It goes without saying that if the dollar is too high in value, the goods we export will be priced out of many markets — including those in our own backyard. As a consequence, imports will exceed exports, thereby resulting in a trade deficit.
On a balance-of-trade basis alone, it should come as no surprise that the dollar is weakening. In the absence of intervention, it is the markets’ way of trying to establish equilibrium.
This development should assuage the complaints of those countries that worry about all the dollars they are accumulating as a result of our trade deficit with them.
But are these countries happy? No, Virginia, they are not. They also don’t like to be criticized by us for keeping their currencies too low in value, thereby allowing them to accumulate a sizable trade surplus.
In my view, if these surplus countries can’t accept a fairly valued dollar, then maybe we should look elsewhere for goods to satisfy our needs. As you know, we as a nation Consume More Than We Produce. We take care of this demand by importing goods from abroad, so why are these countries complaining? Many countries produce more than they consume, thus they need to sell us their excess production. I am sure that they would not like it if we stopped buying their goods and began producing more than we consume like they do. Actually, these countries want the dollar to remain overvalued, since it serves their main priority these days: It relives them of the need to stimulate domestic consumption.
This way they can focus on reducing their budget deficits, which seems to be an overarching concern nowadays. At the same time they believe that they can feel free to lecture us on our seeming lack of fiscal probity.
Our economy virtually cries out for a budget deficit. Cutting it now will reduce buying power at a time when, if anything, it needs bolstering by the government.
It will also ensure that today’s softness will become tomorrow’s recession.
