The value of the dollar relative to other currencies is by far the main determinant of our balance of trade. We can talk about better education and training for our workforce, improving our infrastructure and better research, all of which are important for the economy.The Guardian
But anyone who claims that improvements in these areas can offset the impact of a dollar that is overvalued against another currency by 15-20% is out of touch with reality. If the dollar is overvalued by 20% against another country’s currency, it has the same effect as imposing a 20% tariff on US exports and giving a government subsidy of 20% to imports.
This is the direct effect when other countries deliberately buy up US assets to prop up the dollar against their currency. This is the main reason the United States is currently running a trade deficit of more than $500bn a year.
This trade deficit creates a huge gap in demand. It has the same impact as if households were taking $500bn a year out of their paychecks and stuffing the money under their mattress. There is no obvious way to make up this gap in demand. In principle we could fill the gap with large budget deficits, but this is a political non-starter....
Obama is failing us all by ignoring the need for currency rules in TPP
Dean Baker
h/t Mark Thoma at Economist's View
9 comments:
It seems we have two separate emerging lines of criticism on TPP. One group wants the deal to be more of a genuine free trade deal, and so is focused on getting things like currency rules included so that exchange rates float according to market conditions.
The other group is skeptical that most ordinary Americans would benefit from even a genuine free trade agreement.
I guess I'm personally most worried about the increasing handover of real political power to private capitalists, and the near impossibility of addressing global environmental and social conditions in a meaningful way via politics in a world ruled by corporations.
I agree with you, Dan.
TPP means we slip closer into neo-feudalism.
Which is exactly this as defined by Dan above: "and the near impossibility of addressing global environmental and social conditions in a meaningful way via politics in a world ruled by corporations."
What little shadow of democracy we had, is being destroyed right now in the West.
Too much idiots running the show, because I don't even think it's intentional from many politicians (from others, like Obummer, it is ofc, they believe that crap).
"Free," as in "free market," "free trade," and "free capital flow," is a neoliberalism slogan written in double-speak to dupe the rubes. See the James Petras post I linked to yesterday.One thing you can be sure about neoliberalism is that nothing is free, other than what the TPTB can rip off the commons and the rest of the people for themselves.
Normally, I like Baker's writings. But to say the currency manipulation is the main cause of our obscene trade deficits is just plain wrong. We have those massive trade deficits mostly because we have refused to take our energy position in the world seriously.
I took a class called "Energy and Public Policy" in 1974 in the wake of Oil Shock 1. We were asked to come up with various outcomes from not figuring out a meaningful substitutes for oil imports. Almost all scenarios led to "unsustainable" trade deficits.
So Baker, I had a professor who understood this matter better in 1974 that you do in 2015.
"other countries deliberately buy up US assets to prop up the dollar against their currency."
It may look that way ex post but I assert that is not what is happening... "countries" dont buy anything.... and "countries" dont "prop up" the dollar, etc...
It's a bad analysis.
There is a very simple way to 'plug the gap'. You just concentrate on ensuring that the domestic economy is fully engaged, via a Job Guarantee and appropriate fiscal settings, and let exports and imports largely take care of themselves.
This focus on an arbitrary dividing line in the US currency area is because economists are taking the wrong viewpoint.
Do they worry so much about the dividing line between California and Nevada?
And because of this blinkered view they sleep walk into supporting Corporatism.
"they sleep walk into supporting Corporatism"
Right Neil I take some exception to Dan's word "handover" above... it looks more like a "vacuum" that develops and the corporate interests end up most influential as they pursue their corporate purposes while the govt people get their panties in a bind over what they view as problematic ex post NIA results and do not pursue public purpose...
So when we have no public purpose being pursued, all we are left with is corporate purpose...
Obama can only be "failing us" if he ever was on "our" side in the first place.
Looking at his presidency to date and his campaign contributors, it's crystal clear whose side he's on. Actually, it was clear when he was running for the nomination against Hillary Clinton that he was not this liberal populist that people imagined him to be.
He was the ultimate blank slate: wishful thinking voters projected their desires on to him and assumed those were his policies too. Rather than just accepting that Obama is an old fashioned fiscally conservative, national security state Republican, he's transformed into a modern day, fashionable leftwing version of FDR!
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