Brad DeLong's Semi-Daily Journal: Does Financial Globalization Remove the Possibility of a Dollar Crisis? Obstfeld and Rogoff Say, "No!"

Brad DeLong's Semi-Daily Journal: Does Financial Globalization Remove the Possibility of a Dollar Crisis? Obstfeld and Rogoff Say, "No!": "The real question is not whether there needs to be a big exchange rate adjustment.... The real question is how drastic the economy-wide effects are likely to be. This is an open question.... [W]hereas US markets may have achieved an impressive degree of flexibility, Europe (and to a lesser extent Japan) certainly has not. The rest of the world is not going to have an easy time adjusting to a massive dollar depreciation.... With the increasing diversity of banks’ counterparty risk... a massive dollar movement could lead to significant financial problems that are going to be difficult to foresee before they unfold....



"[T]he optimists can point to the dollar’s relatively benign fall in the late 1980s (though arguably it was a critical trigger in the events leading up to Japan’s collapse in the 1990s). But perhaps the greatest concern is that today’s environment has more parallels to the dollar collapse of the early 1970s than to the late 1980s...."



I think this is econmist-speak for we don't exactly what will happen, or to whom, but it will be bad, and maybe even, really bad, and the chances that this bad thing will happen is better than 50/50.