Despite fears voiced by many, the falling dollar is actually good news for the U.S. economy, says Nobel Prize winning economist Paul Krugman.
“For one thing, it’s mainly the result of rising confidence: the dollar rose at the height of the financial crisis as panicked investors sought safe haven in America, and it’s falling again now that the fear is subsiding,” writes Krugman in his column in The New York Times.
“And a lower dollar is good for U.S. exporters, helping us make the transition away from huge trade deficits to a more sustainable international position.”
Krugman was very critical of The Wall Street Journal’s editors, which have been very vocal in opposition to the administration’s putative weak-dollar policy.
“If you get your opinions from, say, The Wall Street Journal’s editorial page, you’re told that the falling dollar is a terrible thing, a sign that the world is losing faith in America, and especially, of course, in President Obama,” writes Krugman.
“Something, you believe, must be done to stop the dollar’s slide. And in practice the dollar’s decline has become a stick with which conservative members of Congress beat the Federal Reserve, pressuring the Fed to scale back its efforts to support the economy.”
Krugman said he is hopeful the Fed will resist this political pressure but admits there are, in his opinion, worrying signs of a” misguided monetary mentality” within the Federal Reserve system itself which seeks to accommodate the weak-dollar critics.
But critics across the political spectrum are truly worried about the weak dollar.
The Guardian (U.K.) reports that economists predict the falling dollar will “make it harder for America to find buyers” for government bonds.
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