Is the U.S. Dollar going to Devalue?

The U.S. government is creating the highest deficit in history and its going to get a lot worse.
China is still pegging its currency to the dollar making it difficult for the U.S. to fix its trade deficit. Wages and prices need to fall in real terms to help get the U.S. out of recession. (Wages are hard to reduce in nominal terms without strikes and lawsuits everywhere)

There is one simple solution. Devalue the dollar!

U.S. goods would become cheaper on the world market, foreign goods would become more expensive and the trade deficit would turn to surplus and employment would increase.
Debt to foreign countries would suddenly be paid off more easily as there would be a lot more (lower value) dollars lying around, and virtually all debt is denominated in dollars.

In some ways the U.S. is doing this already by having a very low interest rate. This means that that are trying get more dollars into the economy and drive down the demand for dollars, since people will fly away from dollars to get a higher return.


So what is the downside?

Most of the downside is quite fluffy.

The dollar is the international reserve currency and people will lose faith in it if the U.S. starts to use monetary policy to fix structural economic policy, but the U.S. has been doing this for years. The dollar could stop being the reserve currency but it was probably not as great as it looked anyway.

Devaluing may not affect the biggest trade deficits such as trade with China since China essentially pegs their currnecy to the Dollar.

The rich in america may get fed up when the value of their money in the world stage becomes a lot less. Will the Americans on the Forbes 500 richest really want to fall down a few notches.




The structural trade deficit clearly indicates the dollar is overvalued. I think a devaluation is on the cards.