A Plan to Tame the Dollar

Whenever business executives get together these days, the talk quickly turns to the strong dollar. Says Peter Peterson, former chairman of Wall Street’s Lehman Bros. and Commerce Secretary during the Nixon Administration: “I am on five company boards, and on four of them there is much more discussion about the dollar than ever before.” Peterson, who was a guest at the meeting of TIME’s Board of Economists, called for quick action to stop the rise of the dollar and help American exporters. His program:

Reduced Budget Deficit. “The first step,” says Peterson, “is to get our budget deficit down on a long-term structural basis.” He believes that even a relatively modest first-year cut of about $50 billion would be helpful. If the reductions included freezes and a cap on cost of living increases for programs like Social Security, the moves would send “the kind of signal the financial markets really need to get long-term real interest rates down.” Lower rates would make the dollar less attractive to foreign investors.

Easier Money Policy. As the budget deficit shrinks, the Federal Reserve should carefully increase the growth of the money supply. The added funds would lower interest rates further, help stimulate business activity and give a boost to the stock market. Since commodity prices are steady and inflationary expectations are low, this could be done without undue risk of rekindling inflation.

More Growth Abroad. The U.S. has been the engine of expansion for the world during the past two years. Other countries, especially those in Western Europe, and Japan, should now stimulate their economies and share the burden. Such action would boost their imports and lower the U.S. trade deficit. Foreign countries, Peterson stressed, must do their part to buy Third World goods in order to bolster the income of heavily indebted nations, which is essential to keeping the international debt bomb from exploding.

Currency Market Intervention. Peterson believes that if the first three steps are implemented, fundamental causes of the dollar’s strength, like interest rates, will begin “moving in the right direction” and the dollar will decline in the long run. “Then,” he says, “exchange-rate intervention can help the trend along.” Peterson warns, however, that “if the fundamentals are moving in the wrong direction, intervention could prove expensive and futile.”