Indians who think rupee devaluation by the RBI is an important macroeconomic strategy to (a) sustain growth and (b) encourage exports by keeping the rupee cheap should definitely listen carefully to Lou Dobbs. Lou Dobbs sees clearly what Indians don’t see: Asian central banks (including India’s) routinely stockpile large dollar assets to boost their exports. While he and other protectionist rabble-rousers are woefully mistaken in their assessment of the threat posed by this strategy to Americans, their observation should awaken Indians to the unseen tax being imposed on them to subsidize American consumption.
Here is Don Boudreaux on the American trade deficit:
To accumulate such huge amounts [of dollar-denominated assets] the foreign government would have to tax its citizens heavily – so heavily, in fact, that sour economic consequences likely would befall that foreign country long before, and to a greater degree than, such consequences befall the United States. And such massive investments in dollar-denominated assets would make Americans noticeably wealthier and, hence, better able to withstand a sudden, politically induced negative shock to their prosperity.
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