Saturday, August 05, 2006

Not the End of the World

Now that we’re going to have a recession, the question arises as to how we are going to get out of it. “With great difficulty,” seems to be the consensus. Getting out of a recession is seldom easy, but I think some commentators have exaggerated the difficulties involved this time around. In particular, Brad DeLong (quoted by Mark Thoma) is pessimistic about the options the US would have available should it fall into a recession (for which he puts the odds at about 30%, although he doesn’t make much of a case for the remaining 70%). The rest of this post reproduces (on mvpy's suggestion) a comment I made on Mark Thoma’s entry above. First, citing Professor DeLong regarding the prospects for a monetary solution:

… sharp reductions in interest rates would lower the value of the dollar and increase inflationary pressures from import prices in a way that the Federal Reserve does not dare allow.


This is a controversial point, and Brad is going out on a bit of a limb here. First of all, many imports are priced in dollars, and many of those that aren’t literally so are effectively priced in dollars because the prices get adjusted according to the prices of dollar-priced competitors. Brad remembers as well as anyone how adamantly foreign producers tried to defend their US market shares during the dollar declines of the late 1980s.

Second, policymakers in foreign countries that depend on US demand or compete heavily with the US aren’t likely to allow dramatic appreciation in their currencies. The Asian countries just won’t let it happen. Europe may let it begin to happen, but when their economies start to decline due to US competition and their inflation rates decline due to a strong Euro, the ECB will ease up and allow the dollar to appreciate again (and, in fact, traders will anticipate this action and forestall a dramatic rise in the Euro to begin with). Moreover, the Fed will anticipate these foreign responses and therefore will not be tremendously concerned with the value of the dollar until they actually see the inflation rate rising because of it (which it may never do, for this and all the other reasons described here).

Third, with the US economy in recession, with the Fed’s inflation-fighting credibility high (as it will be, if the Fed manages to cause a recession), and with an extremely weak US labor market (much weaker, because of the recession, than the already very weak labor market today), there will be dramatic domestic disinflationary pressures to offset any inflationary pressure from imports.

Fourth, in the event of a US recession, those imports (such as oil) that have volatile prices will (along with everything else) experience a drop in demand, which will put downward pressure on prices and tend to offset the effect of the weak dollar.

Finally, to the extent that import prices do rise, and export prices fall in terms of foreign currencies, this will be an excellent stimulus for the US economy. Like any economic stimulus, a weak dollar also tends to be inflationary, but it is not reasonable to assume that its inflationary impact would be out of proportion with its stimulative impact. You wouldn’t say, “Sharp reductions in interest rates would increase demand for building materials and construction workers and thus produce inflationary pressures that the Fed doesn’t dare allow.” During a recession, the Fed does dare allow inflationary pressures, because they are offset by the disinflationary impact of the recession itself.

Labels: , , , ,

15 Comments:

Blogger Robert D Feinman said...

It would be useful to examine how much "stuff" the US exports in detail. Not only the gross amount, but the breakdown by type of export.

When these things get "cheaper" because of a weak dollar will it really lead to increased export volume?

I'll just give two areas where the answer is not obvious (to me, at least): bulk agricultural commodities and commercial aircraft.

In the first instance I don't know whether making wheat and soy cheaper would increase foreign purchases. There is a fairly stable demand and many countries already do things to try to protect their local farmers. If the price dropped further it might be countered by protectionist actions.

For commercial aircraft, the firms have already scheduled delivery for several years into the future. They really can't export more if the price changes, they don't have the manufacturing capacity. If the contracts are in dollars all that happens is that they will be getting less income in terms of global purchasing power.

I'm not sure what happens with the global financial service sector that is based in the US. Many of these firms use branches in the target countries to perform the services.

I think people still remember the days when the US exported lots of widgets and competed against widget makers in Europe and Japan. I'm not sure this is relevant now.

Wed Sep 05, 11:18:00 AM EDT  
Anonymous Anonymous said...

福~
「朵
語‧,最一件事,就。好,你西.............................................................................................................
..................

