Posted by Joseph Y. Calhoun, III

Via Forbes:

PARIS, June 22 (Reuters) - An increase in exports is needed for a sustained recovery in the United States and this may require an adjustment in the value of the U.S. dollar, IMF chief economist Olivier Blanchard said on Monday.

‘For the US, it is absolutely no question that a sustained recovery has to come from a large increase in exports, that may not be very easy to do. This may require fairly substantial adjustments in the dollar,’ he told a conference.

Okay, let me see if I can figure this out. If the dollar falls in value, our exports will be cheaper, foreigners will buy more and exports rise. The price of imports will rise, so Americans will buy fewer foreign goods and imports will drop. Great, trade deficit solved, right? Oh, if it were that simple. If we import less that means that foreign countries are exporting less to us. Where do they get the money to buy all those cheap exports we want?

The idea that a country can solve its current account deficit through currency manipulation amounts to an argument for inflation. The only way to truly solve our current account deficit is to consume less and save more. That may be a harder path, but it has the advantage of actually producing wealth rather than destroying it through inflation.