Weak Dollar Good

Well, this is a big switch from decades of policy.

Washington -- Treasury Secretary John Snow has tacitly but unmistakably abandoned Washington's longstanding support for a strong dollar in favor of a weak dollar that is getting weaker, though he continues to insist there has been no change in policy.

Stripped of the code words and elliptical references to "excessive volatility" in exchange rates, the message that Snow delivered over the weekend to finance ministers from Europe and Japan was that the dollar's plunge against the euro is just fine and that the dollar should now decline more rapidly against Asian currencies as well.

In so doing, the Bush administration has made a calculated economic and political choice. By condoning and even encouraging a cheap dollar, the administration is providing a big push to American exporters by making their products less expensive in foreign markets.

That should encourage more hiring and lower unemployment leading up to the election. The only immediate losers are exporters in Europe and Asia who have to choose between cutting prices and losing market share in the United States.

But the long-term risks are substantial. At some point, a weaker dollar will inevitably lead to higher prices for imported goods -- almost all consumer electronics bought by Americans, most of their clothing, many of their cars and much of the oil that provides the fuel to drive them.

A much bigger risk is that a plunging dollar could contribute to a rise in interest rates, as foreign investors demand fatter risk premiums before agreeing to buy hundreds of billions of dollars worth of Treasury securities to finance America's high levels of indebtedness.

The United States needs to attract $1.5 billion a day in net capital inflows from abroad -- $500 billion a year more than it sends out -- which means that the world is being flooded by American IOUs at levels never seen before. The administration's huge budget deficits could increase that need for foreign capital even more, and higher interest rates would add billions of dollars to those deficits.