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ECN202: Macroeconomics
1970s: Experiments with MoneyThe International Dimension
“the memory of the Great Depression meant that the US
was highly likely to suffer an inflationary episode like the
1970s in the post-World war II period-maybe not as long,
and maybe not exactly when it occurred, but nevertheless
a similar episode."
1970s Setting
The signature 1970sgraph is of real earnings which shows
the decade marked the end of the rise in post WWII earnings
for American workers. In part this was driven by
demographics as baby boomers began to enter the labor
market, and in part by the rise of foreign competition as the
world continued to get flatter. Countries the US helped
rebuild after WW II were now rebuilt and offering competition
to American companies and workers. And we can’t forget
OPEC, which became a household word after it caused two
painful oil crises that marked the end of cheap oil. In terms of
public policy, the federal government continued to expand
with creation of the EPA and the Departments of Energy and
Education, and passage of Roe v Wade. It was also the
decade of Watergate and the end of the Vietnam War.
1970s in Macro
In macroeconomics the 1970s was quite the decade –
the only period of sustained peacetime inflation in US
history and an economy that performed badly enough to
produce only the second ideological shift in this
country’s history. Just as the conservatives could not
solve the economic problems of the 1930s, liberals could
not solve the economic problems of the 1970s. This
ideological void opened the to conservatives led by the
Chicago School economists including Milton Friedman
who stepped in to fill that void. In this unit we will look at
this ideological shift with a focus on the international
monetary system and the domestic monetary system
where the most significant changes took place in the
1970s.
S&D again – and again
At the center of this unit is money, one of the greatest
inventions - money. Some money is involved in
international transactions –you buy that Chinese T-shirt and some is part of domestic transactions –you get that
student loan. In both cases there is a price – the
exchange rate for those international exchanges and the
interest rate for the domestic one. In this unit we look at
the two markets to understand these two prices as you
can see in the diagram that follows. The key to
understanding these markets is the same as always –
pay attention to the details. You need to follow the rules
and you will be able to understand those two important
prices – exchange rates and interest rates.
1970s unit
Money
evolution
International
/ Exchange
rates
Gold
Bretton
Woods
Domestic /
interest rates
Flexible
Keynesians
S&D
(e)
S&D
(r)
Classical /
monetarists
Foreign Exchange
Market
e*
Domestic Money
Market
r*
1970s International
The 70s opened with the US running out of gold, which
forced president Nixon to abandon the Bretton Woods
system and adopt a flexible exchange rate. The US $’s value
would now be determined in a market rather than by the
government. We begin with a brief overview of the “Books”
so you will better understand Nixon’s dilemma and the nature
of international trade. To facilitate the trade recorded in those
books, we need an international monetary system, and here
we look at the evolution of these systems that all possess
one imperfection – the trilemma. Special emphasis is placed
on the flexible exchange rate system and the euro
experiment plus we examine MAD II, a modern version of
MAD that dominated life when I was in school. To give you
an idea of the unit, here are a few headlines related to topics
in the unit.
In the news: those pesky exchange rates
1. “U.S. to Press Saigon for Devaluation of Piaster to a
More Realistic Exchange Rate” 1970
2. “The dollar reached an all-time exchange-rate high of
634 lire at the Milan foreign exchange today in the
third straight increase from the floor level.” 1970
3. “'Undervalued' Yen Held Target Of Nixon Surcharge
on Imports” 1971
4. “Stable Exchange Rates in Wind? Pragmatism Is
Now the Catchword In Currency” 1975
5. “U.S. Tries to Reassure Its Allies New Deficit Won't
Depress Dollar” 1978
In the news: and “meddling” governments
6. “THE world had a fright last fall when the dollar, the
currency that holds the world monetary system
together, suffered a severe sinking spell.” 1979
7. “Japan acts alone to weaken its currency”
8. “Joining Switzerland, Japan acts to ease currency’s
strength”
9. “Dollar’s fall tests nerve of Asia’s central banks”
10.“When weakness is strength”
11.“Talk in Japan shakes dollar and Treasuries”
12.“Germany’s export prowess weighs on euro-zone”
13.“Will the euro survive?”
14.“Europe tries to lure Chinese cash to rescue euro”
To trade or not to trade
We looked at this question before, so we know the
answer. There are benefits and costs to trading – and to
not trading – but we live in a world where the movement
is toward more trade as you can see in the graphs that
follow. In the map that follows you can see countries
have developed their own language and eventually we
needed translators to bridge the language differences.
The same is true with trade – countries developed their
own currencies so we needed to bridge the individual
monetary systems to facilitate trade. In fact we needed
two systems – an international accounting system and
an international monetary system.
In the beginning!!
