Good Question Marty
In his new NBER working paper Martin Feldstein writes that "Reducing the large current
account deficit will require both a higher rate of national saving and a more competitive dollar."
I love it: "a more competitive dollar"
Robert Blumen and other Austrians came to the same conclusion but would probably describe it differently.
"Why is the Dollar so High?"
NBER Working Paper No. W13114
Contact: MARTIN S. FELDSTEIN
National Bureau of Economic Research (NBER),
Harvard University
Email: msfeldst@nber.org
Auth-Page: http://ssrn.com/author=20249
Full Text: http://ssrn.com/abstract=988925
ABSTRACT: The level of the dollar is part of a complex general
equilibrium system. Nevertheless, it is helpful to recognize that
the high level of the dollar is necessary to generate the current
account deficit equal to the difference between national saving
and investment. Understanding the high level of the dollar
therefore requires understanding the reasons for the low level of
national saving in the United States. Reducing the large current
account deficit will require both a higher rate of national
saving and a more competitive dollar. Although the necessary
decline in the real value of the dollar can in theory occur
without a decline in the dollar's nominal value, the implied
magnitude of the fall in the domestic price level is implausible.
A decline of the real value of the dollar that is large enough to
reduce the current account deficit significantly requires a
significant decline in the nominal value of the dollar.
Comments (7)
Say It!!!!!! Drink the Cool-Aid!!!!! Jump!!!!! Quit beating around the Bush!!! (Literally and Figuratively)
The Austrians are correct. The international system of fiat money is a failure. We should be heading back to a gold or silver or non-fiat money standard and getting away from Fiat-Relative-Flating Point Money.
Otherwise the EVIL central banks will try to reduce the value of money at every chance they get.
Published: August 15, 2007 11:03 AM
While I also would prefer there not to be a US Central Bank, there is one and we should argue against whenever we can. But just because there is a goverment control of money, is that going to result in the end of our freedoms? Sure it limits them but really the money growth of anywhere from 7-12% is simply a tax on the middle and lower classes who get the money last. Again, I despise it but I don't think this is going to lead to Armeggedon. Recession/Depression/Stagflation probably; with plenty of poor investments that need to be cleared.
Again, its a waste. And we must watch the slow ebbing of rights as the government grabs for more control. But relative to anytime in the past 100 years since the Fed was introduced, that aspect of government control has had little affect in todays world compared to the 20's and 70's. We have it pretty good in the U.S. Just stay vigilant.
Published: August 15, 2007 1:00 PM
"But just because there is a goverment control of money, is that going to result in the end of our freedoms? Sure it limits them but really the money growth of anywhere from 7-12% is simply a tax on the middle and lower classes who get the money last."
To the extent that central banks help cause business cycles and mislead agents on the market, they are far more catastrophic than if they were 'simply' imposing a tax on the lower and middle strata of society.
Published: August 15, 2007 6:47 PM
"...a more competitive dollar." Or as the Mogambo Guru -- http://www.dailyreckoning.com/Writers/MogamboGuru.html -- would say:
Hahahahahahahah!
Published: August 15, 2007 6:53 PM
The dollar is high?? Since when? Gold is $663 per ounce. A Euro will cost you $1.34 Copper is $3.72 per pound. And since the dollar is already so "competitive", i.e., worth about 50 cents, a gallon of gas costs about $3.00.
There is no evidence I can see that the nominal dollar or real dollar is high.
Published: August 16, 2007 9:06 AM
Anthony, government control of money? How can that be when the FED is accountable to no one? Congress creates a budget which gives people handouts so they can buy reelection, the FED prints the money sending the bills to our kids, grandkids, etc. This is taxation without representation.
Where can I go to complain about the FED inflating the now secretive m3 supply decreasing the value of our money?
Richard
Published: August 18, 2007 3:36 PM
The Fed is a branch of the government ultimately - it just functions with a higher degree of independence than most other such institutions.
Published: August 18, 2007 6:05 PM