Wed Apr 01, 10:40:00 AM EDT  
Blogger . said...

酒店喝酒,禮服店,酒店小姐,酒店領檯,便服店,鋼琴酒吧,酒店兼職,酒店兼差,酒店打工,伴唱小姐,暑假打工,酒店上班,酒店兼職,ktv酒店,酒店,酒店公關,酒店兼差,酒店上班,酒店打工,禮服酒店,禮服店,酒店小姐,酒店兼差,暑假打工,酒店經紀,台北酒店,禮服店 ,酒店小姐,酒店經紀,酒店兼差,寒假打工,酒店小姐,台北酒店,禮服店 ,酒店小姐,酒店經紀,酒店兼差,暑假打工,酒店小姐,台北酒店,禮服店 ,酒店小姐,酒店經紀,酒店兼差,寒假打工,台北酒店,禮服店 ,酒店小姐,酒店經紀,酒店兼差,暑假打工,酒店小姐,台北酒店,禮服店 ,酒店小姐,酒店兼差,暑假打工,酒店小姐,台北酒店,禮服店 ,酒店小姐,酒店經紀,酒店兼差,寒假打工,酒店小姐,台北酒店,禮服店 ,酒店小姐,酒店經紀,酒店兼差,暑假打工,酒店小姐,台北酒店,禮服店 ,酒店小姐,酒店經紀,酒店兼差,寒假打工,酒店小姐,台北酒店,禮服店 ,酒店小姐,酒店經紀,酒店兼差,暑假打工,酒店小姐,禮服店 ,酒店小姐,酒店經紀,酒店兼差,寒假打工,酒店小姐,禮服店 ,酒店小姐,酒店經紀,酒店兼差,暑假打工,酒店小姐,禮服店 ,酒店小姐,酒店經紀,酒店兼差,寒假打工,酒店小姐,禮服店 ,酒店小姐,酒店經紀,酒店兼差,暑假打工,酒店小姐,酒店傳播,酒店經紀人,酒店,酒店,酒店,酒店 ,禮服店 , 酒店小姐,酒店經紀,酒店兼差,暑假打工,招待所,酒店小姐,酒店兼差,寒假打工,酒店上班,暑假打工,酒店公關,酒店兼職,禮服店 , 酒店小姐 ,酒店經紀 ,酒店兼差,暑假打工,酒店,酒店,酒店經紀,酒店領檯 ,禮服店 ,酒店小姐 ,酒店經紀 ,酒店兼差,暑假打工, 酒店上班,禮服店 ,酒店小姐 ,酒店經紀 ,酒店兼差,暑假打工, 酒店上班,禮服店 ,酒店小姐 ,酒店經紀 ,酒店兼差,暑假打工, 酒店上班,酒店經紀,酒店經紀,酒店經紀

Tue Apr 21, 07:10:00 PM EDT  
Blogger Talia.float said...

head junior tennis racketwilson tennis racquet
wilson tennis racket
head tennis racketbabolat tennis racket
Lacoste polo shirtschaussure nike Ugg Bootspuma CATblack ugg boots
nike max ltd
ed hardy womens ed hardy sunglasses ed hardy mens

Tue May 19, 12:05:00 AM EDT  
Blogger how to buy air shoes said...

Some new style Puma Speed is in fashion this year. chaussure puma is Puma Shoes in french. Many france like seach “chaussure sport” by the internet when they need buy the Puma shoes or buy the nike max shoes.The information age is really convenient. By the way ,the puma CAT is really good chaussures puma ,don’t forget buy the puma mens shoes and nike air max ltd by the internet when you need them . Do you know Nike Air Shoes is a best Air Shoes .

Spring is coming, and how to choose the polo shirts is the main concern of many people. ralph lauren polo shirts is a classic type and reliable. ed hardy clothing is more in line with the aesthetic ideas of young people, so many young people filled with a variety of ed hardy clothes in their wardrobes. New style ed hardy womens shirt match the new style ed hardy sunglasses , it is a good idea.
Do you think this season is not for ugg boots ? maybe yes .but this season is best time that can buy the cheap ugg boots. Many sellers are selling discounted. Do not miss . Please view my blog and fc2 blog .thank you .

