How a Weak Dollar Kills Prosperity
David Malpass -- founder of Encima Global research firm, former chief economist of Bear Stearns and a former Treasury official -- penned an op-ed in today's Wall Street Journal raising alarms about the demise of the U.S. dollar.
You can read the entire piece by clicking here, but let me sum up the main points for you:
-- The Federal Reserve and, on a larger scale, the U.S. government talk about wanting a strong dollar but don't really want one because a weak dollar helps the U.S. get out from under its debt to foreign nations. As the dollar devalues, the value of what we owe other nations goes down.
-- When a nation's currency weakens, capital flees overseas and takes with it jobs and prosperity.
-- This is the "you've got to be kidding" paragraph in the piece: "Some weak-dollar advocates believe that American workers will eventually get cheap enough in foreign-currency terms to win manufacturing jobs back." What? THIS is a solution to 9.8 percent unemployment? Hoping the dollar gets so weak that Americans get jobs with Third World wages? If Malpass wanted to pull this string a little harder, he would have pointed out the spiraling wages combine with spiraling prices to create radical deflation, and that way leads to depression.
Now, you can never read anything by an author without regard to what he or she has written in the past. Which is why you may want to click on this piece Malpass wrote in the Journal in August 2007 -- two months before the stock markets peaked -- headlined: "Don't Panic About the Credit Market." It would be hilarious if it weren't so tragic.
Here's the killer paragraph:
"The bearish view is that Americans live, breathe and spend their houses and mortgages. Yet the July 31 consumer confidence survey by the Conference Board jumped to 112, the highest in the six-year expansion. Data and theory show clearly that houses are not the be-all and end-all of the economy."
Maybe "houses" were not the be-all and end-all, but securitization of those houses sure was. And that's something Malpass didn't mention. But, as head economist of Bear Stearns, Malpass had to be optimistic. Now, running his own research firm, that's not the case.
That being said, Malpass can be right on the perilous state of the dollar while also having blown the call on the housing crisis back in 2007.
If you want to read what this author has written in the past on the perilous state of the dollar, click here.
-- Frank Ahrens
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October 8, 2009; 4:21 PM ET
Categories: The Ticker | Tags: Bear Stearns, David Malpass, Encima, dollar, housing crisis
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Posted by: Dermitt | October 9, 2009 11:30 AM | Report abuse
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