Wednesday, May 4, 2011

This Is What Adjustment Looks Like (An Ongoing Series)

. Wednesday, May 4, 2011

A dollar decline is what we would expect from a country with a large current account deficit and weak demand-side of the economy. And that's what we're getting. This is a bad thing for consumers, but a good thing for producers (at least exporters), and right now the country needs jobs more than anything. It's bad the US's external creditors, but good for the US's internal debtors (including the sovereign). If the dollar stays low, it will be interesting to see how other countries react. Another round of competitive devaluations? Internal macroeconomic adjustment, leading to a rebalancing?

I don't think this has much to do with QE2; it's exactly what we'd expect from a country in the US's position. But changes in the dollars value will force change on the US's trading partners, which is more or less everyone. It will be interesting to see what choices other countries make.


This Is What Adjustment Looks Like (An Ongoing Series)




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