Wednesday, March 16, 2005


Economist: Deficits, Not Asian Banks, Drive Dollar

Dow Jones newswire ran a piece on economist Joseph Stiglitz Tuesday. He lays the blame for US dollar weakness on domestic policies, specifically the trade and budget deficits. "The heart of the problem is domestic savings. And underlying that are the huge fiscal deficits."

It has become common for US politicians to scold China for its policy regarding exchange rates. But it is incredibly naive to think that other nations have a responsibility to put our house in order."The question is whether the adjustments to address major imbalances are smooth or abrupt. It's not whether the dollar is going to be weak."

Mr. Stiglitz also casts doubt on any boost for the greenback coming from overseas, "The exchange rate of the yuan won't have large effects on these variables. People simply haven't come to grips with this." A revaluation of the renminbi might narrow the U.S. trade deficit with China, 'but it will just show up in the trade deficit with someone else,' he said.

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