>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.
Devaluation would be a way out for a normal country, but the U.S. is no normal country. More generally, the picture Godley paints is a lot like Thailand in early 1997 or Mexico in early 1994 - chronic current account deficits, inflated financial markets, vast and growing foreign debts, all juiced up with lots of promotional exuberance. But again, the U.S. is no normal country - a point you make by bringing in the Marines. So I really don't know how this will resolve itself. The U.S. simply can't continue indefinitely with a savings rate approaching 0% and $300 billion current account deficits. But to say not indefinitely is pretty imprecise, and I don't know how to make the prognosis any more precise.
Doug