The Washington Post tells us that the decline in the dollar in recent months: “has raised fears that what has been an orderly decline could become a rout.” Really? Who has these fears, what would a dollar rout look like?
I remember reading in the Washington Post and elsewhere how the “Buy American” provisions in the stimulus package were devastating to our trading partners. Of course, these provisions just applied to a few billion dollars of steel and other goods that would be purchased with stimulus money.
Imagine that all imports soared in price by 40-50 percent due to a rout of the dollar. Suppose also that all the goods that everything the U.S. exports (roughly $1.5 trillion a year) were suddenly available in Japan, Germany, Canada and everywhere else at half of its current price, due to a rout of the dollar. No doubt our trading partners would just sit there dumbfounded as their trade surpluses turned into huge deficits, right?
In reality, the story of a dollar rout is absurd. U.S. trading partners would intervene to keep the dollar falling below levels that they considered acceptable to their economies. The dollar rout is simply a scare story that Wall Street people like to circulate for their own ends. The Post should not be repeating this nonsense.
–Dean Baker
