Friday, May 20, 2011

Should the central bank push a rebance of trade?

First, what’s driving the turnaround in our manufacturing trade? The main answer is that the U.S. dollar has fallen against other currencies, helping give U.S.-based manufacturing a cost advantage. Krugman
Normally the central bank follows the economy closely, but here Krugman claims and approves that the central bank is leading a dollar fall. My problem with the theory is that the central bank was behind the curve leading up to the crash, the real economy started the rebalance.

My second objection to the idea is why do we want the central bank pushing rebalance when the alternative is to let the real economy go ahead and rebalance at its own rate.

We start with the idea that the socialist banker can push us forward, but when the crunch time comes, when is it time to switch gears, the banker chickens out.  We end up in a worse mess. 

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