Paul Krugman's "Bernanke's Perry Problem": Weaken the Dollar

In an New York Times op-ed entitled "Bernanke's Perry Problem" (http://www.nytimes.com/2011/08/26/opinion/bernankes-perry-problem.html?ref=opinion), Paul Krugman tells us that Governor Rick Perry is a "symbol of the political intimidation that is killing our last remaining hope for economic recovery" and says that he will be "shocked" if Federal Reserve Chairman Bernanke announces "anything significant" while speaking at the annual Federal Reserve gathering at Jackson Hole, Wyoming.

Krugman tells us what the Fed could do, if Bernanke were to take Bernanke's own advice found in a 2000 paper concerning Japan, which "was partly based on [Krugman's] own earlier work":

"Back then, Mr. Bernanke suggested that the Bank of Japan could get Japan’s economy moving with a variety of unconventional policies. These could include: purchases of long-term government debt (to push interest rates, and hence private borrowing costs, down); an announcement that short-term interest rates would stay near zero for an extended period, to further reduce long-term rates; an announcement that the bank was seeking moderate inflation, 'setting a target in the 3-4% range for inflation, to be maintained for a number of years,' which would encourage borrowing and discourage people from hoarding cash; and 'an attempt to achieve substantial depreciation of the yen,' that is, to reduce the yen’s value in terms of other currencies."

Well, the Fed has already announced that short-term interest rates will remain near zero for an extended period, and I would briefly like to focus on the effect of weakening the US dollar.

Note that the US dollar is already weak. Five years ago, the US dollar was worth some 0.78 euro, some 117 Japanese yen, some 1.11 Canadian dollars, and some 1.23 Swiss francs. Today, the US dollar is worth some 0.69 euro, some 76 Japanese yen, some 0.98 Canadian dollars, and some 0.83 Swiss francs. True, five years ago, the US dollar was worth some 0.53 British pounds, compared with some 0.61 British pounds today, but overall the US dollar has already been significantly debased.

Suppose now that the Chinese were to learn that their hoard of US dollars is about to be further debased. I can promise you that they will sell their US dollars, creating immediate and massive currency disruptions on world markets.

Imagine also the effect of a weaker US dollar on the price in US dollars of imported oil. Given higher gasoline prices, consumption will decline with short-term dire effects on the economy, and the US trade deficit will spiral higher.

Thanks, but no thanks, Paul.

Krugman concludes:

"With the Fed also intimidated into inaction, it’s hard to see any end to the ongoing economic disaster."

Query: Does Krugman view Obama as incapable of shaping America's economic future, and does it now all hinge upon the Fed?