The horizon is not so far as we can see, but as far as we can imagine

Why the weak dollar policy won’t work

Stirling again.

Most people don’t want to hear this, because they want the easy solution.


From a historical point of view


Liz Warren decides to lose to Scott Brown


  1. Did he really say a weaker dollar would be the solution, or just one part of a solution? I took him to say it won’t solve anything on it’s own, but it couldn’t hurt, and mostly he was arguing against those who claim a weak dollar would be disastrous. And was the weak dollar under Bush weak against the Chinese currency as well? I thought that was pegged to the dollar all these years. I thought his whole point was that we shouldn’t be afraid to challenge China over it’s currency practices. I can’t believe we read the same post. Is his link to the wrong one?

  2. Bolo

    @guest: He said that the weak dollar won’t work. Nor will a strong dollar. Our problems are much deeper than that, having to do with the entire global oil regime and the relationships between its producers and consumers. If you go with the weak dollar, you must be able to tax the oil producers (which we can’t do) and get around the anti-tax hysteria in the US (a political minefield). Under the weak dollar scenario, more people are spending more money and the oil producers have pricing power–so they raise prices to gobble up most of the extra money, and thereby cut off growth and keep the economy stagnant.

    If you go with the strong dollar, you cut off growth because people just sit on dollars and wait for them to appreciate.

    Stirling has not outlined his proposed solution, but it must involve breaking this trap.

  3. Bolo

    @guest: Oops, you were referring to Krugman, weren’t you? I took the “he” in your post to be Stirling.

  4. Krugman may or may not know what he’s talking about, I’m not qualifed to say, but he often has serious problems with logic. I usually can follow logic, and usually can spot bad logic.

    We can, he says, grow our way out of debt, because we did it in the 50’s and 60’s with the debt we incurred during WW2. Um, the world was a big pile of rubble at that point, we had an enormous market and no competeition. Hard to duplicate that in a world with very low demand and competition on several fronts.

    “Not so,” says he, “the world war destroyed our competition, but it also destroyed our market.” If that were true, and the rest of the world was unable to buy our goods, it would have remained rubble, would it not?

    At one point he made the rather odd claim that we did not export significantly in those decades. I believe we were the world’s leading exporter of steel and machine tools until at least the 70’s. And he is an economist.

    He’s sort of dropped the “grow our way out of debt” argument lately.

  5. Ian Welsh

    Oh, I believe the US could grow itself out of debt. In fact, there are only two ways to get out of debt: you inflate it away, or you grow it away combined with increased taxes. Historical examples of cutting out of debt are extraordinarily rare.

    However, doing so, requires a complex of policies which is not on the table. You can’t just print money to grow out of debt right now.

  6. “You can’t just print money to grow out of debt right now.”

    Well, you could*, if you gave it to the 99%, not the 1%, but I guess that falls under a complex of policies that’s not on the table doesn’t it, never mind.

    * You could solve the debt part at least, I’m not so sure about growth in the short term – the shortage of oil is a physical problem that needs a physical solution, not like the debt which is just a part of our scorekeeping system.

  7. Ian Welsh

    No, you can’t solve the problem by giving it to the 99%. There is a supply bottleneck.

  8. Formerly T-Bear

    The weak dollar policy worked well in the 50’s and 60’s and into the 70’s but the Reagan “revolution” ran it into the ground. When the world found itself financing Reagan deficits hidden behind the weakened dollar, the world copt on to the scheme and educated themselves. Why indeed do the Chinese peg their currency so firmly to the dollar? Give that a ponder at your leisure. Another ponderable is why the European central bank doing everything they can to devalue the Euro in relation to the dollar? What becomes evident is a universal race to the bottom in the devaluing the medium of exchange – more units for the same commodity, a larger sea of exchange for essentially the same world GDP; or is there a fall in world GDP that is being camouflaged by monetary chicanery? The world faces peak petroleum, peak water, peak environment, peak commerce and peak production. Ponder that!

