Double trouble by DESMOND LACHMAN
“As we should have
learned from our experience in the 1980s, a sharp increase in the budget
deficit is very likely once again to lead to a twin deficit problem in the U.S.
— simultaneous large budget and trade deficits. It will do so in part by
reducing the country’s savings rate.
It will also do so
by inducing a dollar appreciation in response to Fed interest rate hikes that a
higher budget deficit will require to prevent inflation. A higher dollar in
turn will make our exports less competitive and our imports cheaper”.