Business: Can Anything Help the Dollar?

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Washington at last seems to recognize that the dollar slide is not a problem that will go away or can be minimized. The more the dollar drops, the greater becomes the pressure for the U.S.'s trading partners to put up more import barriers to protect their home markets from cheap American products and the greater becomes the chance of a new world recession. The biggest worry of all is that OPEC will hike its oil prices to make up for the losses it is suffering selling oil for dollars that steadily lose value. Last week that fear looked suddenly real as Kuwait's oil minister, Sheik Ali Khalifa Al Sa bah, announced that his country is considering calling for an emergency OPEC meeting to discuss dissolving the current freeze on oil prices. State Department officials bravely pooh-poohed the Kuwaiti call as "blustering." Europeans were less sure. Said West German Economics Minister Lambsdorff: "What I'm afraid of most this year is having to pay 1.5 DMs for two things: a liter of gas and a U.S. dollar."

Unfortunately, Washington sees little it can do to prop the dollar, short of pushing the U.S. economy into a recession that would correct the problem of pulling in more imports, especially oil. The Administration is of course trying to get its energy bill out of a congressional conference committee and onto the statute books. But the bill has already been so watered down by Senate changes that even if it does ever pass, its effect will probably be more psychological than real.

The latest idea is to have the U.S. borrow billions of marks, yen, Swiss francs or whatever from private holders of those currencies to use in buying up dollars to support the price. Such borrowings would supplement the approximately $20 billion in other currencies that Washington can now borrow from foreign central banks to use in dollar-support operations. That might help—but foreigners hold an awesome $300 billion in greenbacks, many of which they could sell for other currencies if they lost all faith in the dollar's stability.

In his televised news conference, President Carter asserted that the dollar's agonies are being caused largely by traders' lack of perception of economic reality. He has a point: by any objective standard of purchasing power, the dollar is now grossly undervalued. A dollar, spent as a dollar, will buy more goods and services than the same dollar will buy when converted into, say, West German marks: a cup of coffee now costs an American in Germany the mark equivalent of 80¢ and a quart of milk $2.

Unhappily, currency markets reflect not only present purchasing power but future hopes and fears, and as long as they do so, the dollar, once a symbol of financial strength, is becoming something of a joke. One example: the drop of the dollar against the DM has made the 190,000 G.I.s stationed in West Germany that nation's newest poverty class. Last week NATO Chief Alexander Haig told congressional committees that some sympathetic West Germans are offering care packages of food and cigarettes to his soldiers. For World War II veterans who remember when a packet of American smokes bought a night on the town in the war-shattered Reich, that is indeed a bitter reflection of the dollar's plight.