NY Times - Paul Krugman - "Misguided Monetary Mentalities" - Addresses Dollar Devaluation Fears

[TomCADem]

Here is Paul Krugman in his element discussing economic policy and the history of the Great Depression.

http://www.nytimes.com/2009/10/12/opinion/12krugman.html?_r=1&adxnnl=1&adxnnlx=1255395713-uq5efw8Dw7cdELxYAYrV7g

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In the early 1930s this mentality led governments to raise interest rates and slash spending, despite mass unemployment, in an attempt to defend their gold reserves. And even when countries went off gold, the prevailing mentality made them reluctant to cut rates and create jobs.

But we’re past all that now. Or are we?

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Consider first the current uproar over the declining international value of the dollar.

The truth is that the falling dollar is good news. For one thing, it’s mainly the result of rising confidence: the dollar rose at the height of the financial crisis as panicked investors sought safe haven in America, and it’s falling again now that the fear is subsiding. And a lower dollar is good for U.S. exporters, helping us make the transition away from huge trade deficits to a more sustainable international position.

But if you get your opinions from, say, The Wall Street Journal’s editorial page, you’re told that the falling dollar is a terrible thing, a sign that the world is losing faith in America (and especially, of course, in President Obama). Something, you believe, must be done to stop the dollar’s slide. And in practice the dollar’s decline has become a stick with which conservative members of Congress beat the Federal Reserve, pressuring the Fed to scale back its efforts to support the economy.

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[thunder rising]

1. If we had something to export. The other side is foreigners might buy real estate

[tritsofme]

2. Yea really, what's $1.3 trillion in 2008?

We just don't have anything to export.

[girl gone mad]

3. I think he's wrong.

While a weaker dollar could largely be the result of rising confidence, and it could potentially boost exports, a dollar that is weakening against every asset class, including oil and gold, is not healthy and appears to reflect the Fed's interference in continuing to promote bubble economics more than anything else.

Americans will only benefit from a declining dollar if our wages increase enough to cover the concurrent rise in costs of rent, food and gas. There is no sign of this happening.

Traditionally, capital has fled countries with weakening currencies, negating any positive effect that lower production costs had on trade flows. As investors move into strengthening currencies, the countries that print those currencies use this new found capital to shore up manufacturing, invest in infrastructure and fund other productivity-increasing endeavors, giving the strong currency country a clear competitive advantage.

The Wall Street Journal has little room to talk, having spent the last decade supporting the economic agenda of weak-dollar Republicans.

[Bullet1987]

6. I agree that he's off here

But I blame it on the fact that he's working for the system that wants to keep the truth about the dollar from getting out.

[mkultra]

4. when people say Krugman i think of kermit the frog.

i have no idea why.

[quaker bill]

5. I agree with Krugman

A return to moderate inflation rates would not be a bad thing. As a worker, I have always gotten my best wage increases during periods of inflation. Since my biggest financial responsibility is a fixed principle and interest rate mortgage, it is not subject to inflation and the raises in wage simply make it easier to pay off.

Within reasonable limits, a declining dollar is not a bad thing at all. The cure however, higher interest rates to tighten money supply, has substantial risk of curtailing economic growth and delaying recovery. Politically, it is critical that we turn the economy around, this is key to retaining control, and retaining control for a decade or so is critical to make the changes we need.

[denem]

7. Lower Dollar = Inflation

Inflation is good. St Krugman says so.

Slash your debt. Pay it back with deflated money. Fed. Treasury NB. Fuck the Chinese; Screw the Saudis. It's only paper bois amd grrls.

[denem]

8. John Maynard Keynes "The Economic Consequences of the Peace" (1919)

Britain maintained an over priced currency during and 1920's and royally screwed their economy. Their rationale - to protect the Sovereignty of Sterling.