Will there be a dollar crisis?
Paul Krugman, April 19, 2006Here's a recent paper from the Princeton University macroeconomics seminar of economist Paul Krugman. It tries to answer two questions for the American economy:
"First, will there be an abrupt fall in the dollar – a dollar plunge? Second, if there is a dollar plunge, will it be merely embarrassing or a source of major macroeconomic problems?
For Thailand, only the first question of whether a dollar plunge is likely is really relevant. For Thailand, the question still remains of what the impact will be, on the Thai exchange rate, exports, and the balance of payments. Despite being sometimes technical, the paper is still very readable. Some worry that the US will experience an economic crisis like the Asian Economic crisis that Thailand suffered:
"The United States now has a remarkably large current account deficit, both in absolute terms and as a share of GDP. At the moment we don’t seem to have any difficulty attracting capital inflows sufficient to finance this deficit, but many observers – me included - nonetheless find the deficit worrisome. The worriers see an ominous resemblance between the current U.S. situation and that of developing countries which also went through periods during which capital flows easily financed large current deficits, then experienced “sudden stops” in which capital inflows abruptly ceased, the currency plunged, and the economy experienced a major setback."
Obtained from Econbrowser weblog.
