Krugman: Right now, a weak dollar is good for America

[Kurt_and_Hunter]

Two things that really worry the economic CW crowd:

1) Bernanke and Obama and the Booger Man are debasing the dollar, which is ruinous for us all!

2) China is artificially manipulating the system to keep their currency low (and the dollar high) and they must be stopped!

The rising comfort level of cognitive dissonance really is amazing.

October 25, 2010, 1:07 pm
Ignoramity Triumphant
Paul Krugman

Wow. I guess I lead an intellectually sheltered life. Until I followed a link from Yves Smith, I had been blissfully unaware that the investment airwaves were full of people yelling that Bernanke is debasing the dollar because the dollar has fallen modestly in recent weeks.

Is it really possible that the CNBC-watching crowd doesn’t understand that right now a weak dollar is good for America? Have the usual suspects turned their backs not only on the insights of Keynes, but on basic monetary economics as well? Is goldbuggism triumphant?

Guess so. Just for reminders: in the 1930s, the French were the diehard defenders of the gold standard. Here’s what they got:



http://krugman.blogs.nytimes.com/2010/10/25/ignoramity-triumphant/

[Andy823]

1. Well...

That opinion seems to change on a regular basis! Earlier this year the so called experts were all worried about the Euro because the dollar was doing well and gaining strength. Later on when the Euro started doing better than the dollar it seemed like everybody was worried about the dollar losing ground! Now it's back to a weak dollar is good! I think it has to do with where the big money is putting those dollars. When the dollar is high they lose on their commodity holdings, and the complain. The speculators use a cheap dollar to make money and raise prices on things like oil, and even food supplies. Now I am no expert, but it seems to me like the average person loses either way! The only ones who make out good with the dollar raising and falling are those with the big money invested in the markets!

[BootinUp]

2. A lower dollar

helps exports/manufacturing.

[MadHound]

3. What exports/manufacturing?

Our export and manufacturing sector is tiny. Meanwhile a weak dollar leads to inflation, which hurts regular people, hits them hard.

[BootinUp]

5. I advise reading more Krugman

he puts these concerns in their proper perspective.

[MadHound]

8. I've read, and continue to read, lots of economists,

Not to mention the fact that I'm married to one and know several. Though versed in history and education myself, I know a fair amount of about economics, and the fact of the matter is that a weak dollar will lead to inflation. Worse yet, there are several major currency countries, China and Japan among them, who are all trying to play this weak currency game, all at the same time. This has tremendous potential to blow up in our face and lead to hyperinflation. Now won't that be fun.

[BootinUp]

9. oh boy.

I am afraid to ask what economists you read / associate with.

We are currently running historically low inflation, there is a real chance we could fall into a deflationary trap. All the predictions of inflation from economists that I assume you prefer, have, for the last year, been utterly wrong. Krugman is one of the few economists that is using models that are correctly predicting what has happened.

[MadHound]

11. We'll see,

That's the problem with a globalized economy, we haven't really dealt with one before, not to this extent. Applying traditional solutions that work for nation/state economies can have disasterous consequences when applied to a global economy. If several major currencies are, as they are doing now, playing the weak currency game in order to gain an economic advantage, well, that deflation threat can turn into a hyperinflation reality pretty much on the turn of a dime.

[The2ndWheel]

16. Global economy, regional governments and currencies

No wonder things don't fit together.

[lumberjack_jeff]

6. It may be tiny, but it drives everything else. n/t

[MadHound]

7. Not any more,

The two main drivers of our economy are the financial sector, and the broader service sector, which is why our economy has gone into decline over the past thirty plus years. Push paper and flipping burgers provides your populace with less income and leads to what we have today, a record breaking gap between the wealthy and the rest of us. Every other empire that have embraced this so called "mature economy" has failed, Rome, Spain, the Dutch, Britain, all of them, as soon as they went from manufacture to financial, they declined and collapsed.

[Kurt_and_Hunter]

10. Define tiny

It is a relatively small percentage of what is by far the world's largest economy, but I don't know that I'd call it tiny.

China $ 1,204,000,000,000 -2009 est.

United States $ 1,046,000,000,000 -2009 est.

[MadHound]

12. Try twelve percent and falling,

Yes, that is tiny, especially given that it used to be our driving force just forty years ago.

