I do not buy the strong-dollar pledges byTim Geithner, Treasury secretary, andLarry Summers, director of the National Economic Council. They have to say that. It is the official policy line. The bond markets would go crazy otherwise. But a strong dollar is the last thing the US economy needs right now.
There are two further factors that support a weaker dollar. The first is, of course, the double-digit public sector deficit, which has already unnerved investors and which is not going to come down with any haste. The second is monetary policy.
The sensible goal of a more balanced world economy is entirely consistent with a weaker dollar and a stronger euro. I am not trying to make a short-term prediction. Foreign exchange markets are crazy, and I have been wrong too many times. But what persuades me that the dollar has further to devalue is the observation that, for once, politics and economics are pushing in the same direction.
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