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U.S. editorial excerpts -3-.

NEW YORK, Oct. 9 Kyodo

Selected editorial excerpts from the U.S. press:

THE DOLLAR ADRIFT (The Wall Street Journal, New York)

The biggest story in the world economy is the continuing fall of the U.S. dollar, or at least it is everywhere outside of Washington, D.C., the place most responsible for its declining value. For good reason, the world is wondering if America has cast the dollar adrift.

A passel of Asian central banks -- South Korea, Taiwan, the Philippines and Thailand -- intervened yesterday to stop the greenback's fall against their currencies. European Central Bank President Jean-Claude Trichet also tried to buoy the buck, telling reporters that ''A strong dollar is extremely important in the given circumstances.'' Neither effort made much difference.

The attempts at intervention are probably futile, save for the short-term scare they give to currency traders. Currency interventions are typically ''sterilized,'' which means that while a central bank extinguishes a currency (say, Thai baht) in the foreign-exchange markets it creates more baht through domestic monetary operations.

Start with dollar supply, which is entirely a function of America's central bank, the Federal Reserve. The Fed has been flooding the world with dollars in the name of preventing a U.S. deflation after last year's panic, and it shows no sign of tightening any time soon. Last week's awful September jobs report convinced markets that the Fed will keep the money spigot wide open well into 2010. And yesterday, Richard Fisher, president of the Dallas Fed and thought to be a rare hawk on the Fed's Open Market Committee, chimed in that no one at the Fed thinks this is the time to raise interest rates.

All of this is a signal to world markets that holding dollars is a risky proposition, which in turn contributes to falling global demand for dollars. The Fed is telling the world that it is concerned primarily -- perhaps only -- with the domestic U.S. economy. If the dollar falls against other currencies, that's their problem. The Fed will let the dollar fall.

For a time in the wake of the panic, the dollar benefited from a flight to the relative safety of U.S. Treasurys and other dollar assets. In a storm, the dollar was thought to be less risky than other investments. But as this overall global risk aversion has ebbed, the risk calculus has turned and the dollar itself has become more dangerous to hold than nondollar investments.

The world's investors can also see the arc of overall U.S. economic policy, which is becoming less inviting to global capital. Higher taxes on capital gains and income; new entitlements that will require trillions of dollars in new U.S. borrowing; a wave of new antitrust enforcement, more telecom regulation (''net neutrality'') and trade protection, new restrictions on energy production, easier rules for union organizing, and so much more. All of these are signals that U.S. growth is likely to be slower than it otherwise would be, and that the returns on investing in America will be lower than they should be. This too is a reason to sell greenbacks.

Washington may not care to notice, but the sell-off in the dollar is a daily global vote on U.S. economic policy. It is not a vote of confidence.

(Oct. 9)
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Publication:Japan Weekly Monitor
Article Type:Editorial
Date:Oct 12, 2009
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