Sunday, November 15, 2009

Nobody Wants a Weak Dollar

The truth comes out. As easy money policy drives the USD index back toward the lows when the blog was first started, this is coming under criticism of Chinese regulatory authorities, whose balance of trade is harmed by a weakened dollar[1]. They cite a weak dollar adversely effects developing economies, and the carry trade that has resulted has re-created a spectulative environment[2].

I'm glad the Chinese have government officials capable of talking sense when it comes to fiscal policy, though, to be fair, it seems every nation can talk about other nations finances more sensibly than their own—and China's supression of the yuan comes at a cost to the standard of living of Chinese workers. But it is pretty rare for anybody to speak on the dollar sensibly in any official capacity, so thumbs up to China for crossing that barrier.

Also noteworthy is China's attitude that the value of the dollar is a function of fiscal policy, which I fully agree with. Inflation and dollar weakness is not some inevitable natural event.

1. China: Loose US policy, weak USD creating speculation (WSJ)
2. China: Low US interest rates threaten recovery (AP)

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