i don’t really agree with Klein. i take the position i would have attributed to Pettis and Klein, that we should work to address balance. 1/

that tanking the economy is the “the easiest way” is like pointing out the easiest way to cure cancer is a bullet. that doesn’t mean one shouldn’t seek means to address the problem with less untoward side effects. 2/

the position Klein is taking is the “accommodate indefinite reserve currency demand, while trying to minimize the costs in financial fragility and dutch disease”. 3/

that’s a much better position to take than pretend there are no costs, but in my view (with Pettis i think) there’s a point where “exorbitant burden” really overwhelms “exorbitant privilege”, even as you work intelligently to manage the burden. 4/

the dollar can (well, could have before Wednesday) maintain a substantial reserve currency role even as the US imposed limits or frictions on our willingness to generate promises and see domestic tradables demand sapped. 5/

we could have rendered it an adjustable policy variable, this trade-off between the straightforward wealth Americans gained from RoW wanting our paper and the costs the regime imposes, and made fine-grained choices. 6/

instead we are blowing up the machine. /fin