    What the only peak not included is peak finance in that list. World finance has become bankrupt through their proffered schemes for the investment of capital in search for a return. The world is awash with unconsumed savings looking for safe harbour providing a return without having connection with any process producing value – a return of value for its own sake, that of existing as savings. Once created, these savings are never exposed to anything that erodes their mass, no risk, no taxes, no consumption, no creating of any demand other than that of a reflexive rent, derived because of their existence. What these mobile mountains of unconsumed value represent is the medium of exchange frozen into a storehouse for value, removed from the economic process, unable to fulfill their duties to create economic demand and the economic supplies to meet that demand in turn. These savings are inert in the economic cycle, producing nothing, excessively large to be digested even as capital in the economic cycles. Under the ideology of the neoliberal New World Order overseen by the World Bank, International Monetary Fund, and the Central Banks of major economic powers, faced with systematic instability threatening economic collapse of the major world economies through economic depression of the productive economy have tried to avert the economic failure by massive transfer of sovereign wealth to shore up the balance sheets of their national banks which were insanely invested in the chimera and delusion created to attract the worlds mountains of savings through offering unrealistic returns for their funds. The depressed underlaying economy was too enfeebled to provide the returns required to attract investment, the recourse was to lower interest rates to nearly non-existant levels and rely on fraudulent quality ratings to assure lack of risk to the unwary and uninformed investors to loan their savings to economically unsound schemes. That bubble burst, exposing the ponzi scheme involved, depleting further still not only the money supply but the availability of credit with which to conduct economic functioning, creating an existential danger to continuation of the productive economy.

    Monopolies (and monopolistic) control of markets have long been recognized as dangerous and many schemes have been put in place to limit and control such situations (there are a number of economic goods and services that are best served by such bodies, but never in a state without close, effective limitations and controls upon their activities). Another body is being exposed by the fraudulent products of the financial sector that have lead to the failure and bankruptcy of that sector. That body being exposed is the market system itself, operating without either limit or control. Immense power adheres to immense wealth, the markets are the playgrounds for multiplying wealth. These playgrounds have no boundaries, nor do they have supervision as to the carry-on that goes on in their precincts. The first Great Depression elicited a reaction that did place some controls and limits upon the market, but the course of time without experiencing the need to continue, blind ignorance of history, and hubris removed those early prescriptions for economic stability of the market. The genius of these programs coming out of the First Great Depression were that they were created in response to having a principled opposition that had concerns requiring addressing. There is no longer a principled opposition, there is no longer any principled political party whatsoever. The likelihood of principled conditions still existing is nil. What remains as a possible mode to address the present economic crisis is the study and development of an alternative economic model that accurately reflects economic realities. In conjunction with developing an economic model is the development of an economic vocabulary, definitions, and relationships also reflecting economic reality. What now passes as economic thought and justification is more closely related to religious belief than to either academic discipline or intellectual construct, and the guidance derived has greater likelihood of damage and failure than providing answer or succor for what ails. A magnificent example of the empty shell neoliberal ideology produces is this offering from some Harvard pseudo-illuminary apologist for neoliberal theology:

    Professors Kenneth Rogoff of Harvard (and his co-pseudo economist Jeffrey D. Sachs of Columbia both) need to restudy and relearn about three times the quantity of information that put letters behind their names in the first place. Neither deserves credibility until then. The linked article by “Professor” Rogoff is economic drivel, untested, deceptive assertion not backed by actual examined fact, but rather relies on fantastical beliefs for the assertions contained. The most effective control a government has to direct economic development or to dissuade economic mischief is through taxes. The good professor is against such taxes, they might kill the confidence fairy or even put a limit to speculation, either enough to bring on End Times (and the second coming – hallelujah!) both necessary to limit, control and put a discipline on the markets before they reach the cliffs. Failure to control markets will be the underlying failure of western civilization itself.

  9. Formerly T-Bear

    An interesting article re economics from The Globe and Mail:

    Seems the problem with (official) economics is the economists. Go figure.

  10. Formerly T-Bear

    Sorry, h/t to:

    The Globe and Mail link came from The Automatic Earth: (about half way down the page).

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