"Drowning In Debt" 7-26-00 From: Jerome Levy Economics Institute by Wynne Godley
From its latest policy note, the Levy Institute writes that the U.S. expansion has been driven to an unusual extent by falling personal saving and rising borrowing by the private sector. If this process goes into reverse, as has happened under comparable circumstances in other countries, there will be a severe recession unless there is a big relaxation in fiscal policy.
<http://www.levy.org/docs/pn/00-6.html>.
OK, OK. I read it. Now what?
Godley says either we devalue the dollar (to pay for the private debt?) or we suffer a major recession.
And the FOMC Alert says that our current accounts are out of whack because foreign countries are using our dollar as the medium of payment.
So, if we devalue, it's easier for us to pay back in dollars, but why would a foreign country want the devalued dollar? Why wouldn't foreign countries demand payment in their own currencies? Will the US Marines make an offer they can't refuse?
Wouldn't major price increases be touched off by even the thought of devaluation? With interest rate increases that practically shut us down?
I fail to see what devaluation buys.
-- John K. Taber