The United States appears to be taking a hit as a result of President Clinton's decision to put up $20 billion in loans and loan guarantees to rescue the Mexican economy. Specifically, the U.S. dollar is hurting.

The dollar fell to a new low this week against the Japanese yen for the third day in a row and also weakened further against the German mark.The once-respected dollar has shown repeated signs of weakness in recent years, partly because of the nation's growing trade deficits and partly because of the country's budget deficit problems.

And while economists speculate about the specific reasons for the dollar's decline, the close ties of the United States to Mexico and the recent turbulence in the Mexican economy are at least partly to blame.

One impact of Mexico's troubles will be a likely large decline in U.S. exports south of the border. In turn, that will worsen the U.S. trade deficit. And America's unwelcome status as a debtor nation makes it less attractive for foreign investment, which also weakens the dollar.

Mexico's recent problems were triggered when the Mexican government devalued the peso last December - a move that was made worse by officials having waited far too long before acting.

And it is inevitable that what happens financially in Mexico - as in the rest of the world - will have an impact on the United States. There is simply no isolationism in the current interwoven world economy.

Under the circumstances, Clinton's decision to extend billons in credit to Mexico was probably necessary to prop up a faltering neighbor. But the way in which the financing was handled may have backfired.

The Federal Reserve neglected to "sterilize" the credit extended to Mexico, causing a surge in the existing U.S. money supply, making each dollar worth less.

In terms of currency, "sterilizing" means draining from the U.S. banking system the same amount of money extended to Mexico so that the U.S. money supply would remain in balance. Instead, the $20 billion pledged to Mexico also remained on the books in American banks, thus artificially inflating the money supply.

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Moreover, the bailout has not helped the peso, which has continued to fall to a record low.

The Mexico rescue plan may limit the Clinton administration's ability to protect America's own currency by making large purchases of dollars on the foreign market.

One hopeful aspect, despite the dollar's decline, is that the U.S. economy overall remains strong.

But Clinton and future administrations should learn a lesson from the current economic situation: For our own sake, providing credit to a bolster an ailing neighbor's currency had better include getting our own financial house in order.

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