Krugman on the dollar

[BootinUp]

Occasionally I see posts on DU expressing much concern about the falling dollar. So here is one that says there are more important concerns, and in fact the falling dollar actually has an upside in terms of exports. The following links are to his blog where he cautions against the Fed tightening the money supply prematurely because of concerns about the dollar.


http://krugman.blogs.nytimes.com/2009/10/09/modified-goldbugism-at-the-wsj/

http://krugman.blogs.nytimes.com/2009/10/09/beware-the-dollar-hawks/

http://krugman.blogs.nytimes.com/2009/10/10/the-madness-of-the-monetary-hawks-wonkish/

http://krugman.blogs.nytimes.com/2009/10/11/when-should-the-fed-raise-rates-even-more-wonkish/

Krugman should be required reading to all who are interested in economic policy imho.

[Warpy]

1. The falling dollar is also one of the causes of the rising stock market

as foreign investment looks for bargains.

Short term, a sharply falling dollar is a disaster, making things ridiculously expensive while the population is suffering from high unemployment and the threat of the bottom falling out for those who still have jobs.

In the long term, the benefits are great as companies rebuild plants here to take advantage of a highly trained workforce that is the most productive in the world (when they have jobs).

That assumes, of course, that the government is allowed to rebuild our infrastructure to support this new economy.

[gateley]

2. K&R -- This is one source I pay attention to -- thanks! nt

[Dreamer Tatum]

3. Easy money policy will affect the distribution of foreign investment in the US

With a very cheap dollar, foreigners will find it cheap to invest heavily in hard US assets and equities. With interest rates held low by the government (in the short run), it will be increasingly difficult for the government to issue debt. It will be an interesting ride from here on out.

[AllentownJake]

4. If we were energy independent

I'd agree with the premise. Since we are required to import oil, I don't agree with the falling dollar theory. As production begins to increase so will the demand for oil. The price will increase and our currency will purchase less oil.

Sure you increase exports, however you also increase the expense of the commodity that fuels your economy.

No public transportation, stagnant employment and wages, rising oil prices doesn't seem like a good solution to the quandary we are in.

[berni_mccoy]

5. Actually, this will drive the economy away from using oil as oil becomes more expensive

relative to the dollar. That is a good thing.

[AllentownJake]

6. Long term (like over 10 years) it is a good thing

For the next five years it is a disaster for working Americans. How many people do you know that are having trouble right now that can afford to go out and buy a Hybrid? What does the public transportation look like in your area? What does your state or municipal budget look like to invest in said public transportation? How many Nuclear Power Plants and Wind Turbines do you think we can get online in a year.

Reducing our dependency on foreign oil is a good thing. Doing it overnight, is chaos. You have to look at existing infrastructure not stuff we will have in place 10 years from now.

Like I said, doing this could kill any of the recovery aspects of it, which is why it is being done.

[closeupready]

7. Excellent points.

I agree.