I'm going to bottom-line this at the top:
Anyone complaining about the Fed weakening the dollar, is trying to put us in the trap the Spanish are in. Paul Krugman
explains why. He devotes a lot of his latest column to discussing the Spanish problem:
The best thing about the Irish right now is that there are so few of them. By itself, Ireland can’t do all that much damage to Europe’s prospects. The same can be said of Greece and of Portugal, which is widely regarded as the next potential domino.
But then there’s Spain. The others are tapas; Spain is the main course.
The problem is that Spain, exactly like the U.S., is saddled with a classic post-bubble economy — a "surge in unemployment" coupled with a "budget deficit balloon thanks to plunging revenues and recession-related costs." The unemployed can't buy anything, so there's a demand-driven recession, a big one.
To escape, there are only two choices — devalue the currency, or devalue the economy. If you devalue the currency, you stimulate an export-driven growth boom, and the economy restarts. This, contrary to claims by Republican fear-mongers like newly-minted genius Paul Ryan, is the
classic, and common way out for recession economies.
If you can't do that (as the Spanish can't without abandoning the Euro), you have to devalue the economy: "cut wages and prices until its costs are back in line" with your neighbors and trading partners.
For Spain, this is a problem:
What all this means for Spain is very poor economic prospects over the next few years. America’s recovery has been disappointing, especially in terms of jobs — but at least we’ve seen some growth, with real G.D.P. more or less back to its pre-crisis peak, and we can reasonably expect future growth to help bring our deficit under control. Spain, on the other hand, hasn’t recovered at all. And the lack of recovery translates into fears about Spain’s fiscal future.
But we're in better shape, right? Indeed we are, because we can devalue the dollar, as the Fed is now doing with the last politically acceptable tool in the tool box, the soft hammer called Quanitative Easing. Welcome to our own export-driven recovery.
Or not. Conservatives want to derail that with with "dollar down the tubes" talk. The organized shout against a Fed-driven solution, if it succeeds, means we'll have no solution at all. We'll be locked in the Spanish prison. (This is what the Chamber of Commerce, which
Obama is now wooing, means when it talks about
an independent Fed — it wants an unresponsive one.)
About that "dollar down the tubes" talk: Note how well that meme jibes with the presumed macho of American fantasies, marching Rambo-like through the world. A weak dollar puts you, sir, into Viagra land; can't let that happen. A nice (for Conservatives) secondary political benefit of all those "fear the limpness" ads we're now being inundated with.
This is not a small point, by the way. Culture re-enforces politics, and thanks to the 20th century, culture can be manipulated. Welcome to the world of modern, scientifically researched advertising. The ad and PR industry, the last century's unique contribution to crowd control, has much to answer for.
GP
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