Krugman talks down the dollar

The global economic free fall may be over, says the Nobel Prize winner, but that's no reason for cheer

Topics: U.S. Economy, Wall Street, How the World Works, Paul Krugman,

Even when Paul Krugman is saying relatively encouraging things about the economy, he still leaves some room for deep gloom. Speaking at a seminar in Ho Chi Minh City today, reports Bloomberg, Krugman said he thinks the “free fall” of the global economy may have come to an end.

The American economy may expand “slightly” in the second half, he said, citing a slowdown in the pace at which jobs are being lost.

Just about all of the economic indicators out there are suggesting that the free-fall has come to an end, that we’ve stabilized … Probably the worst in terms of shocks to the system is over.

But … there’s a big but. Stabilization of the economy means that nervous investors worldwide will no longer be seeking the “safe haven” of U.S. dollars. Up until now, even though the U.S. is running huge deficits and the Fed is printing money like crazy, implying that inflation will eventually take hold, the value of the dollar has remained strong simply because it’s the best of a bunch of bad options. But as tension eases, the appetite for the dollar will likely decline sharply, said Krugman.



This suggests a very nasty paradox. By going all out with both fiscal stimulus and expansive monetary policy, the U.S. may have stopped the bleeding. But to pay for these expensive treatments, the U.S. government depends on investors continuing to snap up U.S. Treasury bonds and bills — which become progressively less attractive as global panic subsides.

So success breeds failure. But then again, a weakening dollar would presumably make U.S. exports more attractive globally, which could provide a much-needed stimulus to the American manufacturing sector. Which could cut down the trade deficit and increase domestic tax revenue that might help reduce the ongoing budget deficits. And around and around we go.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

More Related Stories

Featured Slide Shows

  • Share on Twitter
  • Share on Facebook
  • 1 of 10
  • Close
  • Fullscreen
  • Thumbnails

    Romance novels need a canon

    "Bet Me" by Jennifer Crusie

    A contemporary romantic comedy set to Elvis Costello and lots of luxurious and sinful sugary treats.   Read the whole essay.

    Romance novels need a canon

    "Welcome to Temptation" by Jennifer Crusie

    Another of Crusie's romantic comedies, this one in the shadow of an ostentatiously phallic water tower.   Read the whole essay.

    Romance novels need a canon

    "A Gentleman Undone" by Cecilia Grant

    A Regency romance with beautifully broken people and some seriously steamy sex.   Read the whole essay.

    Romance novels need a canon

    "Black Silk" by Judith Ivory

    A beautifully written, exquisitely slow-building Regency; the plot is centered on a box with some very curious images, as Edward Gorey might say.   Read the whole essay.

    Romance novels need a canon

    "For My Lady's Heart" by Laura Kinsale

    A medieval romance, the period piece functions much like a dystopia, with the courageous lady and noble knight struggling to find happiness despite the authoritarian society.   Read the whole essay.

    Romance novels need a canon

    "Sweet Disorder" by Rose Lerner

    A Regency that uses the limitations on women of the time to good effect; the main character is poor and needs to sell her vote ... or rather her husband's vote. But to sell it, she needs to get a husband first ...   Read the whole essay.

    Romance novels need a canon

    "Frenemy of the People" by Nora Olsen

    Clarissa is sitting at an awards banquet when she suddenly realizes she likes pictures of Kimye for both Kim and Kanye and she is totally bi. So she texts to all her friends, "I am totally bi!" Drama and romance ensue ... but not quite with who she expects. I got an advanced copy of this YA lesbian romance, and I’d urge folks to reserve a copy; it’s a delight.   Read the whole essay.

    Romance novels need a canon

    "The Slightest Provocation" by Pam Rosenthal

    A separated couple works to reconcile against a background of political intrigue; sort of "His Gal Friday" as a spy novel set in the Regency.   Read the whole essay.

    Romance novels need a canon

    "Again" by Kathleen Gilles Seidel

    Set among workers on a period soap opera, it manages to be contemporary and historical both at the same time.   Read the whole essay.

  • Recent Slide Shows

Comments

0 Comments

Comment Preview

Your name will appear as username ( settings | log out )

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>