According to the NYT, it seems that this is exactly what he agreed to at the G-20, unless he got a commitment to get the value of the dollar against the Chinese yuan and other currencies. According to the article, President Obama pledged to raise the U.S. private saving rate and reduce the budget deficit. While the saving rate has already risen due to the loss of $6-$8 trillion in housing bubble wealth, if the budget deficit is substantially reduced without a reduction in the value of the dollar, then it will lead to a rise in the unemployment rate. If the dollar falls, then increased exports and reduce imports can make up for the loss of demand that would be the result of a lower budget deficit. However, if the value of the dollar does not change appreciably, then there will be no source of demand to offset the contractionary impact of a smaller budget deficit. The NYT should have better explained to readers the extraordinary nature of the commitment that it claims President Obama made at the G-20.
--Dean Baker
