Economist Paul Krugman presents an alternative view on the falling US dollar in his piece, “Misguided Monetary Mentalities,” (hat tip Fabius Maximus) saying,
The truth is that the falling dollar is good news. For one thing, it’s mainly the result of rising confidence: the dollar rose at the height of the financial crisis as panicked investors sought safe haven in America, and it’s falling again now that the fear is subsiding. And a lower dollar is good for U.S. exporters, helping us make the transition away from huge trade deficits to a more sustainable international position.
I agree that shrinking our trade deficit is a definite plus, but there have to be better ways to get rid of it than a falling dollar. Right?
**What say you readers? Is Krugman right or is he off his rocker?**
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When I took Econ 101 I thought that a falling dollar was due to a lack of confidence not “mainly the result of rising confidence.” People around the world that give their USD away for less of another currency means they think the dollar is worth less not more! A falling dollar is only good for those of us who a trillions of dollars in debt. It destroys the value of our savings and ability to create capital. The only way we can improve our trade deficit is to use some of our American work ethic to create products of value and ship them overseas. Sorry but our 70% services economy was not realistic and was only propped up by the Keynesians in power through money from helicopters. It will be painful resorting our trade deficit (more so with the government robbing the private sector of savings) but it must be done. I would like to ask Krugman what he thinks when the rest of the world quits taking our t-bills we can never hope to pay back for cool toys and the US experiences a real falling dollar.
@ Trey,
I understood Krugman’s “result of rising confidence” to mean globally rather than confidence in America, but I take your point. I’m not super concerned at this time simply because Asia owns so much of our currency that they have a huge interest in not letting the dollar go into a free fall.
I like the fact that a falling dollar will make our products cheaper and increase exports, which in turn should help our economic recovery, but I agree with you that over the long-term only the entrepreneurial spirit of the American people can reverse our disturbing trade deficit.
I think a larger issue is the mixed message our govt is sending to the American consumer. On the one hand telling us to go out and spend in the short-term to stimulate the economy, but on the other saying that we need to increase our savings rate long-term.
I guess we should take their advice with a grain of salt since they’ve put our country $12 trillion in debt. Way to go guys!