James Kwak responded in Baseline Scenario to some of the points that I raised in the review of the new book he co-authored with Simon Johnson, White House Burning. I want to focus on one issue in particular because it is really central to how we understand the economy.

I argued in my review that the fundamental imbalance in the U.S. economy is the trade deficit. This deficit is in turn caused by the over-valued dollar. The latter is a direct result of the decision of developing countries to accumulate massive amounts of foreign exchange reserves (i.e. dollars) in the wake of the East Asian financial crisis.

Developing countries saw the harsh treatment of the East Asian countries following the crisis and decided that they did not want to be in the same situation. Their protection against this event was the stockpiling of huge amounts of reserves. They acquire the reserves by running trade surpluses, which they use to acquire dollars. The decision of foreign central banks to buy and hold dollars keeps up the value of the dollar against their own currencies. If they didn't buy dollars, the value of the dollar would fall relative to their currencies.

This matters for our trade deficit because the higher valued dollar means that imports are cheaper for us, which leads us to buy more imports. In addition, the high dollar means that our exports are more expensive for people in other countries. Therefore they buy less of our exports. If we import more and export less, then we get a trade deficit.

This matters for the budget deficit story because if the United States runs a trade deficit, then it means that the United States has negative national savings. This is definitional; as a country we are buying more than we are selling.

The rainy season is returning to Haiti, and so is an expected increase in cholera infections. There have been as many deaths – 13 –  in the last eight reported days as there were in all of January or February this year. Yet red tape and funding shortfalls

Mark WeisbrotFolha de São Paulo (Brazil), March 28, 2012

A new report by AP investigative reporter Martha Mendoza and Haiti correspondent Trenton Daniel sheds light on the Red Cross' plans to possibly build a hotel on the 10 acres of land near the Toussaint L’Ouverture airport that it uses for its base camp.The

March 27, 2012 (Housing Market Monitor)

March 27, 2012

Dean Baker
The Huffington Post, March 26, 2012

Common Dreams, March 24, 2012

Mark WeisbrotThe Guardian Unlimited, 22 de marzo, 2012En Inglés

Dean Baker
Truthout, March 26, 2012

March 2012, John Schmitt and Marie-Eve Augier

The current value of the federal minimum wage — $7.25 per hour — is often compared to the cost of living, the average wage in the economy, or the productivity of the average worker. By all of these benchmarks, the current federal minimum is well below its