Tue May 19, 05:16:00 AM EDT  
Blogger wow power leveling said...

Faint hint of the love of friendship

Faint hint of the love of friendship. There is a friend, I think that is a cheap wow gold kind of love and friendship between the feelings between, you will occasionally miss a time to silence him, reminds him, the warm heart, a beautiful, a moving. Sad and worried at the time, you will think of him, you hope that he can in your side, give you comfort and buy wow power leveling understanding to you, and you never talk to him, are you afraid of their own grief that would preclude him from peaceful life.

You will be a song, a color, think of him, think of my wow gold his sincerity, he reminds me of the dedication, his mind had gone through the ups and downs together. With such a friend, you will treasure their lives and love their own lives, because you know I hope you had a good, he would like you to take care of themselves properly, and then to meet, he cheapest wow power leveling would like you to tell him you very happy.

That the concept of secularism, in your mind, because his replica replica rolex presence has become pale and weak, you are only in the depths of the bottom of my heart for this man set up a small space, stick with that quietly happy memories, from the the very beginning you know that you will not have any love, it seems that talk about love on the desecration CHEAP wow power level of this emotion, this can only be a friendship. This is how in the end all about? You want to for many years, but no clue.

You seldom have contacts in this long life, you meet the door may be only a few of the ten thousandth time, but in each other's hearts retain a miss, one asked, even if he went to the ends of the earth, even after many, many years, even BUY power leveling when the meet again, has long been a non-object is not, you still remember back as a profound, and this has been sufficient.

Sometimes life will calm a dry, maybe you will fall into the dry I replica rolex replica did this, perhaps what you do not have love, perhaps early HUAFA, full sideburns pale, but with such a friend, in the your life will ripple slightly, a little color, do you think of him. He remembered the quiet, perhaps the Health and cheap lotro gold the WHO will not forget.

Am grateful for you in this world, there is such a person, he is replica rolex not around you, he did not do anything for you, but you hope that he would have been very good, long life, happiness well-being ... ...

Am glad you had a feeling like that, pure and long, in this complex CHEAPEST power leveling world, there are such a friend, it is worth to cheap rs gold lbless you to miss ... ...

Wed Jun 10, 12:31:00 AM EDT  
Blogger haitao said...

cheap hair straighteners
chi hair straightener
chi flat iron

new polo shirts
cheap Lacoste polo shirts
cheap Lacoste polo shirts

cheap handbags
cheap bags
puma chaussures
chaussures puma
chaussure puma

Men's North Face
Women's North Face


hair straighteners
sexy lingerie store
cheap ugg boots
tattoo wholesale
men's clothing
women's clothing


2009 nike shoes
new nike shoes
Women's max
Men's max 93
nike shox
Nike air force
Nike air max 2003
nike air max ltd
nike air max tn
Nike air rift
Nike air Yeezy
nike airmax
Nike air max 90
Nike air max 97
nike birds nest shoes
nike dunk
nike RT1 shoes
nike SB
nike shox shoes
Nike shox OZ shoes
Nike shox R2 shoes
Nike shox R3 shoes
Nike shox R4 shoes
Nike shox R5 shoes
Nike shox TL3
nike trainers lovers

tennis rackets
Wilson tennis rackets
HEAD tennis rackets
Babolat tennis rackets

Sat Jun 13, 07:50:00 PM EDT  
Anonymous Anonymous said...

クレジットカード 現金化
国内格安航空券
おまとめローン
留学
インプラント
CloneDVD

Wed Jul 08, 12:43:00 AM EDT  
Anonymous Anonymous said...

桜の季節
素敵な音楽
海辺
幸福の路
風景
FX
出会い
mem
人材育成 システム
FrontPage
アクサダイレクト
高級住宅

Wed Jul 08, 12:43:00 AM EDT  
Anonymous Anonymous said...

