Danger signs for U.S. Dollar

Doug Henwood dhenwood at panix.com
Tue Apr 30 11:22:10 PDT 2002


joanna bujes wrote:


>So, lower dollar means:
> --improving balance of trade (cause exports are cheaper?)

Over time. It takes a while for trade to respond to currency changes. And since currency values can change instantly, for a while the trade balance could worsen - the notorious J-curve effect (dollar decline = cheaper exports and more expensive imports, but if volumes are unchanged, exports decline in value and imports rise).


> --debt becomes less expensive


>but
> --capital flight to more valuable currencies
> --increased interest rates to halt capital flight
> --therefore, possibly strangling the economy into deflationary crisis?

Yup, that's the risk. And Hyman even mentioned it.

Doug



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