Nearly three monthes ago, Mark told me:
>Eh? You mean a dollar devaluation will REDUCE the b of p deficit? Which
>textbook are you using?
Not beign an economist and beign a hater of econ. textbooks, I answered him
as I could.
Yesterday I heard on CNBC that it seems that the folks at the US Federal
Reserve not only agree with me on this but (here comes the interesting bit...)
are also saying that the dollar would have to fall by as much as 40% to
balance the deficit. Given the recent appreciation of the dollar and the
differentials in interest rates between the US and other core countries (long-
term and with free capital markets, higher interest rates SHOULD indicate a
weaker currency), this number is not that extraordinary but still... I thought that
the Fed role was to defend the dollar and make sure that such destabilizing
events don't happen. Are they (or a minority group in that institution) hinting that
the current situation is highly unsustainable and can only get worse if they try to
perpetuate it and that they'll have to give up and let their own economy be
"structurally adjusted"?
Note: While re-reading this, I realized that there might be a vocabulary
confusion. The balance of payments is by definition in balance and Mark used
the phrase here to talk about the current account deficit, right?
Julien
And while I think about it...
Considering Chris's post on US indebtment, those interested might want to
look at fmcenter.org. They got nice *.pdf documents with loads of data. That's
saner reading than Forbes IMO. The most relevent paper is probably:
http://www.fmcenter.org/pdf/Flow07-00nocov.pdf
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