Economists smile as greenback drops

By Emily Kaiser

WASHINGTON (Reuters) - The swift decline in the U.S. dollar is addressing two of the most worrisome problems facing the U.S. economy -- a gaping trade deficit and looming slowdown -- with few ill effects.

Far from calling for any intervention to prop up the greenback, which has fallen some 8 percent against a basket of currencies this year, many economists argue that an orderly slide is welcome, and perhaps one key to ensuring an economic slowdown does not mushroom into a full-blown U.S. recession.

"Why should the U.S. worry about the danger of a dollar meltdown? It's the solution, not the problem," said Brian Reading at Lombard Street Research.

Reading estimates that the dollar's decline will cut $155 billion off U.S. foreign debt this year, as well as boost exports, supporting the domestic economy while reducing gaping trade imbalances that have long frightened economists.

The dollar has been on a downward slope for some five years, but the decline steepened in recent weeks as worries about a U.S. economic slowdown have grown. The dollar .DXY hit a record low against a basket of currencies on Monday.

Even as the slide intensified, the tone from policy-makers remained steady.

When asked about the dollar in a Reuters Television interview on Wednesday, Treasury Secretary Henry Paulson pulled out his well-practiced phrase that a strong dollar is in the United States' best interest, but currency values should be set in a competitive marketplace.

The International Monetary Fund last week called the dollar's drop "healthy" and part of a long-overdue rebalancing of global growth.