A rise in the level of saving can reduce aggregate activity temporarily but only a sustained high level of saving makes it possible to have the sustained high level of business investment that contributes to the long-run growth of output. Martin Feldstein Read Quote
Even if the dollar does decline during the coming months, the delays in the response of exports and imports to the more competitive dollar will mean that the increase in aggregate demand from this source may not happen for a year or more. Martin Feldstein Read Quote
In short, both experience and economic theory imply that the US could now t to a more competitive dollar without experiencing either increased inflation or decreased economic growth. Martin Feldstein Read Quote
But the primary reason for wanting the dollar to become more competitive in the near future is that we may need an increase in exports this year and in 2007 to sustain the economy’s current pace of expansion. Martin Feldstein Read Quote
After all, an overvalued dollar gives us the ability to buy foreign goods at lower prices. And the existing volume of exports brings more yen and euros than they would if the dollar were more competitive. Martin Feldstein Read Quote
Increased government spending can provide a temporary stimulus to demand and output but in the longer run higher levels of government spending crowd out private investment or require higher taxes that weaken growth by reducing incentives to save, invest, innovate, and work. Martin Feldstein Read Quote
But then in April of 1985 the dollar began a sharp decline. The dollar’s trade weighted value fell 23 percent in just 12 months and by a total of 37 percent by the beginning of 1988. Martin Feldstein Read Quote
The only way that we can reduce our financial dependence on the inflow of funds from the rest of the world is to reduce our trade deficit. Martin Feldstein Read Quote
Unless the trade deficit shrinks, the combination of the trade deficit and the interest and dividend payments to foreigners will grow ever more rapidly. Martin Feldstein Read Quote