Russian
ruble
English
dollar
Chinese
yuan
Japanese
yen
Portuguese
real
Spanish
peso
Grammar/
translations
Monetary systems
commodity / fiat
Indexes of World Exports & GDP
300
250
Trade has expanded much faster than
GDP since the end of WW II
2008 Exports
237
200
150
100
2008 GDP
8.5
50
0
1950
1960
1970
1980
1990
2000
2010
World Exports / World GDP
2.5
2
You can see this in the ratio of world
exports to world GDP – from about
1/10th of world GDP to 2 times GDP.
1.5
1
0.5
0
1950
1960
1970
1980
1990
2000
2010
Average annual growth rate of real
GDP
6.0%
5.0%
4.0%
3.0%
The growth in trade was accompanied by a
faster rate of economic growth.
In the next two graphs compare how China
did under Mao’s policy of closing off China
from the West and Deng’s policy of embracing
trade with the west.
1.8%
2.0%
1.5%
1.0%
0.0%
0.0%
0.1%
0.3%
4.9%
3.2%
China sleeps
Growth Rate in Output per Person:
1950-1980
8.0%
6.0%
4.0%
2.0%
0.0%
China India Japan
S.
Hong W.
US
Korea Kong Europe
and wakes begins to shake the world
Growth Rate in Output per Person:
1980-2003
8.0%
6.0%
4.0%
2.0%
0.0%
China India Japan
S.
Hong W.
US
Korea Kong Europe
1. Build an International Accounting System
Record of international transactions
Money flowing in (what we sell and to whom we
sell it)
Money flowing out (what we buy and from whom
we buy)
International accounting system
Positive Effects (credits) $s flow into country
Any receipt from a foreign country
Any earnings on investment in a foreign country
Any sale of goods or services abroad
Any gift or aid from a foreign governments
Any purchase of stocks or bonds by a foreign investor
Negative Effects (debits) - $s flow out
Any payment to a foreign country
Any investment in a foreign country
Any purchase of goods or services abroad
Any gift or aid to foreign governments
Any purchase of stocks or bonds in a foreign country
Two components of account
Current Account (consumption = purchase of things)
Goods and services (exports & imports)
Factor income (interest & dividend income)
Transfer income (foreign aid, remittances)
Capital Account (investment – purchase of assets)
Private capital flows (assets = stock, bonds, land…)
Public capital flows (assets = gold, foreign currency)
US Current Account Transactions
+ Exports of goods & services plus income
receipts on US owned assets
Japanese tourists visit US / French buys California wine
American investors receive interest income on German
bonds
- Imports of goods and services and income
payments on foreign-owned assets in the United
States
American tourists visist China / Americans buy French
wine
Chinese investors receive interest income on US bonds
Unilateral current transfers, net
US Goods Exports & Imports /GDP
16%
14%
12%
10%
The rise in these numbers mean that when
I checked the labels on my “stuff” when I
was in college I found many more “Made in
America” labels than you find today
AND
The widening gap means we have
a bigger trade deficit today
Imports
8%
Exports
6%
4%
2%
0%
1960
1970
1980
1990
2000
2010
Leading export countries: 2008
1,600
1,400
1,200
1,000
800
600
400
200
0
Check out these graphs to see the pattern of
world and US trade
Share of world exports:
1948, 1983, & 2008
50
45
40
35
1948
30
1983
2008
25
20
15
10
5
0
N America
S&C
America
Europe
Africa
Midd. East
Asia
Share of world exports:
1948, 1983, & 2008
25
20
1948
1983
2008
15
10
5
0
US
Mexico
Germany
France
China
japan
US Exports & Imports: 2012
billion $s
1000.0
800.0
Imports
600.0
Exports
400.0
200.0
0.0
Europe
North
America
South &
Central
America
Asia
Middle East
Africa
US Exports & Imports: 2012
billion $s
450
400
350
300
250
200
150
100
50
0
Imports
Exports
Balancing the books: Balance of US
International Transactions
The flip side of the flow of stuff is the flow of money, so we keep records on the
balance. In fact there are many different measures of balance as you can see
below. The Balance on Goods measures the difference between imports and
exports of “stuff.” A deficit would mean that we import more than we export so
money flows OUT.
Balance on goods
Balance on services
Balance on goods and services
Balance on income
Unilateral current transfers, net
Balance on current account
Balance of Goods Trade
(Millions of $s)
200,000
0
1940
1950
1960
1970
1980
1990
-200,000
-400,000
-600,000
-800,000
-1,000,000
You can see how big the imbalance is here,
but a better measure is the next one where
the numbers are divided by GDP.
2000
2010
Balance of Goods Trade/GDP
2.0%
Can you see the impact of the Great
recession? Do you have any idea what is
happening to the US $s that are flowing out?
