Dizzy Days for the Dollar

Under the summer sun that bakes much of the nation these days, new voices are being heard. They speak Japanese and German and Arabic.

The foreign tourist, a species once limited to corporate tycoons and wandering rock stars, is abroad in the land. Direct flights from Tokyo to San Francisco are booked solid for the next three weeks, and the number of Japanese visitors to Las Vegas now runs to about 5,000 a month. In New York City, arriving Europeans want to see Times Square and Harlem and then fly south to Disney World. All this activity represents not just world prosperity but also the swooning collapse of the once almighty dollar, which has sunk 7% against the yen and 10.5% against the Swiss franc since July. Against gold, which is being feverishly traded in major markets, the dollar has slumped about 12% in the same period. The result has been to make the U.S. a bargain hunter's paradise for even middle-class foreigners. More than 20 million foreign tourists are expected to visit the U.S. this year, up at least 8% from last year.

Danish Banker Thorkild Kristiansen and his wife Jette were amazed to find that food and gasoline cost half as much in the U.S. as back home. "If the dollar continues at its current level," says Kristiansen, "we'll be back next year. Only this time we'll bring our two children."

Overseas visitors are shrewd shoppers. Manhattan's Windows on the World restaurant reports that they gobble up oysters and clams (as part of a $19.50 prix fixe dinner), which are much more expensive in Europe. Says Nick Lapole, director of public relations for Mamma Leone's restaurant in Manhattan: "The French and Italian tourists we are getting eat and drink rather lavishly and don't care what it costs." Because of all the dollars in their pockets, they are also losing their reputation for being stingy tippers. Rubies, emeralds, sapphires and cheaper souvenirs are being snapped up by tourists at Tiffany on Fifth Avenue. In Chicago's Water Tower Place, tourists buy music boxes made in their own countries because they are cheaper here.

It is better to visit America, some foreigners say, than to live here. Electrical Engineer Makoto Takayasu, 35, expected to go back to Japan with some savings after working on a research grant at Purdue University. But the decline of the dollar has just about wiped out what he set aside. "My wife is encouraging me to spend every dollar we have before we return to Japan," he laments. "She's not far from right. The dollar is not worth anything any more."

Americans are discovering that sad fact when they go abroad themselves, as they are doing this year in record numbers. The big attraction is the lowered air fares, but many tourists are not prepared for the rude shocks they receive when they change their dollars into foreign currencies. West Germany's seven U.S. consulate offices are flooded with young tourists who hopped aboard cheap flights with the expectation of living in Europe on, say, $10 a day. Ten dollars an hour is more like it, and they find themselves stranded. Philadelphians Eugene and Bonnie Baker planned to bicycle around England and stay in cozy old inns. They ended up boarding in spartan lodgings, where people were reluctant to change American Express traveler's checks for fear the value of the dollar would drop before the checks could be converted into pounds. "It's a shock to find the dollar downgraded," says Mrs. Baker.

During the Wimbledon tennis matches, one of the most popular meeting places for the American players and their wives was a coin laundry just off trendy Carnaby Street. Americans balked at the high cost of sending their laundry out. One tourist, in fact, was arrested for trying to escape from a London laundry without paying his bill. He claimed that the cost of the washing exceeded the value of his clothes. The magistrate told him to check prices beforehand and let him go.

Nowhere has the dollar faded so badly as in Japan, where it has shrunk by 40% in a year. Confronted with a $2.50 can of beer, a $5 breakfast or a $30 minute-steak lunch, Americans beat a hasty retreat--"chuckling in amazement," says a shopkeeper on Tokyo's Ginza. Says a veteran tourist who is staying at Tokyo's Imperial Hotel, where the cheapest room for two is $80 a night: "It's just plain scandalous. I never thought I'd see the day when the greenback would turn into Mickey Mouse money. It really hurts my pride as an American."

To try to end the dollar's slide, the Carter Administration began a series of steadying actions last week. The U.S. Treasury announced that starting in November it would boost its gold sales from 300,000 oz. per month to 750,000. To allay any speculation about the oil-rich nations turning against the dollar, Treasury Secretary W. Michael Blumenthal met with Saudi Arabian Finance Minister Mohamed Abdel-Kheil at Disney World, of all places, where the minister was vacationing with his family. Blumenthal suggested that a timely statement of support might give the dollar a lift. Soon after, Crown Prince Fahd declared that his country had every intention of continuing to accept dollars as payment for oil.

The announcements gave a slight but encouraging boost to the embattled dollar. Said Lawrence Krause, an economist with the Brookings Institution: "The Administration is playing it very wisely so far. You don't want to panic the markets the other way and shoot up the value of the dollar. Dribbling these things out is just right to keep everyone except yourself guessing." The White House, in fact, plans to announce some new but limited measures to bolster the dollar every few days for the next two or three weeks. Before going off on their separate vacations, President Carter and other top Administration officials drew up a list of possible moves.

The list is as closely guarded as the gold in Fort Knox, since millions of dollars could be made if someone got advance information. Besides, the Administration would not be unhappy to see some speculators against the dollar get burned. Says Harald Malmgren, a former State Department trade negotiator who runs an economic consulting firm in Washington: "The Administration has got to increase the fear of a downside risk so that people will be worried that they might have to buy dollars back at a higher price later. If done properly, it won't take that much money to accomplish the objectives."

But whatever immediate steps the White House takes--borrowing from the International Monetary Fund against the gold the U.S. has on deposit, extending the U.S. credit line with foreign central banks, coordinating intervention with other nations to support the dollar--the fundamental problems will remain. The two biggest: the 1979 federal budget deficit of more than $40 billion, and an inability to cut oil imports and thus the $30 billion trade deficit. Last week the compromise on natural-gas pricing approved by House-Senate conferees ran into serious opposition in the Senate, putting in doubt the passage of the energy bill. More generally, Carter has to convince a doubting world that he can manage the U.S. economy and, especially, bring inflation under control. The outlook is not promising. The Administration has just about given up on the jawboning conducted by Inflation Fighter Robert Strauss. "Bob and his mirrors have accomplished all they can," admits a top policymaker. "We've got to give some more substance to the fight against inflation."

An interagency group of officials is now working up a "Phase Two" program, which will be submitted to the President by mid-September. They have been instructed to explore every possibility except wage and price controls. "President Nixon did the easy one when he put on controls," says a participant. "But that didn't work, and everything else is difficult." One measure under consideration is the so-called TIP plan (tax-based incomes policy), which would give a tax break to companies that hold down wages and prices. But such a scheme would be a nightmare to administer. Admits a Treasury official: "We'd end up with as many pages in the federal register as if we'd put on wage and price controls."

Another possibility is to copy the successful British action of coupling a general tax cut with a pledge from labor to hold down wage demands. But unions are much more decentralized in the U.S. and probably could not be bound by such an agreement.

The fiscal 1980 federal budget is being scrutinized for cuts, since a deficit is financed by an inflationary expansion of the money supply. With the goal of trimming the deficit to below $40 billion, the Administration plans to impose strict new spending ceilings on most agencies.

For the foreseeable future, there is not likely to be any decline in the happy hordes of foreign visitors flocking to the bargain-filled U.S. They are destined to become a familiar part of the American landscape: buying, bargaining, hitchhiking, backpacking, snapping pictures, sampling strange food and occasionally getting ripped off by predators who know they carry a lot of dollars, however devalued. The ailing greenback has at least made America less of a mystery to the rest of the world.

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