Sunday, January 28, 2018

On the "Strong Dollar"

As usual, Tonelson brings perspective to the hysteria and silliness.

A while back, Trump's T-Sec Mnuchin suggested that the US dollar should be weaker.  An outcry arose--some of which came from people who know, and others who should know better.

...You can have too much and too little of a good thing. An overly weak dollar would cause major problems for the U.S. economy. So would an overly strong dollar. Therefore, the key is not to assume either extreme (especially in the absence of any evidence that they’re around the corner) but to figure out a dollar level that achieves the best combination of benefits....

OK, that makes sense.  Chocolate for dessert, good.  Chocolate as the entire meal, bad.

Here's Tonelson's second point, and it IS important.

...The second [point] has been much less much widely recognized even in calmer periods, but it’s closely related to my longstanding point about the importance of the quality of American growth. As I’ve written frequently, growth based largely on production and the growing incomes it generates place the economy on the soundest foundation. This approach may not always produce the fastest growth, but it fosters the growth that tends to last longest, and that’s least likely to inflate bubbles that then collapse into economic and financial crises). 

Such disasters, as we should have learned, stem from growth largely based on borrowing and consuming – i.e., on shopping sprees that eventually can’t be paid for responsibly, and can only continue by racking up enormous debts. And other than legitimate (though clearly overblown nowadays) concerns about inflation, that’s a main reason why folks in finance – and everyone on their payroll in the U.S. government and the rest of Washington – like the strongest possible dollar. ...

Yes.  The smiling man who wants to lend you umpty-dollars does that because HE profits NOW, and the disaster will be eaten by his successors--or the taxpayers (see, e.g., BofA, Citi, JPMorgan, and M&I Bank.)

Let the Banks scream and weaken the USD.  We can use some solid growth, with only a little dollop of chocolate.

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