Sunday, September 27, 2009

Strong dollar policy affirmed - more of the same

"A strong dollar is very important to the United States," Geithner said at a news conference on Thursday at the opening of the two-day summit in Pittsburgh, where leaders of the largest rich and emerging economies are discussing the global economic crisis.

If we poked a Treasury secretary in his sleep, would he say that the US has a strong dollar policy? How would we tell the difference between a strong a weak dollar? If we had a strong dollar policy does that mean that the dollar would be overvalued versus other countries? There is a need to articulate what a strong dollar means for the world.

It is the macro policy that drive behavior.

"We are not going to walk away from the greatest economic crisis since the Great Depression and leave unchanged, and leave in place, the tragic vulnerabilities that caused this crisis," he said.

So what does that mean for monetary policy which pushed interest rates to lows in the early 2000's only to set off a commodity boom and a speculative bubble? What does that mean for fiscal policy and our ability to balance budgets in the future?

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