From:Jude Wanniski email@example.com
To: James K. Galbraith <galbraith@* * * * *.edu>
Re: NYTimes.com Article: Editorial: As the Dollar Declines
3:04 pm 11/13/2004
Do you think that reducing the budget deficit will reduce the trade deficit? Japan has been running a trade surplus with the world for the last 30 years and its public debt is many times bigger than it was 30 years ago. Nor do I understand why you say China and Japan want a big U.S. trade deficit. They don't have macro managers designing their annual trade surpluses... and in the case of China, it is now slipping into trade deficit with the ROW, although their bilateral surplus with the U.S. continues. We can't avoid having a huge trade deficit as long as we have such enormous needs to fuel our 10 trillion economy and the rest of the world finds our financial assets attractive.
The fate of the dollar could be solved instantly if the Fed were to fix the dollar/gold price. You can't say no, but then you won't say yes. Why? Fear of being on the outs with your colleagues? Fear of being called a "gold bug"? I'm serious, Jamie. You will go as far as to express a nostalgia for Bretton Woods, but are for some reason afraid to admit it was "a gold standard." Did you read my SSU lesson this weekend? I'll send it along.
At 11:08 AM 11/13/2004, you wrote:
The Times is channeling Wall Street, for sure. The specific convolution isn't the connection to the dollar; the idea that reducing the budget deficit will reduce the trade deficit isn't complete but it's at least fairly widely held. It's the idea that reducing the trade deficit can save the dollar. We're past that point; the fate of the dollar depends entirely on the political decisions of a handful of players, who certainly are not looking at the U.S. current account as their primary focus. Indeed the Chinese and the Japanese want a big U.S. trade deficit, of course. J