The Strong Dollar


Pete Davis reports from yesterday’s Senate Budget Committee hearing:

Budget Committee Chair Kent Conrad (D-ND) and Ranking Republican Judd Gregg (R-NH) commiserated that they were almost alone among their colleagues in their concern for the long-run credit worthiness of the United States. He also expressed concern for maintaining the value of the Dollar. Conrad drew attention to the “wall of debt” that Americans face in his opening statement and detailed the economic challenges we face, not only in reviving credit markets and in overcoming recession, but in getting control of the massive debts we’re incurring once the economy starts growing again.

Concern for the long-term creditworthiness of the United States is well-taken. But though I’m open to correction on this point, worrying about “maintaining the value of the dollar” seems misguided to me. Beyond the short-term problem of the recession what we need over the long-run is structural adjustment of the international flow of goods and capital. We need to export more and import less. A weaker dollar isn’t, strictly speaking, a necessary condition of that re-balancing process but it’s the most likely way for it to come about.

Language can get a little misleading here. A “strong” dollar sounds like a good thing and a “weak” dollar like a bad one. But it’s perfectly normal for trade deficits to wax and wane and for the relative value of currencies to rise and fall as part of that adjustment process.