Global imbalances: The almighty dollar

Posted: March 14, 2013 in economy
Tags: , ,

THE dollar has been looking relatively strong of late:

Neil Irwin discusses the trend:[T]he tendency to view the value of the dollar as a referendum on how Ben Bernanke and Jack Lew are doing their jobs on any given day misses a lot. If the economic outlook improves, whether because of policies enacted in Washington, or because of the natural resilience of the U.S. corporate sector, or because somebody finds a Saudi-sized heretofore unknown oil reserve in the middle of Kansas, the dollar will rise. A key part of the reason that the dollar would rise on that improved outlook would be that investors expect the Fed to raise interest rates more and sooner than they would otherwise. But this is a case where the Fed is the cart, and the economy is the horse.What has happened in the last few months is essentially a more modest version of exactly that. The housing rebound and generally solid private sector has evidently been enough to keep growth on a steady path, so dollars look like a comparatively better investment than the alternatives around the world…If you take care of your country’s economic prospects, the value of your currency will take care of itself.I can’t say for sure, as markets don’t issue memos, but I would guess that Mr Irwin is right to credit America’s relatively strong and stable recovery for the rising dollar. I’m a little more nervous about this …

via Economic Crisis


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