Global Crisis Blog

Stop the Hypocrisy: The Emperor Has No Dollars (Clothes)

By Shlomo Maital


The famous Hans Christian Andersen’s story “the Emperor’s New Clothes” is about two weavers who promise the emperor a new suit of clothes invisible to those who are stupid or incompetent.  Only a small child is honest enough to call out, “but he isn’t wearing anything at all.”

   The modern-day equivalent of that child is economist Cristina Romer, formerly head of President Obama’s Council of Economic Advisors.  Cut the bull, she says.  America’s current fiscal and monetary policy are both aimed squarely at depreciating the dollar.  And it has worked. The dollar has dropped sharply.  However, for political reasons,everyone from Obama, to Geithner (Treasury Secretary) to Bernanke (Fed Chairman), to Republican Members of Congress, to Democrat Members of Congress, all bleat the same refrain, like sheep:
American wants a strong dollar!  America wants a strong dollar! 

    It gets worse. America insists that China revalue its currency and let it appreciate relative to the dollar.  That means, necessarily, a lower value of the dollar.  But if this is a good idea for U.S.-China trade, notes Romer, why not for America’s trade with all nations?  Why not let the dollar drop relative to all currencies?  Why
isn’t a WEAKER dollar good for America, rather than a strong dollar? 

     The hypocrisy of U.S. appointed and elected officials is increasingly unbearable.  Economics at Grade One level says:  If you dump huge amounts of dollars into the marketplace, through enormously expansive monetary policy and so-called ‘quantitative easing’ (printing money), and through huge unprecedented fiscal deficits, then the supply of dollars will ultimate lower the price and value of dollars.  It’s that simple.  Yet Americans consistently support this policy while denying its implacable result – a lower dollar.

    Cut the bull!  America needs a cheaper dollar to dig itselfout of the current economic hole. Everyone knows it.  Admit it.  Stop the hypocrisy.  But also admit that a weakened dollar will hurt other countries, export some of America’s economic woes, and possibly help create a new global crisis, because the global economy cannot run well with an unstable world currency (the diving dollar). 

     Tell the truth, America.  A weaker dollar is good for America, bad for the rest of the world.  Guess which America will favor — while, all the while, denying it?   

*Cristina Romer, “It’stime for frank talk on the dollar”,  Global NY Times, May 21/22, 2011