Thursday, July 05, 2007

Does a Falling Dollar Threaten Global Economic Recovery?

At the end of May, the American Enterprise Institute held a panel discussion with the same title as the post. Here's a summary. It's an odd way to pose the question--if the focus is the global economy, rather than the U.S. economy, then why would a reduction in the price of goods and services purchased by those outside the U.S. economy be a threat? Normally, we would think that lower prices would be welcome.

Among the panelists, my views seem to be closest to Anne Krueger's, though I am less of an optimist about productivity growth. From the summary:
The focus on the current accounts deficit and falling dollar should not overshadow more pressing concerns. Prospective problems include the low savings rate, public education, and the fiscal deficit.

Read/hear/watch the whole thing.

1 comment:

Ames Tiedeman said...

The dollar, as predicted is being crushed. We are now at Par with the Canadian Dollar, the Loonie as it is called. This was all so predictable. You cannot run an 800 bilion dollar trade deficit and have your currency in demand. We have a lot farther to fall. Within 5 years from 2008 we should see the Canadian Dollar worth 25 % more than the U.S. dollar. The Euro at 1.40 now, should move to near 2.50, as China buys more and more of the Euro.
The pound at 2.04 as I write this will be near 3.00. Be ready for CHINA. When they finally let their currency float it will appreciate 70% over a 36 month period. The US trade deficit will be cut in half and then some by 2020.