THE United States dollar used to be good as gold: it represented the world's strongest economy and reflected the international power and influence of Washington. Just as governments around the world wished to ally themselves with the US, so economists and central bankers welcomed links to a currency that represented dynamism and strength. Now, dynamism has given way to volatility and the currency is like historian Arnold Toynbee's characterisation of the US as 'a large, friendly dog in a very small room. Every time it wags its tail, it knocks over a chair.' These days, countries that practise fiscal responsibility find themselves in danger of being knocked off course by the dollar's wild swings. Currencies are affected by a variety of factors, including such intangibles as sentiment. The dollar's problems, however, do not appear particularly mysterious. Mainstream US politicians - uninhibited by reality - make careers out of offering wild promises to the voters and propose fiscal irresponsibility as a new sort of economics. While lecturing Russia on the need for strong economic medicine, Washington offers its own citizens placebos, such as vague crackdowns on welfare, and opiates, such as unfunded tax cuts. As the deficit balloons, the economy fails to expand satisfactorily and the dollar's value contracts, despite the Federal Reserve's best efforts. Yet there is no reason to believe that Americans are less sophisticated or less realistic than people in Germany, or Japan, or any country where economics is a serious subject and governments display at least a little discipline and self-restraint.Washington's failure appears to be at the political level. Biannual elections focus the minds of congressmen on what the voters want - high pay and low taxes - while presidential elections appear a continuous process. What the US lacks, like Britain before and after the Thatcher years, is political leadership combined with economic realism: not the mean spirit of the Contract With America, or the folksy wisdom of Ross Perot, or the Hollywood style of Ronald Reagan, which touched hearts but rarely came to grips with the real world. President Bill Clinton now appears more concerned with winning the next election than with tackling the budget deficit. However, the interest of the US, its allies and acolytes - not to mention the American people - lies in discipline and realism, not recklessness and fantasy. Mr Clinton must take note of the agenda of Republicans seeking the White House but his presidency will be a failure if he allows the tail to wag the dog.
