Thursday , December 13 2018
Home / Jeffrey Frankel's Blog / Larry Summers’ Explanation for $ Decline

Larry Summers’ Explanation for $ Decline

Summary:
March 5, 2018 — Why has the dollar fallen since January 2017?   My answer is an economic turnaround in the rest of the world.  Also the level of the dollar remains rather high.  But Larry Summers has a different answer. Many of us started warning in the 1980s that erratic US fiscal and foreign policy would eventually put an end to American exorbitant privilege — that foreigner investors would finally tire of holding ever-greater quantities of dollars. I renewed the prediction when GWB brought back the twin deficits 15 years ago. I gave up making such claims after the 2008 Global Financial Crisis produced a global rush to the US safe haven notwithstanding that the sub-prime mortgage crisis had originated in the US. But Summers makes a case in today’s FT that Trump’s erratic fiscal and

Topics:
Jeffrey Frankel considers the following as important: , , , ,

This could be interesting, too:

Menzie Chinn writes Guest Contribution: “Trade War is Not a Reason to Ease Money”

Menzie Chinn writes Origins and Challenges of a Strong Dollar

Scott Sumner writes Every day it gets worse

Menzie Chinn writes JP Morgan Chase: “U.S.-China endgame involving 25 percent U.S. tariffs on all Chinese goods in 2019”

March 5, 2018 — Why has the dollar fallen since January 2017?   My answer is an economic turnaround in the rest of the world.  Also the level of the dollar remains rather high.  But Larry Summers has a different answer.

Many of us started warning in the 1980s that erratic US fiscal and foreign policy would eventually put an end to American exorbitant privilege — that foreigner investors would finally tire of holding ever-greater quantities of dollars. I renewed the prediction when GWB brought back the twin deficits 15 years ago.

I gave up making such claims after the 2008 Global Financial Crisis produced a global rush to the US safe haven notwithstanding that the sub-prime mortgage crisis had originated in the US.

But Summers makes a case in today’s FT that Trump’s erratic fiscal and foreign policies are finally bringing us to this point:  “Currency Markets Send a Warning on the US Economy.”  It is well-argued, as always.  But if investors were beginning to doubt the solidity of US assets, I might have expected to see more upward pressure on US interest rates than we have seen.

Jeffrey Frankel
Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, previously served as a member of President Bill Clinton’s Council of Economic Advisers. He directs the Program in International Finance and Macroeconomics at the US National Bureau of Economic Research, where he is a member of the Business Cycle Dating Committee, the official US arbiter of recession and recovery.

Leave a Reply

Your email address will not be published. Required fields are marked *