Not according to the Washington Post. In a lengthy page 1 article discussing the implications of the dollar's fall, the size of the trade deficit does not appear once as a causal factor. Of course the deficit is not the only factor behind the decline, but the fact that the United States had been throwing out $800 billion more dollars on international currency markets each year than people needed to buy our exports surely plays some role in the decline. In fact, back in the old days, economists used to talk about changes in currency values as the mechanism that adjusts trade imbalances. (That's a joke -- they still talk about exchange rates adjusting to correct trade imbalances. Papers like the Post just don't like to acknowledge this fact.) Most of this article is equally confused. For example it tells us about a Kenyan coffee grower who is being hit because he sells his coffee for dollars that are rapidly losing their value. Well, coffee is priced on a world market. Its price fluctuates by the hour. If the dollar lost 90 percent of its value, then coffee would simply sell for ten times as much, measured in dollars, unless coffee was also declining in value. If coffee is declining in value, then the farmer's problem is the decline in the value of coffee, not the decline in the value of the dollar. The story would be different if the coffee grower was locked into a longterm contract denominated in dollars. This may be the case, but the article doesn't say anything about longterm contracts. Similarly, the article recounts the situation of foreign workers in the United Arab Emirates, who it says have seen their savings wiped out because of the decline in the value of the dollar. This would only be the case if the workers held their savings in dollars. That may be the case, but this then raises the question as to why they held their savings in dollars. Did they not have the to option to hold savings in euros or other currencies, or did they simply make the wrong choice? Again, the article does not tell us. The sharp fall in the dollar over the last five years is a big deal for people in the United States and the rest of world. However, when the Post devotes a front page story to the topic it should at least make sure that it conveys some real information. This one doesn't.
--Dean Baker