Economics Weekly By Lloyds TSB

For all of the furore about the dollar’s slide, it is easy to lose sight of the underlying forces at play. However, we should not be complacent, as these forces can still have destructive effects on global growth prospects.

Orderly dollar depreciation is better than protectionism

For all of the furore about the dollar’s slide, it is easy to lose sight of the underlying forces at play. However, we should not be complacent, as these forces can still have destructive effects on global growth prospects. Global imbalances, represented broadly in the growing US current account deficit and rising surpluses in many other parts of the world, were one of the prime – for some, the only – reasons for the global crisis that is still unwinding. A necessary part of the adjustment to global imbalances is that the dollar must fall, or the US erects trade barriers to bring down its external deficits or there must be a recession so severe that it brings imports to a halt. That would be the ultimate nightmare scenario for the world economy.

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