物語の世界
描く日記
愛車
音楽のある生活
桜の涙
冬の太陽
人材派遣
私の家
sabely
kareny
不動産
合宿免許
新幹線

Wed Jul 08, 12:43:00 AM EDT  
Blogger poston said...

wholesale gemstone jewelry
wholesale crystal jewelry
crystal wholesale
rock crystal


crystal jewelry
wholesale jewelry
jewelry wholesale
cheap jewelry

Sun Sep 27, 10:59:00 PM EDT  
Blogger Peejay Li said...

I would like to be the supporter of yours. Thank you for sharing such a nice article.
chaussures puma
puma speed cat
Nike Tn Chaussures
requin tn
nike shox
puma shoes
puma CAT
puma basket
puma speed
baskets puma
puma sport
puma femmes
puma shox r4 torch
nike air max requin
nike shox r3
shox rival r3
tn plus
chaussures shox
nike shox r4 torch
air max tn requin
nike tn femme
pas cher nike
tn chaussures
nike rift
nike shox nz
chaussures shox
nike shox rival
shox rival
chaussures requin
jeans online
cheap armani jeans
cheap G-star jeans

Fri Oct 16, 12:14:00 AM EDT  
Blogger season said...

Your article is very good.I like it very much.
Once upon a time, there was a mouse father.He wanted to marry his daughter to the greatest person in the world.But, who was the greatest person in the world?Oh!
puma ferrari shoes
cheap nike shoesThe sun! He must be the greatest person in the world.The mouse father went to talk to the sun."Hello! Mr. Sun.
puma shoes
ferrari shoes
I know you are the greatest person in the world.Would you marry my daughter?""What? I'm not the greatest person in the world. The greatest person is the cloud.If he comes out, I’ll be covered."
nike shox nz
Ugg Boots
The mouse father went to talk to the cloud. “Hello! Mr. Cloud. I know you are the greatest person in the world. Would you marry my daughter?”
nike 360 air max
nike shox shoes
“What? I’m not the greatest person in the world. The greatest person is the wind.If he comes out, I’ll be blown away.”
cheap puma shoes
puma drift cat
The mouse father went to talk to the wind. “Hello! Mr. Wind. I know you are the greatest person in the world.Would you marry my daughter?” “What? I’m not the greatest person in the world. The greatest person is the wall. If he comes out, I’ll be stopped.”
cheap nike shox
nike air max 360
The mouse father went to talk to the wall. “Hello! Mr. Wall. I know you are the greatest person in the world. Would you marry my daughter?” “What? I’m not the greatest person in the world. The greatest person is YOU, the mouse.” “The greatest person in the world is … mouse?” “Yes, the greatest person in the world is mouse. See? If mouse comes out, I’ll be bit!”
nike air max
pumas shoes
The mouse father was very happy. He finally knew mouse was the greatest person in the world. He would marry his daughter to the handsome mouse next door.
cheap jeans
cheap levis jeans
ed hardy jeans

Fri Nov 06, 02:36:00 AM EST  
Blogger Adi said...

Oes Tsetnoc one of the ways in which we can learn seo besides Mengembalikan Jati Diri Bangsa. By participating in the Oes Tsetnoc or Mengembalikan Jati Diri Bangsa we can improve our seo skills. To find more information about Oest Tsetnoc please visit my Oes Tsetnoc pages. And to find more information about Mengembalikan Jati Diri Bangsa please visit my Mengembalikan Jati Diri Bangsa pages. Thank you So much.
Oes Tsetnoc | Semangat Mengembalikan Jati Diri Bangsa

Tue Nov 24, 10:26:00 PM EST  
Blogger dfadf said...

Microsoft Office
Office 2010
Microsoft Office 2010
Office 2010 key
Office 2010 download
Office 2010 Professional
Microsoft outlook
Outlook 2010
Windows 7
Microsoft outlook 2010

Tue Nov 02, 01:56:00 AM EDT  

Post a Comment

Links to this post:

Create a Link

<< Home