Hard or soft?

There's been a lot of discussion in the blogosphere about whether the world economy will experience a hard or soft landing as currencies adjust to the US current account deficit. I recommend two particularly nice summaries of the soft and hard scenarios.

One point I think people may have missed is that whether there is a hard (disorderly or panic/crash/recession inducing) landing or a soft (gradual, Plaza Accord-like) landing, the dollar is set to decline substantially against many Asian currencies, and perhaps the Euro as well.

Here is a very nice comment on the soft scenario post I linked to above:

[Here’s how we worked our way out of the last current-account crisis (1984-88). The figures are what would be required in 2005, 2006 and 2007, to match the cumulative change in 1984-88.

Exports of Goods +9% p.a.
Export of Services +9.7% p.a.
Income Receipts –0.8% p.a.

Import of Goods +1.5% p.a.
Import of Services +3.7% p.a.
Income Payments +6.9% p.a.

Net Transfers –7.4% p.a.

Current Account Balance –9.4% p.a.
Nominal GDP Growth +3.9% p.a.

Net results: Current-Account Balance falls from 5.7% of GDP to 3.8% of GDP in 2007. Not quite as good (3.4%) as in 1988, but the Dubious Administration got us in a lot worse trouble this time around.

Other interesting things going on at the same (1984-88) time: The US dollar lost 60.7% of value against the Swiss Franc between 1984 and 1988, 51% against an artificial Euro, 85.5% against the Yen, and 38.5% against the Korean Won...]

See here, here and here for related comments and historical data.