The Post flunks econ 101 yet again telling readers that the budget deficit threatens to lead to, among other things, a falling dollar. Of course, in econ 101 students learn that the bad story of a budget deficit is that it raises interest rates, which will raise the value of the dollar. A trade deficit, by contrast, leads to an excess supply of dollars, which therefore causes the price of the dollar to fall. In places other than the Washington Post, the decline in the dollar is a good thing, leading to increased net exports and an improvement in the trade deficit.
--Dean Baker
