Kudlow Must Believe That $ Devaluation Raises Everyone’s Import Prices

Lawrence Kudlow is so desperate to have the US dollar appreciate that he dons his Klown Suit once again:

The Fed, the Treasury, and the G7 may have discovered that the U.S. peso (a.k.a. “the dollar”) has been falling and world inflation is rising … Okay, so the big boys are finally focused on the sinking greenback and the resulting worldwide inflation pressure.

Dollar devaluation does lead to higher import prices for the US, which may have a minor impact on consumer prices. But the flip side of this coin is that other currencies appreciate with respect to the dollar, which would translate into lower import prices for other nations. But hey – let’s see what the IMF is forecasting for inflation for 2008 and 2009. Table A5 indicates that the “advanced economies” and the “emerging and developing economies” may see inflation briefly rise during 2008 only to decline in 2009. Not exactly the hyperinflation story that Kudlow is pushing.

If one turns to table A.1, one can see that the IMF is worried that real GDP growth will slow. Kudlow seems to be arguing we should adopt a tighter monetary policy, which will not only make the world GDP slowdown worse but could indeed lead to dollar appreciation and even a larger US current account deficit. I sure hope that no one at the G7 conference listens to the policy advice of this Klown.