Wall Street Journal

Cost of the Crisis: A Much Weaker Dollar

November 14th, 2008

By: Jeff D. Opdyke

The emergency summit of the G-20 nations begins Sunday in Washingon. The financial overhaul will take time, and what ultimately emerges from the meeting that some are describing as a sequel of Bretton Woods is anyone's guess.

Recent statements from foreign governments suggest the rest of the world finds much fault with U.S. systems that, it perceives, allowed the current crisis to metastasize. Global leaders may seek to impose significant international finance changes that would alter how the U.S. operates.

Pehaps the U.S. will concede on some demands -- but possibly at a price: acceptance of substantially weaker U.S. dollar over the long term. A weaker dollar allows the U.S. to compete better globally by boosting exports, helping shrink the yawning current-account deficit.

And the Treasury has massive debt to sell to pay for sundry bailouts. Debasing the currency allows the Treasury to repay its debt with cheaper dollars. Says Richard Clarida, global adviser to Pimco and former assistant Treasury secretary: " The fed understands that on a three- to five-year basis a downward adjustment of the dollar at an orderly pace will be part of the global-adjustment process."

WSJ.com
http://www.wsj.com/

 

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