News Flash!!!! A Falling Currency Is How Trade Deficits Adjust!

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Saturday, 06 November 2010 15:46

Okay, let's wash away the ungodly stupidity. Doesn't anyone take intro econ anymore? Here's the test question and no one gets to write on currency or trade policy until they get it right.

If a country has a large trade deficit in a system of floating exchange rates how does it move to balance? Yes, that's right, its currency falls in value. That's the whole story, everything else is secondary.

So, the United States has a large and growing trade deficit. Do you want the trade deficit to fall? If so, then you want the dollar to decline in value. The value of the dollar determines the cost of U.S. exports to other countries and the cost of imports for people in the United States. The former is high now and the latter is cheap. That is why we have a trade deficit.

We shouldn't have to read any more pieces like this one in the NYT. Make these folks learn a little basic economics.