The strong US dollar is one of the main factors affecting
current account, 'coz of its demand due to its SDR status.... not many people
could afford to buy dollar and dollar denominated goods... Inflation is a
popular way to increase depreciation and cuts real interest rate and real wages
and real exchange rate and expectations... But, we forget that we also lose
domestic demand and savings and investment and increase capital outflows, just
to increase demand for exports, and increase possibility of currency and trade
wars... Inflation makes the economy expensive and uncompetitive... Nonetheless,
nominal (foreign) exchange rate could go up due to inflation and expectations
which also increase interest rate hike and expectation which may be
contractionary interms of demand and growth and would also increase
unemployment...
A just reverse argument that lower prices could be expansionary
could be the right way to increase competitiveness demand and market share of
the economy...
Since wages are sticky, lower cost of capital could increase
competitiveness, demand and growth if prices go down…
It would increase real wages, real interest rate and real
(domestic & foreign) exchange rate and demand and spending and
growth........., it would also increase real return on investment....
Lower price and price expectations could still increase demand
and lower supply and high price expectations leading to higher long run nominal
and real wages, nominal interest and real interest rate and nominal foreign
currency and and real domestic goods exchange rate and expectations...
At least the US quality is far superior than Chinese products...
INDIA should welcome the US to produce and increase employment in INDIA... and
export to the rest of the WORLD... The US expertise and capital would prove
beneficial to reduce unemployment in INDIA...
The Fed does not need to control prices because demand supply in
the market would adjust to change in the prices, higher prices would control
demand, but would also increase supply to control prices and demand....
INDIA may allow raw materials and intermediate goods for lower
cost of production and lower unemployment in the country and might also reduce
tariff on other goods after full employment to control demand by increasing the
supply... Trade that increases competitiveness and productivity might be
promoted and that would happen when we would achieve full employment and full
production and full supply within the country and outside the country...
China is sitting on a lot of dollar denominated debt, especially
the local governments in China which have little control over dollars, and
foreign exchange reserves that has become risky due to rate tightening cycle
and lower supply of dollars... Higher growth in US could make the Chinese worse
off in terms of interest payment on debt and could trigger capital outflows...
A sudden spike in rate could kick off money out of China... China has invested
in the US in bonds which could go down with lower supply of dollars.........,
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