Could higher interest rates help the economy?

We live in an age when central bankers grace magazine covers like pop stars. But what if they don’t actually know what they are doing? In the United States, at least, quantitative easing and low short-term interest rates may have done as much harm as good.

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Europe at the edge

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Another way to resolve global imbalances: migration

Today’s Financial Times has a very interesting article describing the exodus of jobless young people from Ireland (unemployment rate 14.5%) to work in places like Australia (unemployment rate: 5.1%). Could America and other rich nations learn something from this story? Read more of this post

The U.S. dollar needs to depreciate, Dilma

Last week, I referred you to an incoherent attack on American monetary policy by Brazilian president Dilma Rousseff. She argued that “economies that issue reserve currencies,” i.e., the United States, “are resorting to undervalued exchange rates to ensure their share of global markets.”

There are two basic errors with this claim. First, the only reason the dollar is the world’s reserve currency is because other governments—including Brazil’s—want it to be. No one forced the Brazilians to buy $200 billion of U.S. assets over the past five years. Second, the U.S. dollar is not undervalued. If it were, we would be earning large current account and trade surpluses. Instead, we run deficits.

Dilma had it backwards. The United States has not been taking advantage of the rest of the world—it is the rest of the world that has been taking advantage of us. The only way to peaceably resolve the imbalances that have resulted from decades of protectionism by the surplus countries of the world is through a large depreciation of the U.S. dollar. Read more of this post

The Germans kind of like the euro crisis

Thanks to the IMF/WB fall meetings this week in D.C., a lot of finance ministers, central bankers, and other folks have been in town giving presentations. I had a chance to go to a lunch lecture today to hear from someone who is a senior member of the German government. He said something pretty surprising. Read more of this post

Dick Cheney, Modern Monetary Theorist, was mostly right

In 2002, Vice-President Dick Cheney told the Bush Administration’s economic team that “deficits don’t matter.” When the incident became public a few years later, he was lampooned in the press as an innumerate Neanderthal. Turns out, oddly enough, that he was mostly right and his persecutors were mostly wrong. Read more of this post

The Norwegians should stop whining

Polite opinion was pleased by the SNB’s decision last week to hold down the Swiss franc against the euro. One group, however, was not: Norwegians. Read more of this post