Of course getting the dollar down is the only way to reduce the size of the trade deficit
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Did you see the latest trade data? A nation can consume less than it produces. The EU, Japan and Korea have valid reasons to complain about the central bank of the world's reserve currency manipulating that currency as a stealth inflating their debts away or making their exports cheaper.

De-valuation of currency has not lead to prosperity before nor will it now. This blatant currency manipulation by the fed, treasury,Obama admin. will come back to haunt them. Even a brief unwind of the short dollar trade will reverberate throughout global financial markets.

Controlling the world's reserve currency affords great benefits and along with it, greater responsibilities.

Actually Mark, devaluation of currencies has led to prosperity many many times (UK 1993, Russia 1998, Argentina 2001, it's a very very long list). A high dollar benefits Wall Street and workers who are protected from international competition and hurts those who must compete in a global economy.

Dean says:

"A high dollar benefits Wall Street and workers who are protected from international competition and hurts those who must compete in a global economy."

Fair enough, but a decreasing dollar penalizes people who save in dollars (or equity related to dollars).

And, I agree with Mark that getting the dollar down is not the "only" way of reducing the trade deficit. One can simply choose to not have a trade deficit. Qualitatively, like how I choose not to spend more than I earn...

Oh, and I should also mention:

Yes, you are right about the "oceanic" debt, and it is good to point that out. However, just because everyone is highly leveraged doesn't mean that we should be too! Perhaps countries can't learn any lessons from the failures of banks, until China pressures them to! And I am glad China is pressuring us to.

Actually Mark, devaluation of currencies has led to prosperity many many times (UK 1993, Russia 1998, Argentina 2001
...............

Thanks for the info, I'll do more research. But, on the surface, looking towards the UK, Russia and Argentina as example's of de-valueing your way to growth is suspect at best. Creating a temporary inbalance is just that, temporary. The US as the world's reserve currency and sole super power is a much more dynamic and complex situation.

Maybe its a reference to Oceania? I wonder what the debt to GDP ratio is for Australia and New Zealand.

Mark G. wrote, Creating a temporary inbalance is just that, temporary.

Huh? The relevant imbalance is mercantilist nations like China propping the dollar up in an effort to export their way to prosperity.

Aditya Savara wrote, One can simply choose to not have a trade deficit.

LOL! Totally bizarre. Who is this "one," absent protectionist measures?

"A nation can consume less than it produces."

Total. Non. Sequiter. One, or a few can. All cannot. The assertion is beyond dumb.

Most everyone in the US gets paid in US dollars and you don't think people should complain about the government making those dollars worth less? We're supposed to be happy that those dollars buys less and less every time we go to the store? Economists truly live in bizarro world.

I'm not the economist some of you guys are as will become obvious as I stumble my way through this discourse. But didn't we (the U.S.) go through a similar experience in the mid to late 1970's? We were hit by a triple whammy; the debt hangover from the Viet Nam war, the sudden surge in oil prices due to the formation of OPEC, and a wave of Japanese imports (electronics and autos). If I remember correctly, the value of the dollar slipped then but not so much as to have prevented us from having run a trade deficit since. Then it was the Arabs who held our bonds, now the Chinese. Then, as now knowledgeable people were worried that foreigners would not hold so much debt. Is this situation different? Can someone out there (Dean?) explain how the world accommodated itself to U.S. debt then? It seems to have something to do with the Saudi's and Japanese citizens eventually enjoying a better lifestyle and becoming front rank consumers themselves.

When the U.S. encourages the dollar to be 'stronger' (good, macho word) versus other currencies, apparently it is not an actor and just doing what is normal.

When the U.S. does not encourage dollar 'strength', suddenly it is acting and doing something terribly wrong.

Dean;
When are you going to man up and address trade policy, out-sourcing and the problems they cause in other than currency exchange terms?

Beggaring a country's currency, espeically when it's the base global trade currency, is hardly the way to address the problems that are inherent to the process when nations of unequal living standards trade.

The few comments I've seen regarding your views on the role of tariffs in trade are usually used in sentences with terms like 'propped-up' and 'artificial' and 'protectionist' in them.

How do you propose to level the playing field with China, for example, without impoverishing the nation?

Beyond China, of course, is the threat of 'super-productivity', wherein a far smaller percentage yet of Americans (and Germans, etc) will be involved in value-added activities like manufacturing as a response to cheap labor in an expensive labor high environmental protection enviornment.

Your thoughts, and please don't suggest that the dollar 'naturally' go to 50 yen and it's equivalents in other countries.

I think Dean is arguing that the currency issue is a CAUSE of out-sourcing not an effect.

The value of the dollar is just an abstract idea and is only relevant so far as changes in its expected value affect cross country interest rates and manipulation can change the relative price of goods. Who cares if the dollar is worth 100, 5000 or .5 Yen. What is relevant is the basket of goods people can consume.

I'm not familiar with American currency or valuation issues but with China devaluing via t-bills I imagine there could be an artificial "dutch disease" type affect brought on by large influxes of foreign capital. I'm not really sure if booming financial and housing markets can work the same way as natural resources do(intuition says yes) and maybe Dean could clarify this.

Moreover I'm not sure what your going on about leveling the playing field with China without "impovershing the nation". GDP per capita is order of magnitudes higher in the United States minor currency revaluations aren't going to change this. Short of a decade of hyper-inflation I'm not really sure any monetary policy could.

Anonymous, if you want to call it protectionist - sure, it technically is. But why throw that out of discussion? We already do some protectionist things: we have WTO rules against trades in which governments are subsidizing their industries, anti-dumping rules, crack down on tax-havens, etc. Protectionism is not by itself bad. It is isolationism that is bad (which is what we hear about in the media). But in fact, I would argue that isolationists etc. are not really protectionists, since they would actually harm our markets.

The vale of the US dollar is already be debased. It happens(ed) when underpriced goods from countries that manipulate their currencies trade under priced goods for over priced treasuries.

The losses occurring in such transactions are not recognized, and wait on balance sheets.

Mark,

The US dollar is the reserve currency because of the openness of the US market. China, Japan et al, are and were free to invest thier surpluses in any other currency (including the basket proposed for the SDR), or any other form. The fact that did not speaks volumes. The reason they chose US treasuries is that it allowed them to manipulate their currencies. The US is the only country capable and willing to maintain such large trade deficits.

Dean,

The only problem with relying on a lower US dollar to address the trade imbalance is that followers of the Asian Economic Model have many other means that they employ to restrict imports.

Japan serves as a perfect example. Despite their prosperity, they never became good customers of the US.

Danny wrote, Most everyone in the US gets paid in US dollars and you don't think people should complain about the government making those dollars worth less?

First, anyone whose job has been wiped out because of the strong dollar probably won't agree with your line of reasoning.

Second, if the dollar weakens against a foreign currence, it only makes products from that country more expensive.

Third, the dollar being overvalued against Chinese currency is not something that can last forever, regardless of what you or the government want.

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