> [Rakesh asked me to forward this
> 1. a dollar devaluation will probably not much stimulate economy in the
> anticipated ways.
> a. there will be less inflow of capital and thus higher interest rates.
this
> will counter-act increased exports.
> b. US exports more dependent on strength of world investment demand than
value
> of dollar per se. without pick up in rate of accumulation abroad, dollar
> devaluation probably cannot do much on its own.
I feel stupid but there is a lot about this dollar devaluation thing I don't get. Most of the time when people talk about it they seem to talk about it in a circular way. A falling dollar will help exports but hurt overseas economies and once they're hurt they'll buy less stuff so in the end a dollar devaluation will hurt exports? What?
What would it take for America to run a trade surplus? A strong dollar? A weak dollar? Protectionism? Industrial policy? Free trade? Fair trade? What?
> 5. The whole process could spin out of control. Japan and the EU will be
forced
> to weaken their currencies in response. Threat of competitive devaluation.
We
> could easily slip into world wide stagflation, coupled with
neo-mercantilist
> policies of competitive devaluations and protectionism
Massive currency devaluations in Japan and the EU would lead to world wide stagflation? Why? Wouldn't it amount to the industrial economies radically cutting prices on their own goods and services? Wouldn't it amount to a fire sale of capital and consumer goods? Wouldn't it be a good time for 3rd World countries to stock up on capital goods? Wouldn't it become easy for 3rd World countries to repay G7 debts? Wouldn't this lead to health in 3rd World countries?
But forget it, it doesn't seem likely to me. The Germans are terrified of a weak currency. More likely is that they'll let our dollar slide and they'll complain but do nothing and our exports will pick up. And is that really a bad thing? For anyone, in the long run? Can America run a trade deficit forever? And if not, isn't it in the interests of our allies that we do something to fix the problem?
--Lawrence Krubner