What I'm referring to is a J-curve
http://en.wikipedia.org/wiki/J_curve
where the currency gets smacked hard -- say 2-1 -- and the trade deficit gets worse because terms of trade changed and you can't get rid of oil dependence overnight. Exports recover because the American worker is closer to par, in terms of costs, with the Latin American and Chinese workers. But it won't be pretty, and it'll really, really hurt. Just as things are darkest just before the dawn, things'll get bleaker for a while before Americans see this through.
I agree that this is a possibility. In the end how quickly America pulls through depends on how well it makes the 'transformation' to more sound consumer spending.
What I'm referring to is a J-curve http://en.wikipedia.org/wiki/J_curve where the currency gets smacked hard -- say 2-1 -- and the trade deficit gets worse because terms of trade changed and you can't get rid of oil dependence overnight. Exports recover because the American worker is closer to par, in terms of costs, with the Latin American and Chinese workers. But it won't be pretty, and it'll really, really hurt. Just as things are darkest just before the dawn, things'll get bleaker for a while before Americans see this through.