Dean Baker: Debt Default: The Only Way to Get to Full Employment? [View all]

[eridani]

http://www.nationofchange.org/debt-default-only-way-get-full-employment-1380633275

This is where the horror story of the dollar losing its status as the reserve currency comes in. In principle, we should be having discussions in Washington about how to lower the value of the dollar to make our goods more competitive internationally and bring down the trade deficit.

Unfortunately these discussions are not taking place. For some reason exchange rate policy does not come up in public debate. This means that the two policies that could put an end to mass unemployment -- stimulus and exchange rate policy -- are both taboo in Washington politics.

But the prospect of a default causing the dollar to lose it status as the reserve currency could give us a backdoor route to achieve this result. If the dollar is no longer the pre-eminent reserve currency, then countries will dump much of their dollar holdings, pushing down its value in currency markets.

A lower-valued dollar will cause exports to soar and imports to plummet, creating millions of new manufacturing jobs. Millions more jobs would be created in other sectors due to the multiplier effect. This could well bring us back to full employment -- a goal we may not otherwise achieve until the next decade.