Concerning "My Three Bears" [my op-editorializing piece], Max writes:
>The Euro hasn't looked like much of a threat to the dollar, nor has
>inflation been sensitive to the exchange rate, has it? I'm not the
>best person to judge this, but this is what casual observation suggests to me.
You're right that the Euro isn't yet a rival to the US dollar (which is, in
effect, the world currency). But with a sudden loss of confidence in the
value of the dollar (and thus in US$-denominated assets), there would
likely be a diversification away from the dollar which would include a rise
in the demand for Euros. It's likely that the world monetary status of the
US$ would be threatened, though it's unlikely that it would go away. In any
event, the dollar's value would fall steeply, probably more steeply than it
did after 1985.
In recent years (starting in 1996 or so), the high dollar has put a lid on
inflation by creating more competition for exporters and import-competing
companies. It's also allowed the purchase of raw materials with prices
denominated in non-dollar currencies at bargain rates. A sudden fall in the
value of the dollar would cause an inflationary impulse, which would cause
inflation only if the Fed didn't fight it. Given the Fed's predilections, I
predict recession more than inflation.
It's true that the 1997 East Asian crisis and related events (the on-going
depression in Japan, slow growth in Europe) have also discouraged inflation
in the US. But if the newspaper reports are right, this factor is slowly
going away. If the US goes into a recession, of course, that would squelch
any recovery outside the US.
>I note that you neglect a big set of factors in the trade deficit --
>competition from countries who thumb their noses at any
>notion of labor/enviro standards. What's the policy recommendation
>implied by your own take on the trade deficit? If you don't have one,
>that's a problem. If you do, what is it?
Since I was trying to write a short piece, I didn't deal with this issue.
But I've dealt with it in discussions with you before. See
http://csf.colorado.edu/mail/pen-l/2000I/msg02540.html
>You don't explain the bankruptcy bill or why you don't like it, so you
>might as well not mention it.
good point
>If Japan gets more agg demand & inflation, following your pal Krugman, I
>would have thought that would help the rest of the world by increasing
>other nations' exports. You seem to say this yourself several paragraphs
>later.
yes, that's right.
>The only policy you seem to propose is letting wages rise. Is this the
>only thing you favor? If so (and as you can guess I think that's
>inadequate), you should put that in the lead graph too.
it's not the only thing. Rather, it's all I have space to talk about.
Jim Devine [EMAIL PROTECTED] & http://liberalarts.lmu.edu/~jdevine
