from Geo-Graphics

Paul Krugman Calls for "Weak-Dollar Policy"...Towards Mars?

November 10, 2014

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Paul Krugman routinely mocks Germany for wanting “everyone to run enormous trade surpluses at the same time.” As Martin Wolf has put it, this is impossible, as “the world cannot trade with Mars.”

What we find amazing is that Krugman does not see a similar problem with his latest call for the United States to run “a weak-dollar policy.” Against whom should the U.S. pursue a weak dollar?

As today’s Geo-Graphic shows, major economies outside the U.S. are in no condition to support stronger currencies.  Of the G-7 economies, as the main figure above indicates, only the U.S. and Canada – which have the second- and third-highest growth rates – have inflation near the developed-market standard of 2%.  The others, save the UK, have much lower growth and inflation.  The U.S. pursuing a weak-dollar policy towards its G-7 partners, therefore, would appear deeply damaging and misguided.

The G-7 represents nearly half the global economy.  As for emerging markets, the small inset graph shows stagnant growth rates after years of decline.  Against this background, it looks difficult to justify a generalized appreciation of EM currencies.

In short, we suspect that Krugman’s call for a weak-dollar policy can only mean one thing: currency war with Mars.

CNBC: Why Currency Wars Could Stave Off a Fed Rate Hike

Wall Street Journal: Fed Minutes Show Wariness Over Global Growth

Financial Times: U.S. Dollar Surges After Strong Data

WSJ's Real Time Economics: The Return of the Currency Wars

 

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