Costly Ways to Reverse the Dollar’s Decline : Economy: Efforts to stymie the fall of the dollar might wind up hurting more thanyou know.

Most Americans haven’t been overly concerned about the dollar’s recent plunge, and rightly so. As long as you drink American beer and aren’t planning a vacation to Europe this summer, the greenback’s nose dive is some other guy’s problem.

Only trouble is, some of those other guys have a lot of clout. And they might use it to get the government to try to stem the dollar’s decline. Then it could become everyone’s problem. For example, if the Federal Reserve were to raise interest rates to prop up our sagging currency, it could mean an increase in your mortgage payments--or even cost you your job when the economy slows down.

Yet there is no shortage of dire pronouncements by experts about the need for America to have a strong currency. “The dollar’s decline has a definite effect on our ability to sustain and project power,” according to Alan Stoga, an economist for Kissinger and Associates. And some of the prescriptions offered to cure the dollar’s ills are misdirected, unnecessary or have side effects. It is worth taking a closer look.

When the dollar falls, our exports become cheaper to other countries and our imports become more expensive. So U.S. industries that rely on exports or compete with imports will definitely benefit. For a country with the largest trade deficit in the world, that can’t be all bad.

On the other hand, the higher-priced imports could cause some inflation. But since only about 11% of our economy consists of imports, it wouldn’t be much. And many of those imports come from Canada and Mexico, countries with currencies that have fallen against the dollar, making these imports cheaper than they were before the dollar began its plunge against the yen and the German mark.

Thus the increase in inflation resulting from the dollar’s fall would not even be detectable to the average American. It would, however, be noticeable to one group of people for which even the slightest risk of the slightest increase in inflation is considered intolerable: the big bondholders. (Bonds lose value whenever actual or expected inflation increases.) And anyone who has followed the Fed’s recent escapades knows it takes the bondholders’ interests to heart: Since February, 1994, the Fed has launched seven preemptive strikes against an inflation that never made it to the radar screen of most economists. They doubled short-term interest rates within a year.

There’s another interest group that has a big stake in a strong dollar: transnational corporations that like to get a bargain when they buy assets or labor overseas. An overvalued dollar clearly subsidizes these activities. But the American economy would be better off if they kept a bit more of their capital at home anyway.

An interest rate increase to defend the dollar would be a mistake, at least for the millions who would be added to the unemployment rolls.

There has also been much talk in the financial press of the need to reduce the federal budget deficit in order to reverse the dollar’s decline. This idea suffers from logical difficulties: If you believe the federal budget deficit has any effect on the economy, it can only be through raising interest rates. Higher interest rates increase the value of the dollar by attracting financial capital from abroad. So if the dollar needs to be rescued, cutting federal spending is not going to do it.

And what of all the arguments that America’s power, prestige and credibility depend on a strong dollar? These deserve as much serious attention as the Pentagon’s post-Cold War pleadings that, now that the Soviet Union is no more, it needs the capability to fight two Desert Storm-size wars simultaneously, without allies, at opposite sides of the globe. Please. Most people can recognize a special interest masquerading as the national interest when they see it.