The U.S. needs to adopt a policy for a “strong and stable dollar” to ensure sustained economic growth and attract investment, said Steve Forbes, chief executive officer of Forbes Inc.
The U.S. recovery will be disappointing because small businesses are still having financing difficulties and will hold off on hiring, Forbes said in an interview in Kuala Lumpur today. The economy may face another “falloff” after an initial rebound resembling that of the 1930s and the 1970s, he said.
The trade-weighted Dollar Index has fallen 11 percent since President Barack Obama’s inauguration in January, in part because of a budget deficit projected to rise to $1.6 trillion this year as the government increases spending to boost the economy. A strong dollar is “very important” in the U.S., Treasury Secretary Timothy Geithner said this month.
“For the dollar to be weak, you cannot get a strong recovery,” said Forbes. “The Obama administration has to recognize that it must make it a formal policy to have a strong and stable dollar. They have taken no actions to bring that about.”
World Bank President Robert Zoellick, in remarks set for delivery today, said the U.S. shouldn’t take for granted the dollar’s status as the world’s dominant reserve currency. Policy makers from China to Russia have repeatedly called for an alternative to the dollar as the main currency in foreign- exchange reserves.
‘Shun the Dollar’
The U.S. budget deficit needs to be reduced for the dollar to stabilize, Forbes said. He is in the Malaysian capital for the three-day Forbes Global CEO Conference, which starts today.
“Obviously the Federal Reserve responds to the pressures of the economy and the marketplace but it does still have some autonomy, and if the Fed does not print money to finance the budget deficit, the dollar will stabilize,” he said. ‘It’s made it clear that it has no interest in a stable dollar so the markets are going to shun the dollar, which is bad for us and bad for the world.”
Fed policy makers last week indicated for the first time since August 2008 that the economy is accelerating, even as they recommitted to keep their benchmark interest-rate “exceptionally low” for an “extended period.” The central bank has already begun cutting back some of its emergency aid to financial firms as part of its so-called exit strategy from a $1 trillion credit expansion.
Poverty Rate
The central bank said Sept. 24 it will further shrink auctions of cash loans to banks and Treasury securities to bond dealers, reducing the combined initiatives to $100 billion by January from $450 billion. The Fed cited “continued improvements” in financial markets.
While large companies have access to raise capital through bonds and stock issuances, smaller companies and consumers still need help, Forbes said.
U.S. household incomes decreased in 2008 and the poverty rate rose to the highest since 1997, boosting concern that consumer spending will play a limited role in leading any recovery from the worst recession since the 1930s. Plunging home values and stock prices have fueled a record $13.9 trillion loss in household wealth in the U.S. since the middle of 2007.
“The Fed, instead of buying Treasury bonds, should instead be buying packages of loans in the securitization market, get that moving again, for small business loans, for consumer loans like credit card and car loans,” Forbes said. “That’s been a critical part of the economy in the last 20 to 25 years.”
Reverse Course
The Fed will probably “reverse course” in the coming months, helping the U.S. economy “get back on the path to good recovery” in 2010, Forbes told reporters later today.
“In the meantime, you’re going to see more growth in Malaysia, more growth in the Asian region, more growth in Western Europe,” he said. “There is no reason why, if the U.S. gets the dollar stable again and the U.S. economy growing again, we should have a long period of stagnation. There is nothing inevitable about it. It was bad policy that created the crisis. Good policy can pull us out.”
By Shamim Adam – bloomberg.com
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