when improvements in the . Trade deficit and a Rosy economic Outlook in America spurred its  . Federal Reserve teamed with a half dozen european countries during the week to slow the Dollar s climb. Currency traders in Lon Don and Frankfurt said West Germany France by . Kominicki Switzerland Italy Spain Britain and Austria were among the european Central Banks Selling dollars to Force the Greenback into  Bank of Japan apparently did not inter Vene allowing the Dollar to Rise above 133 yen by the week s end. Intervention slowed things somewhat but it did t change the Dollar s direction a British trader said. The Dollar seems to have plenty of steam  there was continued speculation of an Exchange policy rift within the group of seven industrialized countries with the United stat Sand Japan supporting a somewhat stronger Dol Lar and Canada and the european member seeking a stable Greenback at slightly lower lev  credence to the reports was a statement by . Treasury Secretary James Baker Iii that the United states would like to see the Dollar about 10 percent above the level agreed to at the g-7 meeting in december. While those Levels have never been made Public traders believe such a Rise would put the Buck at around 1.80 Marks 138 yen and 1.45 Swiss francs with a British Pound Sterling rate of $1.63."american production for exports is already running at near capacity one trader noted Soa weaker Dollar at this Point is going to do Noth ing for the Trade deficit. From Baker s stand Point it makes sense to see the Dollar higher until . Manufacturing can increase production  a Frankfurt banker blamed the current Short fall in production capacity on the Dollar s High of three years ago when Many . Manufacturer found they could increase profits by moving production overseas. That s got to be reversed he said. The Dollar s new strength allowed it to continue climbing in the face of interest rate hikes in West Germany Britain Belgium Austria an Switzerland a move that normally would make the currencies in those countries More attractive to investors weakening the Buck. The Market Felt the rate hikes were Over due a trader said. However some traders expressed concern that the fed would not follow the european hikes with a similar increase in the unite states eventually robbing the Dollar of some of its strength As investors moved to More Profita ble currencies. Most Felt a . Rate hike was not Likely in an election year. Additionally the said America s robust economic expansion has shown no signs of being  Dollar s Strong performance against the Pound in the last week was attributed to continued Market reaction to the Island country s Trade deficit which nearly doubled to 2.1 billion pounds in May. Administration seems Content with new strength of Dollar new York a the . Government seem satisfied with the Dollar s Sharp Rise which could have the paradoxical effect of shrinking the Trade deficit in the months leading up to the november elections. Even though the Dollar s strength of a few year Sago helped gut american manufacturing the Rea Gan administration seems to believe that the recent Rise in the Dollar is no cause for alarm and could even be helpful. In spite of its recent Rise the Dollar remains Farbelow its Peak of Early 1985. For now Treasury Secretary James a. Baker Iii May have concluded that although there Are dangers from a stronger Dollar they Are less fearsome than the dangers of a weaker Dollar. If the Dollar weakened the United states Wouldhave to raise interest rates sharply to keep foreign ers interested in owning Dollar securities. And a big Rise in interest rates could squelch the6-year-old economic expansion. With the Dollar strengthening the United states has More latitude to set policy economists said. It gives them a bit More room of mane vering said Shafiqul islam senior fellow for finance at the Council on foreign relations in new York. As a Side Benefit a currency Rise might make the Trade deficit smaller Over the next several months because it takes fewer dollars to buy a Given volume of imports. And a Given volume of exports brings in More dollars. Eventually a stronger Dollar would Worsen the deficit because the lower Dollar Price of imports would cause americans to buy More of them while foreigners would decide american products had be come too expensive and switch away from them. However a Strong Dollar gives a new perspective to America s trading partners who have g9tten used to thinking of the . Currency As an invalid indecent years. The world Economy is unusually healthy in spit of forecasts of doom after last october s worldwide Stock Market crash. It is so healthy that Central Bankers Are concerned their economies May overheat and they have Bee slowly nudging interest rates higher. The strength of the Dollar has made it easier Forcentra Banks in Europe and Japan to raise their rates which is a politically difficult decision be cause it tends to suppress economic growth. In turn the increase of interest rates overseas gives the . Federal Reserve some room to mod Estly raise interest rates in the United states As anti inflation Medicine. The United states cannot raise rates too much Forfar of causing the Dollar to shoot too High but it does not want to increase rates much anyway be cause too High rates could choke off the Economy s growth. The Dollar s strength is coming at an opportune time said Lawrence Leuzzi an economist for . Warburg & co. In new York. At the Treasury department Baker is a close ally of vice president George Bush the All but certain Republican nominee for president. Baker May believe a modest Rise in the Dollar could Dampen inflation without causing the monthly Trade deficits to balloon. If you can go into the election with a Strong Economy a falling deficit and a Strong Dollar that s a Good combination islam said. The Federal Reserve is politically Independent of the Reagan administration but fed chairman Alan Greenspan also seems to have concluded the Dol Lar s Rise is at least tolerable. The fed and the Treasury have taken Only Small Steps to control the Rise of the Dollar which has shot up since june 14, the Day the Commerce depart ment announced a big improvement in the Trade deficit. Eventually the Federal Reserve and other Centra Lbanks will decide the Dollar s Rise has gone far enough and take Steps to Knock it Back Down. The ., of course does t want to see the benefits of the decline of the Dollar against the major currencies Given up so i would imagine there would come a Point where you would see More forceful intervention said Irwin Kellner chief economist of manufacturers Hanover Trust co. Tax saving dependent care fund for military being studied by Navy by Chuck Vinch Washington Bureau Washington service members could get tax Breaks on child care costs if a Navy plan to change military pay Laws is approved by the de sense department and Congress. The plan would be the military version of a sys tem already in use in the private sector that lets employees set aside a certain portion of their Sala Ries in tax free spending accounts said James Tal Bot the Navy s director of military personnel policy. If an employee chooses to use such an account it would be set up so that the employer acts As Book keeper he said. The employee would have a certain amount of Money deducted from paychecks and put into the account. He d then submit child care Bills to the employer who would take the appropriate amount of Money out of the  the Navy is developing details of the plan Suchias whether to handle accounts centrally through the main service finance centers or through local finance offices Talbot said. There Are several conditions that would have Tobe met he said. For example people could use the accounts Only for the purpose of obtaining dependent care which would allow them to work. You would t be Able to do this just to get rid of the kids for a few hours a Day he said. There would be a limit on the amount of Money an employee could put in an account and any Money left Over at the end of the year would be forfeited to the employer. That Means people would have to estimate an Nual child care expenses carefully. Those provisions would keep people from dump ing Large portions of their earnings into the account Sand using them As tax shelters. Employees already Are eligible to deduct child care expenses on itemized tax returns but Talbot said the set aside accounts offer advantages Over itemizing at the end of the year. At most income Levels employees Are allowed tout More Money into the spending accounts than they can claim As deductions he said. The guidelines for spending accounts Are also broader he said. That Money can be used for dependent care which would include the care of an elderly Parent. Itemized deductions Only apply to children under the age of 15." spending accounts also Benefit the employer in this Case the defense department by reducing the amount of mandatory social Security and medi care contributions that Are paid by the employer based on a worker s taxable income Talbot said. It will take some time for the Navy to gather the comments of the other services and Forward a pack age to Dod. From there it will go to Congress which will take still More time. But i can t see Why anyone would be opposed tothe idea Talbot said. The need for military child care keeps growing and this is one excellent Way to broaden the scope of How we help military families Deal with that