October 1, 2010 / 7:23 AM / 10 years ago

Emerging economies can live with weak dollar: Stiglitz

NEW YORK (Reuters) - Large emerging economies are competitive enough to withstand a weaker dollar, Nobel Prize winning economist Joseph Stiglitz said on Thursday, as he defended the need for new U.S. economic stimulus.

The recent weakening of the dollar is a sign that the super-easy U.S. monetary policy is working through a “competitive currency devaluation” that makes U.S. exports cheaper, Stiglitz said.

Additional U.S. monetary easing would likely translate into more dollar weakness, which emerging market countries see as a threat to their exporters.

“I think that Brazil, China, India are probably robust enough that they can withstand that,” Stiglitz said in an interview with Reuters Insider. “But I certainly understand their annoyance.”

For a video of the interview, see: bit.ly/bd16w

Concerns about competitive currency devaluations are flying high among emerging economies, with Brazilian Finance Minister Guido Mantega saying earlier this week that a “global currency war” has broken out.

Stiglitz said the U.S. monetary stimulus has not been able to spur lending as companies, given the lack of consumer demand, are not investing.

“That channel is not working,” Stiglitz said. He added that competitive devaluation, on the other hand, could give a hand to the economy. “That is really what we’re doing — everybody else in the world knows that.”

Stiglitz was still pessimistic about the outlook for the U.S. economy, saying that the economic numbers remain “pretty depressing” and that high levels of long-term unemployment are the real problem.

A solution for that problem could come with a second round of stimulus designed to spur investment, and not more consumption, he later said in a discussion organized by the Society of American Business Editors and Writers.

“A well-designed second amount of stimulus can help us get out of the mess,” he said.

Austerity measures such as those being adopted by Europe would be extremely detrimental to the United States, Stiglitz said. The U.S. government, he added, would be “foolish” not to borrow at the extremely low interest rates it currently enjoys to stimulate the economy.

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