Martin Feldstein

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.

I think that over the last few decades, we have seen better economic outcomes than in the past.

Unless the trade deficit shrinks, the combination of the trade deficit and the interest and dividend payments to foreigners will grow ever more rapidly.

And finally, no matter how good the science gets, there are problems that inevitably depend on judgement, on art, on a feel for financial markets.

First, I think the science of monetary economics has clearly gotten better.

A second reason why science cannot replace judgement is the behavior of financial markets.

Domestic inflation reflects domestic monetary policy.

But because we in the United States finance our current account deficit by borrowing in our own currency, we can move to a more competitive dollar without the adverse effects that followed currency declines in other countries.

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.

Inflation is lower and more stable and the real business cycle fluctuations are more modest.

To finance this trade deficit, the U.S. has to borrow from the rest of the world or sell American assets like stocks, businesses, and real estate to the rest of the world.

The more competitive value of the dollar turned around the trade deficit.