"You don't get prosperity through this kind of devaluation" – some talking head (not sure who) overheard on NPR, commenting on the Fed's recent further loosening of money supply, vis-a-vis the perpetually undervalued RMB (Chinese Yuan), etc., etc.
Well… from where I sit, I beg to differ. South Korea has successfully ridden an undervalued currency right through this recent "Great Recession" as if there were only a minor blip on the economic radar. More broadly, over the longer term, South Korea has leveraged an undervalued currency (among other macroeconomic wizardry) into a seat on the G20. As long as people want to buy your stuff (and people want to buy South Korean stuff, from cell phones to cars to cargo ships to nuclear power plants to engineering services for building the world's tallest buildings), you can keep selling.
And so… the US not only should be content to let Bernanke manipulate the dollar lower… I would argue that it really has no choice, in the current global economic context. And it won't necessarily be a bad thing – for the US. It will alleviate federal debt, it will help close the trade deficit.
The bad part will be that it will antagonize countries like South Korea or China that have relied, for so long, on an over-valued US dollar. Could the US (re-)achieve prosperity through "this kind of devaluation"? It depends a great deal on how intelligently (or unintelligently) other countries react. The Chinese and South Korean economies have other strengths that could see them through the inevitable crisis a dollar devaluation could provoke – not least their infrastructure spending and booming domestic consumer markets – but things could still get ugly.
I'm curious how this will play out. Check back at this blog, in 20 years – I'll provide an update.
Somewhat relatedly, from Derek Decloet at the Globe and Mail:
[1] WE, THE LEADERS OF THE G20, are united in our conviction that by working together we can secure a more prosperous future for the citizens of all countries.
[2] However, empty platitudes aside, if presented with an opportunity to make the citizens of our own country more prosperous at the expense of someone else’s country, 20 out of 20 of us will take it, most of the time.