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Emerging Economies Can Withstand a Weak Dollar, says Joseph Stiglitz

Joseph Stiglitz, a Nobel Prize winning economist, said that large emerging economies can still live with weak dollar rate as his defense for the need of new round of U.S economic stimulus on Thursday.

According to Stiglitz, US monetary policy seems to be working its way through “competitive currency devaluation.” This is caused by the recent weakening of the dollar rate that makes the value of U.S exports cheaper.

Additional U.S monetary easing will most probably cause another dollar weakness. This might cause a threat to emerging countries’ exporters.

These large, emerging countries include Brazil, China and India. As mentioned by Stigilitz, these three countries are still competitive enough to withstand the present dollar rate. However, there annoyance and concern about it is really understandable.

Brazilian Finance Minister Guido Mantega said earlier this week that “global currency war” has already started and several concerns about the currency devaluation are spreading fast among emerging economies.

The reason why U.S monetary stimulus was not able to spur lending since companies are also not investing given the fact that there is less consumer demand.

He says that an excellent solution to solve this problem is to create a second wave of stimulus intended to encourage investment instead of more consumption. The U.S government is not wise not to borrow at the current low interest rates in order to enhance the economy.

Indeed, Stiglitz is not very optimistic with regards to the U.S economy’s future. He says, numbers are pretty depressing and the increased percentage of long-term unemployment remains the real problem.

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