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But there's one more piece of good news that's showing up on the global radar screen: currency is looking stable, and that means faster growth all around. In the 1990s, world growth became polarized toward the U.S., and this was in part due to the strength of the dollar, which caused momentum-based capital flows into the U.S. But today, major world currencies have entered a more stable period, and this should allow inflation and interest rates to converge and be less volatile. More, there should be substantial efficiency gains to the world economy as the currency volatility of the late 1990s subsides. The yen, for one, has entered a more stable period. Neither the U.S. nor Japanese governments want it to weaken beyond the 135 yen-per-dollar rate reached in January. That currency weakness didn't help the Japanese economy, created problems in the U.S., and raised the risk of Japanese capital flight. The Japanese government also doesn't want the currency to strengthen beyond 127 yen per dollar, since that would raise deflation concerns. With the yen stable at current levels, Japan's deflation spiral will be broken, allowing economic growth to resume. The euro, meanwhile, will be more stable relative to the dollar than in the late 1990s, breaking the ever-weakening trend and adding to Europe's growth potential. And as for the almighty greenback, rather than the ever-strengthening dollar trend of the 1990s, today we are witnessing a "strong and stable" dollar, in which gold and commodity prices settle around current levels rather than constantly falling. This will take some of the pressure off commodity-producers, debtors, and emerging markets. Rather than a "reflationary" period for the U.S., we're going to see more of an "aftermath of deflation" — it will be a healthy but challenging period of gradually increasing growth, and stable currency will be a key part of it. — Mr. Malpass is the Chief International Economist for Bear Stearns.
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global economic picture has certainly been brightening this year: The
U.S. is in a sustainable, piece-by-piece recovery with low inflation (assuming
a sharp decline in oil prices), a mild recovery in Europe appears to be
on track, and even Japan has a good chance to break out of its deflation
spiral. 
