Dollar Fiat Devaluation: speculation thread

[c1ue]

I'm putting out this thread to explore various ways in which a Dollar Fiat Devaluation might occur.

Inspired by the EJ mention of the Plaza Accord.

To frame this discussion, a Wiki description of the Plaza Accord:

http://en.wikipedia.org/wiki/Plaza_Accord

The Plaza Accord or Plaza Agreement was an agreement signed on September 22, 1985 at the Plaza Hotel in New York City by 5 nations - France, West Germany, Japan, the United States and the United Kingdom. The five agreed to, amongst others, depreciate the US dollar in relation to the Japanese yen and German Deutsche Mark by intervening in currency markets.
The exchange rate value of the dollar versus the yen declined 51% over the two years after this agreement took place. Most of this devaluation was due to the $10 billion spent by the participating central banks. Currency speculation caused the dollar to continue its fall after the end of coordinated interventions. Unlike some similar financial crises of the 1990s (such as the Mexican and the Argentine financial crises of 1994 and 2001 respectively), this devaluation was planned, done in an orderly manner with pre-announcement, and did not lead to financial panic in the world markets.
The reason for the dollar's devaluation was twofold: to reduce the US current account deficit, which had reached 3.5% of the GDP, and to help the US economy to emerge from a serious recession that began in the early 1980s. The U.S. Federal Reserve System under Paul Volcker had overvalued the dollar enough to make industry in the US (particularly the automobile industry) less competitive in the global market.

The purpose of this thread is as follows:

I. What would a modern Plaza Accord (2009) look like?

1) Which nations would participate?

China, Russia, Brazil, EU, UK, Japan, and US? others?

2) What would be the actual net agreed upon impact on each specific currency on participating nations and why?

China yuan strengthening by 50%?

Euro strengthening by 20%?

3) How would Plaza 2009 be implemented?

Preannouncement with central bank cooperation a la Plaza 1985?

Fiat announcement a la formation of Bretton Woods?

4) Timing of Plaza 2009?

Late 2010 as Obama bailouts I and II fail to achieve results?

Late 2009 as economic downturn becomes self reinforcing?

5) Barriers to Plaza 2009 occuring?

China refusing to participate?

II. What would be the short, medium, and long term impact of Plaza 2009?

Plaza 1985 failed to stem the outsourcing of manufacturing to Japan/Asian Tigers. Would Plaza 2009 be any different?

[D-Mack]

Re: Dollar Fiat Devaluation: speculation thread

Japan’s yen crisis – payback for the "carry trade"

Nowhere has this been more the case in Japan, whose economy has remained in the doldrums ever since its bubble burst in 1990. For seventeen years straight, quarter after quarter, Japanese land prices fell, and so did stock market prices – and hence, the collateral pledged as backing for loans. This quickly left Japan’s banks with negative equity. The Bank of Japan’s response was to devise a way for them to rebuild their balance sheets – to "earn their way" out of the bad loans they had made.

The policy was not to revive the faltering domestic market in Japan or its industrial corporations. From 1945 through 1985, Japanese had a model industrial banking system. But in 1985, U.S. diplomats asked Japan to please commit economic suicide. Angered by the striking success of Japanese industry, U.S. officials asked their compliant Japanese counterparts to raise the yen’s exchange rate so as to make its industrial exporters less competitive, and in due course to flood its own economy with credit so as to lower interest rates, thereby enabling the Federal Reserve to flood the U.S. market with enough cheap credit to give a patina of prosperity to the Reagan Administration. This policy – announced in the Plaza Accord of 1985 – led economist David Hale to joke that the Bank of Japan was acting as the Thirteenth Federal Reserve District and the Japanese government as the Republican Re-election Committee.

Japan flooded its economy with credit, lowering interest rates and fueling the world’s largest real estate bubble of the 1980s. The stock market also soared to reflect the rise in Japanese industrial sales and earnings. But after the bubble burst on December 31, 1989, the mortgage debts and stock that that Japanese banks held in their capital reserves fell short of the valuation needed to back their deposit liabilities. To help bail out the banks, Japan’s government urged them to engage in what has become known as the "carry trade": lending freely created yen credits to foreign financial institutions at remarkably low rates, for these borrowers to convert into other currencies to buy bonds or other assets yielding a higher rate. If the domestic Japanese market lacked credit-worthy borrowers, let them lend to foreigners. As a new source of revenue for the banks in place of loans to domestic real estate and industry, low interest rates enabled them to flood the global economy with credit. This served global finance by providing speculators and "financial intermediaries" with an opportunity to get a free arbitrage ride, in contrast to Japanese industrial exports that threatened to displace U.S. and European auto, consumer electronics and other industrial production.

...

http://www.globalresearch.ca/index.p...t=va&aid=10695

If this created Iceland, I don't want to know what would happen next time.

[rabot10]

Re: Dollar Fiat Devaluation: speculation thread

good video on the plaza accord

http://www.youtube.com/watch?v=g2vMRjO1oXY