Wednesday, August 27, 2014

Jared Bernstein -- Dethrone ‘King Dollar’

New research reveals that what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar’s reserve-currency status.
The reasons are best articulated by Kenneth Austin, a Treasury Department economist, in the latest issue of The Journal of Post Keynesian Economics... 
Americans alone do not determine their rates of savings and consumption. Think of an open, global economy as having one huge, aggregated amount of income that must all be consumed, saved or invested. That means individual countries must adjust to one another...
Dethroning “king dollar” would be easier than people think. America could, for example, enforce rules to prevent other countries from accumulating too much of our currency. In fact, others do just that precisely to avoid exporting jobs.
Jared Bernstein, New York Times

10 comments:

Matt Franko said...

Our own policy doesnt make the USD a reserve currency.... the external demand for USDs does... so there is nothing we can do about this as it is not our policy in the first place.

All of the foreign USD/Euro zombies in their own POS turd-world nations are going to have to do this for themselves... dont anyone hold their breath.

Roger Erickson said...

Plus, if simply USED, our fiat currency allows us to pursue any policy we want, at any rate we want.

We are NOT constrained by dollars. Only by our own ignorance about our own options.

Detroit Dan said...

But we can eliminate our trade deficit, using tariffs or other means.

Good to see Bernstein, a former Obama Administration insider, referencing The Journal of Post Keynesian Economics

Matt Franko said...

Dan they will lower their real terms for their indigenous populations then... tighten down the screws in the race to the bottom in zealous pursuit of the USDs....

"that is a sacrifice they are wiling to make" - Shreck

Detroit Dan said...

Thomas Palley has a new paper out discussing the problems of the current global economic situation: The theory of global imbalances: mainstream economics vs. structural Keynesianism. Highly recommended.

Palley goes into considerable detail with regard to the issue Bernstein discusses. I agree that the solution is not as simple as Bernstein implies. There are international treaties and vested interests which need to be confronted and changed. In the meantime, stagnating incomes in the developed countries lower demand and keep the pressure on the developing countries to undervalue their currencies to remain competitive with their exports...

Tom Hickey said...

Not about currencies but rather neoliberalism

Ha-Joon Chang, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism

Not about the dollar but rather neoliberal policies of free markets, free trade and free capital flow.

When Exports Are a Cost and Imports Are a Benefit: The Conditions under which Free Trade Is Beneficial by Stephanie Bell (now Kelton) and John Henry.

Greg said...

"Our own policy doesnt make the USD a reserve currency.... the external demand for USDs does... so there is nothing we can do about this as it is not our policy in the first place"


My very first thoughts as well.

Its as if some of these guys think that people just up and decided that the US dollar was going to be the reserve currency...... and that they can change their minds tomorrow and declare the renmibi the reserve currency.

Its a reserve currency cuz other CBs keep it in reserve (and usually have a hard peg to it for their own currency ) and they are able to keep it in reserve because we spend so much of it as opposed to hoarding it. We spend it, they keep it. Its that simple.

So in a sense I guess it is our policy that affects it but why, if your goal is to acquire nice things or to take advantage of nice services being offered, would you not spend?

Tom Hickey said...

Greg, the idea is that the US shoved the USD down the world's throat at Bretton Woods, and the fact that the US tied oili trading to the dollar is taken as evidence of the demise of the US as the global superpower if the dollar is dethroned. Lots of people believe this nonsense, since they don't understand currency and currency markets.

Tom Hickey said...

Bernstein elaborates on his NYT op-ed at his place.

Dethrone the Dollar, Bring Back the Jobs

Greg said...

Right Tom

The whole paradigm is based on thinking we need those dollars back that are sitting in foreign accounts.

"Those foreigners are holding our dollars so we can't pay for blah blah blah and create jobs!!!!"