WHILE PRESIDENT REAGAN was right in saying that his administration is doing nothing to push the dollar down, the reverse is also true. The administration is doing nothing to hold it up. Over the past week the United States has managed to create bottomless confusion regarding its aims, and foreigners are beginning to conclude that it hasn't got any. Nor is it clear that, if the government knew what it wanted to do about the dollar, it would know how to do it. Amidst this cacophony, the dollar keeps falling.
The president also said yesterday that he does not want the dollar to decline beyond its present level. Simultaneously his new secretary of commerce, C. William Verity, was telling a large audience that the marketplace will determine how far the dollar falls. "And," he added, "I happen to be a believer in markets." One of the things that markets can do is overshoot -- and the foreign exchange market can overshoot wildly. That's why it's unwise to leave a price as important as an exchange rate to the unrestrained swings of market panic, manipulation and sheer speculation. But Mr. Verity is right about one thing. He seems to be expressing altogether accurately the position to which, by default, the administration has come. All the hints, leaks and rumors over the past week make that pretty clear.
The fall of the dollar means that the United States as a society is getting poorer. You have heard it said endlessly in recent years that the country has been living beyond its means and economic realities would eventually force it to balance its accounts. That process is now beginning. In the case of a less powerful country, like Jamaica or Chile, the International Monetary Fund would have stepped in some time ago and delivered the bad news. It would have told that country that it had to start getting its budget into balance, as a condition of further foreign lending. But the United States is beyond the IMF's reach, and the job is left up to the market -- which isnow delivering the same message with harsh efficiency.
The dollar has been declining for nearly two years from a level that was vastly and unmanageably overvalued. It has been coming down under the close control of the major trading countries' governments, at a rate that threatened neither high inflation here nor recession abroad. Now, in the aftermath of the stock market crash, the dollar seems to have gone into a free fall.The controls have slipped. The danger of devaluing much too far, and much too fast, is rising while the administration struggles to make up its mind.