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Bush pledges strong-dollar policy by cutting federal deficits
WASHINGTON -- President Bush pledged Wednesday to work with Congress to reduce the government's huge budget deficit as a key step in assuring the world that his administration supports a strong dollar.
"We'll do everything we can in the upcoming legislative session to send a signal to the markets that we'll deal with our deficit, which, hopefully, will cause people to want to buy dollars," Bush told reporters.
Bush's comments came following a meeting at the White House with Italian Prime Minister Silvio Berlusconi, who had raised the issue of the dollar's plunge in value against the euro, the currency of Italy and 11 other European nations.
"The policy of my government is a strong-dollar policy," Bush said during a brief news conference following the Oval Office meeting, echoing statements he and Treasury Secretary John Snow have made numerous times over the past three years as the dollar's value has fallen sharply against many major currencies.
Bush's comments did not prevent financial markets on Wednesday from pushing the dollar's value lower against a range of currencies, including the euro. Currency markets focused more on a Treasury Department report showing that foreigners' purchases of U.S. stocks and bonds in October fell to the slowest pace in a year.
A weaker U.S. currency would make American exports cheaper and thus more attractive in foreign markets while driving up the costs of imported cars, television sets and the billions of dollars of other foreign products that American consumers have been snapping up.
Bush's comments on the dollar came one day after the government reported that the U.S. trade deficit hit a monthly record of $55.5 billion in October.
Setting sights on deficit
Bush told reporters that the trade deficit was "easy to resolve. People can buy more United States products if they're worried about the trade deficit."
The swelling size of the trade deficit has raised concerns among economists that the dollar's decline, which has been gradual so far, could suddenly accelerate as foreigners grow worried about the ability of the United States to keep attracting enough foreign capital to finance trade deficits at such high levels.
If the dollar were to suddenly plummet in value, that could cause foreign investors in U.S. stocks and bonds to rush for the exits. Such a development would send stock prices plunging and interest rates soaring. Some analysts believe the shock would be enough to push the country into another recession.
Bush said that the administration's efforts to support the dollar by reducing government borrowing levels would address the unfunded liabilities in the government's huge entitlement programs, Social Security and Medicare.
"I told the prime minister that Social Security reform will be at the top of my agenda," Bush said, speaking as the White House kicked off a two-day economic conference designed to build support for Bush's second term agenda.
Those economic goals include creating private accounts for Social Security, overhauling the tax system to make it simpler and more pro-growth, making Bush's first term tax cuts permanent and breaking the logjam in Congress that has prevented placing limits on liability suits.
Meeting with a small group of reporters, Treasury Secretary John Snow called reducing the budget deficit "the linchpin of the second-term economic policies." The administration has vowed to cut the deficit, which hit a record $412 billion in 2004, in half by 2009.
Snow said putting controls on government spending was "right at the heart of deficit reduction."
Democrats have complained that the administration should be focusing on rolling back tax cuts that went primarily to the wealthy as a better way to control budget deficits rather than trying to make them permanent at a cost of more than $1 trillion.
Berlusconi did not elaborate on what concerns he raised about the dollar's decline but Europeans are concerned that the falling dollar will jeopardize Europe's economic recovery because it will cut into sales by European manufacturers.
Europeans have had to bear the brunt of the dollar's decline because China has continued to fix the value of its currency directly to the dollar, a practice that American manufacturers contend has undervalued the Chinese yuan by as much as 40 percent against the dollar, giving Chinese manufacturers a huge competitive advantage.
Bush, who will close the economic conference with a speech on Thursday, participated Wednesday in a panel on lawsuit reform, emphasizing the importance he places on this issue.
"I intend to take a legislative package to Congress which says we expect the House and the Senate to pass meaningful liability reform on asbestos, on class action and medical liability," he told conference participants.