Dean Baker: Debt Default: The Only Way to Get to Full Employment?

[eridani]

http://www.nationofchange.org/debt-default-only-way-get-full-employment-1380633275

This is where the horror story of the dollar losing its status as the reserve currency comes in. In principle, we should be having discussions in Washington about how to lower the value of the dollar to make our goods more competitive internationally and bring down the trade deficit.

Unfortunately these discussions are not taking place. For some reason exchange rate policy does not come up in public debate. This means that the two policies that could put an end to mass unemployment -- stimulus and exchange rate policy -- are both taboo in Washington politics.

But the prospect of a default causing the dollar to lose it status as the reserve currency could give us a backdoor route to achieve this result. If the dollar is no longer the pre-eminent reserve currency, then countries will dump much of their dollar holdings, pushing down its value in currency markets.

A lower-valued dollar will cause exports to soar and imports to plummet, creating millions of new manufacturing jobs. Millions more jobs would be created in other sectors due to the multiplier effect. This could well bring us back to full employment -- a goal we may not otherwise achieve until the next decade.

[dipsydoodle]

1. Wouldn't intentionally lowering the value of the US$ cause inflation ?

I appreciate that is just an aspect of the issue. Would the US get away with price controls internally ?

[westerebus]

2. Dear Dean,

The working people of American are at their wits end as to how they will go forward while both the corporations and their political cronies push for trade agreements that have dismantled manufacturing jobs in this country.

Debasing the dollar is not the cure. Debasing the dollar will only push them closer to the edge of poverty and desperation.

Sound policy that includes a fair tax structure, environmental protection, prosecution of criminal activity of the financial community to include member's of the government that failed to protect the interests of the citizen they swore to serve, and the end to military adventures would be a better place to start.

[Crewleader]

3. Dean, Dean - well said wesbrebus!

[westerebus]

4. Thank you Crewleader.

[Taitertots]

5. The problem with defaulting on the debt is that a large portion is held by US Citizens, US Gov.,

and corporations owned by US citizens.

http://krugman.blogs.nytimes.com/2012/10/12/on-the-non-burden-of-debt/

What we need to do is:
Set 4-5% inflation target
Meet the inflation target by increasing government spending on infrastructure
Pay for the spending by increasing the top marginal tax rates and taxing capital gains as regular income
Stop letting corporations pretend they are people
Lower the corporate tax rate (offset by increased marginal income tax rates)
Tax high frequency traders and commodities speculators