Old men should know better than to play with fire. But that is precisely what the old men of the G7 and International Monetary Fund (IMF) are doing.

Many private observers and public officials have long maintained the large U.S. external imbalance was a major risk to the world economy. The solution that appeared to have been embraced was a multi–prong approach: The U.S. would boost domestic savings and Europe and Japan would boost domestic demand, while Asia needed to adopt more flexible capital markets. However, the lack of political will to implement this strategy led to the more expedient course of signaling the currency market should bear a greater burden of the adjustment, which in turn has sparked a dramatic decline in the U.S. dollar.