In an interview with Ezra Klein, Sen. Tom Coburn of Oklahoma is too sophisticated to argue that massive immediate fiscal retrenchment is needed to avoid a national default or bankruptcy. Instead he worries that massive immediate fiscal retrenchment is needed to prevent a collapse in the value of the dollar. He argues that Japan is due for such a currency crisis very soon and that the United States will follow. He warns darkly of money-printing and inflation. And he praises the approach of the center-right government of Sweden.
But guess how Sweden weathered the crisis? That’s right, massive currency devaluation:
And good for them! But this just goes to show how confused Coburn is. When you’re talking about a depressed economy that has a lot of idle resources—unemployed workers, vacant office and retail space, factories running below capacity, cranes going unused—then a currency depreciation helps reactivate the idle resources and generate a higher level of real output.