AsiaPundit has been an on-and-off admirer of Paul Krugman for many years. AP particularly enjoyed some of his essays prior to and after the Asian FInancial Crisis, although he did find much of Krugman’s non-economic New York Times work excessively polemic.
But all things considered — and whatever your political inclination — when Krugman speaks on currencies he should be listened to.
Via the New Economist, a Krugman essay (not column) on the prospects of a dollar crisis.:
Concerns about a dollar crisis can be divided into two questions: Will there be a plunge in the dollar? Will this plunge have nasty macroeconomic consequences?
The answer to the first question depends on whether there is investor myopia, a failure to take into account the requirement that the dollar eventually fall enough to stabilize U.S. external debt at a feasible level. Although it’s always dangerous to second guess markets, the data do seem to suggest such myopia… The various rationales and rationalizations for the U.S. current account deficit that have been advanced in recent years don’t seem to help us avoid the conclusion that investors aren’t taking the need for future dollar decline into account. So it seems likely that there will be a Wile E. Coyote moment when investors realize that the dollar’s value doesn’t make sense, and that value plunges.
(Image stolen from here.)
