Finance time

Treasury Secretary Henry Paulson said he will tell his Group of Eight counterparts that “strong'' U.S. long-term fundamentals will be reflected in the dollar and repeated that currency intervention is a tool for policy makers.

“What the ministers will hear me say is a lot of what I say publicly,'' Paulson said in an interview with Bloomberg Television today in Washington. “The long-term fundamentals in my judgment are not only strong, but they compare favorably with those of other industrialized major economies.''

The comments reflect a toughening in U.S. officials' language supporting the dollar after the currency's decline threatened to spur U.S. inflation. Federal Reserve Chairman Ben S. Bernanke said last week that the central bank is “attentive'' to the value of the dollar.

Finance ministers from the G-8 nations will meet in Osaka June 14.

“Those long-term fundamentals are going to be reflected in our currency value,'' Paulson said today. When asked about comments yesterday about the option of intervening in currency markets, Paulson said he stood by them and added that “I never like to say never.''

When asked whether the G-8 would mention currencies in its statement, Paulson said he wouldn't speculate on the contents. “I don't think you should expect to see us break a lot of new ground here,'' he added.

April Warning

The G-7, which includes the U.S., U.K., Japan, Germany, France, Italy and Canada, in April warned about “sharp fluctuations'' in currencies. The G-8 groups the same nations with Russia. G-8 communiques typically don't include a reference to exchange rate as central bank governors aren't in attendance.

Paulson warned today that the U.S. will still face some “challenges'' next year, that the surge in oil costs threaten to “prolong'' the slowdown and the housing slump will continue “for some time.'' Still, the economy is “resilient'' and “deep'' and growth should be better next year, he said.

The Treasury chief rejected the argument that investor speculation has spurred the jump in energy costs. Oil has doubled over the past year and reached a record of $139.12 a barrel last week payday loan payday loans. Paulson also dismissed any legislation from Congress aimed at addressing the issue.

`Strong Headwind'

The run-up in energy prices “are a strong headwind, they are a real burden on Americans and a burden on our economy, and they risk prolonging or lengthening this economic slowdown,'' Paulson said. Still, he added that “I don't believe that legislation will be effective,'' citing that “the forces driving this are supply and demand.''

Paulson said that Chinese officials have brought up the dollar with him in discussions. On June 6, China's Ministry of Finance said it had told the U.S. that a “strong'' dollar would be good for the U.S. economy.

The Treasury chief reiterated his view that China, instead, should let its currency rise at a faster pace, which would help the fastest-growing major economy to stem inflation, he said. U.S. lawmakers and industry leaders have pressed for further appreciation of the yuan to narrow the American trade deficit.

“Continued movement and greater flexibility are still needed'' in the yuan, Paulson said in a speech today in Washington before he meets with a Chinese delegation next week for twice-yearly talks.

Chinese Talks

Paulson is hosting the June 17-18 talks at the U.S. Naval Academy in Annapolis, Maryland, the fourth in a series of cabinet-level negotiations he has organized as Treasury secretary.

The topics of next week's gathering will be the state of the U.S. and Chinese economies, food safety, energy security and environmental sustainability, Paulson said in today's speech. He said China should learn from the U.S.'s experience in the 1970s, when oil price restrictions were imposed.

“China, by setting price controls on fuel, is facing similar consequences today — as can be seen by persistent gasoline and diesel shortages throughout the country,'' he said. “The consequences of these policies also extend to the power sector, where price caps on electricity and fuel contributed to nationwide power outages.''

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