June 19, 2012
In an article on the likelihood that the Fed would take steps to boost the economy at its meeting this week the NYT gave readers Governor Romney’s assessment of Fed actions to boost the economy. The article tells readers:
“As for the consequences [of measures to boost the economy], Mr. Romney said the program was ‘not extraordinarily harmful, but it does put in question the future value of the dollar and it will obviously encourage some inflation down the road.'”
Romney has repeatedly said that he would take strong measures against China to pressure it to raise the value of its currency against the dollar. This is the same thing as reducing the value of the dollar since it means that the dollar will fall against the Chinese yuan and almost certainly against the currencies of many other countries who will follow China’s lead.
If Romney really wants to see the value of the dollar fall against China’s currency, as he claims, then it is hard to see why he would be worried that dollar would fall in response to the Fed’s actions. This seems to be exactly the policy he is advocating.
It is also worth noting that a lower valued dollar is the standard mechanism for correcting the trade deficit. Those who want to see the United States borrowing less from foreigners should favor a lower valued dollar.
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