USA Today told readers that: "private economists worry the country could face the grim prospect of seeing interest rates soar in future years and the dollar weaken as foreigners dump their U.S. holdings."
Actually, private economists who understand economics are pleased by the prospect of the dollar declining. If this is brought about by the decision of China and foreign investors to stop buying up U.S. bonds that would be just great.
Private economists who know economics know that the trade deficit is the fundamental imbalance in the U.S. economy. The trade deficit in fact leads to the budget deficit that USA Today is hyping.
This is an accounting identity. If the country has a trade deficit, then its national saving must be negative. That means either very low private savings, very low public savings (e.g. a budget deficit), or some combination.
The only mechanism for getting the trade deficit is a lower dollar. Only an economist who could not see an $8 trillion housing bubble would be troubled by the prospect of a lower dollar.
It also would have been worth some ridicule of House Republican Leader John Boehner for blaming President Obama for the deficit. The Bush administration's policies and its failure to prevent the housing bubble are by far the main contributors to the current deficit.
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