Wednesday, May 14, 2003
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GOODBYE, STRONG DOLLAR: Looks like
GOODBYE, STRONG DOLLAR: Looks like the Bush administration has decided on one strategy for jump-starting the economy -- kissing the strong dollar goodbye. From today's Chicago Tribune:
Then there's this from Reuters:
I have decidedly mixed feelings about this strategy. There is some logic to it. Letting the dollar slide simultaneously increases aggregate demand in the economy, as our exports are cheaper and Americans substitute away from more expensive imports). This move simultaneously helps to alleviate the Fed's fears of deflation, as a devaluation raises the price level of imports.
In terms of foreign economic policy, however, this is a dangerous game that's being played. There was nothing in the last G-7 statement to indicate that this slide in the dollar is being coordinated with our major trading partners. Without multilateral coordination, this move smacks of beggar-thy-neighbor -- and our neighbors are Canada, Japan and the European Union, none of which is a real engine for growth right now. Japan does not want the yen to appreciate too much, and let's just say I don't see the EU willing to absorb costs to get the American economy moving again.
It will be very interesting to see how the rest of the G-7 reacts to this.
Developing....posted by Dan on 05.14.03 at 10:13 AM