IN Dollars and Deficits: The World Economy at Risk, I have set out the empirical analysis that has led me to conclude not only that a decline in the dollar is inevitable, but also that, absent major changes in policy by both the United States and its allies, the dollar will fall over a period of perhaps two to four years to a level below its previous trough in 1980. As measured by the International Monetary Fund Multilateral Exchange Rate Model (MERM) index, it would fall, in a hard landing, by more than 40 percent by 1989, and the deutsche mark would appreciate against the dollar by over 90 percent. This paper considers the policy issues that would face the United States and its major allies if such a hard landing were to materialize.
