November 9, 2004

Rubin: Dollar Decline Could Accelerate

Filed at 5:30 a.m. ET

NEW YORK (AP) -- Former U.S. Treasury Secretary Robert Rubin warned Monday night that the dollar's recent decline could accelerate and interest rates could rise if politicians in Washington don't act quickly to narrow the federal budget deficit.

Rubin's comments came on the same day that the dollar fell to a record low against the euro, the five-year-old currency used by Germany, France and 10 other European nations. Each euro is now worth about $1.29, up from about $1.19 in May and an all-time low against the dollar of 82 cents in October 2000.

In European trading Tuesday, the euro was at $1.2915, up slightly from its late New York level of $1.2911.

``If I were still at Treasury, I'd still be a strong advocate of a strong dollar policy,'' Rubin said in a speech at the 29th anniversary dinner of Columbia University's Knight-Bagehot business journalism program. That amounts to at least a veiled criticism of the Bush administration, which some critics contend is allowing the dollar to gradually weaken against key foreign currencies so as to make U.S.-produced goods cheaper in export markets.

Rubin, who now is chairman of the executive committee and a member of the office of the chairman of Citigroup Inc., sounded a wide-ranging warning about the potential impact of continued federal deficits.

``If markets begin to fear long-term fiscal disarray and if foreign providers of the capital inflows upon which we have now become so enormously dependent share this fear and also develop a concern about our currency, then the markets may begin to demand sharply higher interest rates on long-term debt and possibly even create conditions of serious disruptions in our financial markets, with all the problems that that can lead to for our economy,'' he said.

And he added, ``We have a lot of work to do in a very difficult political environment.''

Earlier on Monday, European Central Bank President Jean-Claude Trichet described the recent increase in the euro's value against the dollar as ``brutal'' because of the pressure it puts on Europe's largely export-driven economic recovery.

Rob Nichols, a U.S. Treasury Department spokesman, responded to Trichet's comments by saying the country's strong dollar policy remains unchanged and ``with regard to the budget deficit, we have laid out a plan to cut it in half in five years. We are committed to the plan. We are achieving that plan.''

Rubin, who was an adviser to Democratic presidential candidate John Kerry, was Treasury secretary under President Clinton between 1995 and 1999. He left his job as co-chairman of Goldman Sachs & Co. in 1992 to join the Clinton administration, where he first led the National Economic Council in the White House.

While he noted his disputes with the Bush administration about portions of its tax-cutting policy, Rubin was careful to suggest that both political parties need to address the deficit issue sooner than later.

``Dramatic change in fiscal policy is imperative. And I think that reality is likely to increasingly assert itself on the political system, however unwilling or reluctant on a bipartisan basis that system may be to actually deal with the actual hard choices that restoring fiscal discipline imposes,'' he said.

Rubin also said he expects that in the years ahead, ``China is likely to be the largest economy in the world and a tough-minded geopolitical power equal to any other geopolitical power on the globe.'' He also said he expects continued slow growth in Europe and that ``Japan has not done most of what seems to me it has to do'' to shake off years of subpar economic growth.

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Associated Press Writer David Rising contributed to this report.