Europe Economy

Dollar Must Fall Further: Economic Bureau's Feldstein


Intervention to prop up the U.S. dollar would be wrong because the greenback must depreciate further, Martin Feldstein, president of the U.S.-based National Bureau of Economic Research, was quoted as saying on Friday.

In an interview with German daily Die Welt, Feldstein was asked if it was time for concerted action to support the dollar, which has fallen sharply against the euro in recent months.

"Any intervention would be a mistake, because the dollar needs to fall further," he said, according to the German text of the interview.

"I've been saying for years that European countries need to get ready for a falling dollar. Because the United States needs to continue to reduce its trade deficit."

The non-profit research group NBER has in the past declared start and end dates for U.S. recessions.

It has not declared a recession yet, but Feldstein said earlier this week he personally believed the U.S. has been sliding into a recession since December or January.

"There's no point in supporting the dollar. Because in this period where the American economy is weakened, the dollar exchange rate gives a boost to U.S. exports," added Feldstein. "That's extremely useful."

Feldstein is also a Harvard economics professor and is a former economic adviser to ex-U.S. President Ronald Reagan.

Ahead of an international meeting of policy makers in the United States this weekend, German Economy Minister Michael Glos on Wednesday urged central banks to step up concerted action to ensure stability in the global financial system.

Calls for Banking Sector Regulations

Government officials have said proposals to alleviate the credit crisis are likely to feature high on the agenda at the meeting of finance ministers and central bankers from the Group of Seven (G7) industrialized nations on Friday in Washington.

The following day, the International Monetary Fund and World Bank kick off two days of meetings.

Feldstein said existing regulations designed to ensure stability in the banking sector had created problems.

"Certainly things like the so-called Basel directives on banking regulation need reviewing," he said.

"Because they let banks put capital off the balance sheet in SIVs (structured investment vehicles) unchecked. That was clearly a mistake."

"Otherwise, what's needed most of all is better quality supervision, not necessarily more regulation," he added.

"If they're not comfortable with something, financial watchdogs must insist banks reduce their portfolios...or simply raise more capital. That's really standard procedure, but it's not being done enough. And that's not just true of the U.S."