Independent Bankers Conference : Strong Dollar Called Bad for U.S.

Independent bankers should worry about the effects of the continuing economic recovery and of the unremitting strength of the U.S. dollar, a banking consultant warned Monday at the opening session of the Western Independent Bankers conference here.

William Baughn, economist and president of the University of Colorado at Boulder, said the dollar’s rise has eroded U.S. businesses’ foreign and domestic selling power by making U.S. goods cost more abroad and by cutting the price of imports.

And even as their markets are shrinking, small and mid-size business borrowers--a primary income resource for independent banks--are celebrating the recovery by “going into debt like there is no tomorrow . . . and this means a reduction of the ability of corporate America to handle adversity.”

This business borrowing poses pitfalls for unwary bankers, Baughn cautioned the more than 300 community bank presidents and directors attending the banking group’s annual seminar. He also said that consumer borrowing could be equally a problem in the near future, with the ratio of consumer debt to disposable income fast approaching the record levels of 1978.

“The system is dangerously highly leveraged,” he said, “and we need to worry about it.”

Most Stringent Controls

Bankers, he said, must arm themselves with as much information as they can about their current and prospective loan customers and must apply the most stringent controls possible in making their lending decisions.

On commercial borrowing, Baughn said, the strength of the dollar in relation to other currencies has made American goods more expensive for foreign buyers, made foreign goods more competitive in the domestic market and changed the entire industrial base of the United States.

“Most of the jobs that have been added in recent years,” he said, “have been in the service industry” rather than in manufacturing. “Whole plants have moved abroad because of the super-dollar, and many small manufacturers have seen their entire foreign markets disappear.”

Yet business is borrowing as never before, Baughn said. “The recovery is being funded with more debt, not debt reduction, so corporate customers are going to need even more credit in the next slowdown.”