Summers for Fed Chair? Hmm...

Dean Baker is passionately opposed to Larry Summers succeeding Ben Bernanke, as he states in his Huffington Post article The Return of Larry Summers? 

He makes his opinion crystal clear that Summers was instrumental in allowing banks (through deregulation) the freedom to ultimately take down the 2008 U.S. economy. While we can surely debate the merits of deregulation (which becomes meritless when freer banks are not free to fail), for today I'll keep it brief and focus on the following from Baker's rant:

Even more important than his role in pushing financial deregulation is the fact that Summers played a direct role in promoting the imbalances from which the economy continues to suffer. The trade deficit was relatively modest through President Clinton's first term in office, averaging just over 1 percent of GDP.

This changed dramatically in 1997 following the East Asian financial crisis. The basic story was fairly simple. The crisis knocked the fast-growing economies of the region off their feet. South Korea, Thailand, and the other economies of the region saw a massive capital flight as creditors rushed to take their money home.

The IMF, acting under the direction of then-Treasury Secretary Robert Rubin, Federal Reserve Board Chair Alan Greenspan, and Rubin's top assistant Larry Summers, agreed to a bailout, but only with harsh conditions. They required the East Asian countries to pay back their debts in full. In order for this to be possible, the currencies of the region plunged in value against the dollar. This made their goods very cheap and allowed them to hugely increase exports to the United States.

The resulting run-up of the dollar was the cause of the huge trade deficits the United States has seen over the last 15 years. The trade deficit peaked at almost 6 percent of GDP ($960 billion in today's economy) in 2006, as the over-valued dollar made U.S. goods and services less competitive in the world economy.

I've never been a Larry Summers fan, but if he indeed directed the IMF to require countries to pay back their debts, and if paying back debt is a core Summers' principle, I'd be leaning his way over the reportedly ultra-dovish frontrunner Janet Yellen.

Now, I'm a bit lost on how the "harsh" stance requiring borrowers to pay back their debts (the nerve!) plunged those nations' currencies. If memory serves, the term used in '97 was the "Asian Currency Crisis". The IMF loans were in response to conditions that had already caused the plunging. I suspect Baker means that if the IMF had simply handed the troubled nations all the unconditional capital they would ever need, creditors would've rushed back to the unreformed region, promptly propping up its currencies. I'm thinking that's a stretch.

But if he's right, and Summers' actions indeed resulted in you and I gaining the opportunity to enrich our lives by saving money on the stuff we import, and thus fostering the growth of the Samsungs, the Hyundais, and the Kias---and the innovation and the all-important competition they bring to the world---I may become a Larry Summers fan after all.