US Trade Deficit

Let dollar fall or risk global disorder
Martin Wolf

Stein's Law: If something cannot go on for ever it will stop.

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It is rather hard to come up with a novel list of policy changes to support global adjustment.

The Peterson Institute, Bruegel and the Korean Institute for International Economic Policy recently sponsored a workshop on global adjustment. Alan Ahearne, Bill Cline, Kyung Tae Lee, Yung Chul Park, Jean-Pisani Ferry and John Williamson then joined forces to outline
a set of policies that would facilitate global adjustment.
Brad Setser 28/3 2007

The authors though tried to push the debate forward by trying to put some numbers around the scale of the needed real exchange rate adjustment – think a 10-20% real depreciation in the US and a 10-15% real appreciation in Japan and a 5-25% real appreciation in China.

If all of Europe appreciates against the US, some European firms will be hurt – but the overall real appreciation is actually rather modest.

My own contribution focused on the role of the oil exporters in global adjustment

I also argue that dollar pegs have prompted oil-exporting economies to hold more of their savings in dollars than otherwise would be the case

Full text with some interesting comments

How do we get out of this scenario alive?
Rolf Englund, Financial Times

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