> NICing East Asia is pretty open to U.S. exports; Europe likewise;
> Japan isn't. But I'm not sure if the cutoff would be more damaging or
> if it would just make the dollar fall further, which would be bad for
> the standards of living of those of us who consume a lot of imports,
> would generate some inflation, but would be not at all bad for the
> rest of us...
Just not that sanguine about a compensatory pick up in exports due to dollar devaluation however open other countries remain--there was that analysis by Andrew Warner, cited by James Galbraith, that growth in exports is more conditioned by investment activity abroad than the value of the dollar (but I have yet to learn about granger causality so can't comment further). The drop off in consumption via the wealth effect presumably also could be greater than in 1986; given debt levels, a lot of more loans could be called in this time. So I agree with Doug and Fred Moseley in his published writings (Capital and Class, Monthly Review, Historical Materialism)that a cut off of credit and correction in the asset market could indeed plunge the real US economy into at least deep recession. It just seems to me that the US has much greater power to finance very large current account deficits than either is recognizing--even if the dollar remains devalued.
>
> Why do you think Larry Summers keeps on saying that "A strong dollar
> is in America's interest"? Its when creditors start thinking that
> maybe the government is thinking about adopting such an economic
> strategy that large-scale capital flight starts...
Brad, it's seems that Big Boy Wonder has successfully got the BOJ to pursue inflationary monetary policy and the Japanese govt to agree to financial liberalisation in order to get some US help in stabilizing the yen. Whether the former will really stimulate Japanese consumption and thus US exports is yet to be seen--there may indeed be limits to Keynesianism, as the Marxists have long argued (see Paul Mattick, Sydney Coontz, John Eaton). I don't see much prospect for a reduction in the US current accounts deficit; at the same time, I don't see a mass reluctance by foreign investors to continue to purchase US corporate debt even if the dollar stabilizes at a lower level than before after the fiddling with the yen is over and done. The only real victors from this huge exercise in exchange rate instability will probably be the good people of Ripplewood and their bulldog, one Larry Summers.
Yours, Rakesh