[Ginto]

13. And yet China does well on a similar percentage.

It begs the question, are a high amount of exports necessary for a thriving economy?

[MadHound]

15. Umm, where are you getting your numbers?

According to the World Bank, manufacturing is 53.9% of China's GDP and climbing.

[Ginto]

17. But the dollar amount is the same.

Sorry, I did not word my previous post well. China has increased exports by keeping their currency artificially weak. Is this something that you would support?

[MadHound]

20. My support for it is irrelevant,

The fact of the matter is that we simply can't undercut Chinese labor prices, and if we continue to do by weakening our dollar, we'll just wind up doing ourselves damage in the long run.

I don't support what China is doing, but sadly what are we going to do? The government isn't going to take the steps we need to in order to reverse this, such as taking away China's Most Favored Nation Trading Status, nor are we going to apply tariffs and such to encourage people to buy American. But what we are doing, weakening the dollar, is self destructive and will hurt the people in the long run. As the dollar weakens, how many countries will get rid of their dollar reserves. No more petro-dollar, that would be really devastating. And as I've said, in a global economy, with multiple major players deliberately weakening their currency, that's a recipe for disaster.

[Ginto]

22. Then you and I are in agreement

We need to be more like an island and remove ourselves from the contagion of globalism. Let Americans produce goods for Americans. Let's reduce imports and focus less on exports. This may be the only way we will survive.

[northernlights]

24. China does well?

by paying workers so little, keeping them in little cubicle dorms, slaving until they drop...or commit suicide?

[Kurt_and_Hunter]

14. missing the point

Our major problem is unemployment, not inflation.

We are a huge manufacturer and exporter. If that 12% were 14% due to a weak dollar than imports would cost somewhat more and unemployment would be somewhat lower. (Though we are a next importer, since inflation is 0% and unemployment is 10% we win in that trade off. If we had full employment and runaway inflation the situation would be reversed.)

And if the 12% were 14% due to a weak dollar then we would be a larger exporter than China.

It is satisfying to think in inaccurate caricature terms like "what manufacturing? What exporting?" but the fact remains that the net currency effects on the world's fourth largest export sector can not be dismissed by slogans.

Sorry for the "tude" but you said something silly, were corrected very politely, and then inexplicably stuck to your guns by changing the subject and citing irrelevancies.

[MadHound]

18. People keep harping about deflation dangers,

But the fact of the matter is that inflation has been rising, up 1.1% since last year at this time. In many parts of the country that number is actually higher. Yes, there are certain big ticket items, like houses and such, that are keeping overall inflation low, but if you check out items used by people everyday, food, gas, clothing, etc. you will find that many of them are going up, some quite rapidly.

Trying to undercut the Chinese on manufacturing by deliberately keeping the dollar weak is foolish. It will only hurt our population and fail in its objective because the Chinese labor force is so dramatically underpaid.

Frankly, I don't care about your 'tude. What I do care about is the people of this country, and the foolishness of weakening our dollar is manifold. It will hurt the people further and possibly destroy this country. But hey, if you want to side with the Fed on this one, feel free. After all, when have they ever been wrong:eyes:

[BootinUp]

19. Perhaps you could expound some on why

a weaker dollar and weaker currencies abroad will lead to a disaster. In your analysis I assume you would point out that the Fed would not be able to control inflation by raising interest rates.

[naaman fletcher]

21. yes,

it helps one narrow part of the economy at the expense of all others.

NO COUNTRY HAS EVER GONE BROKE BY HAVING A STRONG CURRENCY

[BootinUp]

23. Did you look at the chart in the OP?

hint see France.

For more on the subject from the same source this might be worth reading.
http://krugman.blogs.nytimes.com/2010/10/23/the-worst-economist-in-the-world/

[rfranklin]

4. Of course, without an increase in salaries (ain't gonna happen)...

virtually everything will increase in price further reducing our purchasing power as consumers and consequently increasing the level of poverty in this country.

[Change Happens]

25. He is one smart man, and I agree with him!!!

For now...We are good to go for about 3 years IMHO.

[BootinUp]

26. I posted another thread debunking some of the objections made here:

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=9398244&mesg_id=9398244