1.0%
0.0%
1960
-1.0%
-2.0%
-3.0%
-4.0%
-5.0%
-6.0%
-7.0%
1970
1980
1990
2000
2010
US Exports & Imports: 2012
billion $s
0.0
Europe
-50.0
-100.0
-150.0
-200.0
-250.0
-300.0
-350.0
-400.0
-450.0
-500.0
North
America
South &
Central
America
Asia
Middle East
Africa
100
0
-100
-200
-300
-400
US Exports & Imports: 2012
billion $s
Peculiarities of system
Current Account (Cu) and Capital Account (Ca)
must balance out each other
Cu + Ca + SD = 0
Or
-Cu = Ca
This means that the US$s flowing out to pay for the foreign
made “Stuff” are returned to the US by foreigners buying US
assets. If we run a Current Account deficit ( US $s flowing
out) then we run a Capital Account surplus ( US $s flowing in)
US Capital Account Transactions
- U.S.-owned assets abroad, net (increase/financial outflow
(-))
Direct investment & Foreign securities
US investors buy stock on China’s stock exchange
US government buys Japanese yen.
US firm buys European company
+ Foreign-owned assets in the United States, net
(increase/financial inflow (+))
U.S. Government securities & Direct investment
English investors buy stock on US stock exchange
China’s government buys US Treasury securities.
US sends $ to buy ‘stuff’ CU account
World sells US ‘stuff’
World sends $s to buy US assets CA account
2. Build an International Monetary System
Desirable features of international monetary
system
1. free flow of capital (money)
2. stable exchange rates
3. control of the domestic money supply
Trilemma - you only get 2 features
Evolution of international monetary system
1. Gold standard (1717-1945)
Give up control of Ms
Ends with Great Depression
and WWII
2. Bretton Woods (1946 -1971)
Restrict capital flows
Ends in early 1970s with
Nixon’s closing of gold window
3. Flexible exchange rates (1972- )
Give up fixed exchange rates
Case Study: England’s options after wartime
inflation made its goods too expensive
England’s Situation after War
Goals
1.Mobility of capital
2.Fixed exchange rate
3.Control of Ms
Trilemma (only 2 goals possible)
Three Possibilities
1.Give up control of money supply
2.Devalue the currency
3.Restrict capital flows
Option 1: Give up control on money supply
(gold standard)
1.
2.
3.
4.
5.
Price of shirt rises in UK during war
UK imports rise and UK exports fall
UK runs trade deficit and gold leaves UK
Outflow of gold reduces money supply
Lower money supply means lower prices and
lower wages and higher unemployment and
trade imbalance is eliminated BUT
UK loses control of its money supply
but problem is solved
Option 2: Devalue currency
1. Price of shirt rises in UK during war
2. Devalue UK currency / increase price of gold
1. lower value of currency means exports look
cheaper and imports look more expensive
2. Lower price for exports means rise in
exports & higher prices of imports reduces
imports
3. Trade deficit eliminated
UK loses control of its currency value,
but the deficit is eliminated
Option 3: Restrict capital flows
1. Price of shirt rises in UK during war and UK
consumers want to buy shirts outside of UK
2. Government simply refuses to allow currency
to leave country to buy imported shirts
UK loses control of its capital mobility,
but solves the deficit problem
Case Study: Nixon’s Problem
In the early 1970s president Nixon had two overriding
goals - Reelection in 1972 and Maintaining an “image”
of strength in Cold War.
He also faced some very real problems.
1. High unemployment & stubborn inflation and the
Phillips Curve indicated there was no easy solution
2. High foreign military spending (Vietnam War)
needed to “contain” communism = US $s flow out
3. US households had a high demand for imports &
for foreign travel = US $s flow out
4. Trade surplus disappearing meant US gold supply
was falling – US was running out of gold
Nixon’s Problem: Trade Surplus disappears
Nixon’s 3 BAD 1971 options (trilemma)
1. Devalue $ – bad for image of superpower
2. Restrict capital flows – bad for image of
superpower
3. Reduce outflow of gold by
1. Reducing military spending abroad & bring
home troops - bad for image
2. Increasing exports - raise tariffs – bad for
image and against “rules” of post WWII free
trade
3. Reducing consumers’ import spending by
creating a recession - bad for election
Nixon’s Choice: New Economic Policy
Nixon surprises everyone. First, a conservative
Republican orders wage-price freeze meaning
the government and not markets would set
prices. Second, he abandons the gold standard
and blames speculators. By abandoning the gold
standard the US $’s value would now be set in
the market, so now we will look at that market.
1."NIXON ORDERS 90-DAY WAGE-PRICE FREEZE,
ASKS TAX CUTS, NEW JOBS IN BROAD PLAN:
SEVERS LINK BETWEEN DOLLAR AND
GOLD." headline of the New York Times on August 16, 1971
Understanding Flexible Exchange Rates
Remember the Cookbook approach to S&D. Now you need to follow the
rules once again. Below are the “Rules of the foreign exchange game.” It
may seem slow, but follow the rules carefully if you are to avoid the
common pitfalls of those who have come before you.
“Rules of the game”
1.
2.
3.
4.
Specify exchange rate
Identify participants
Identify determinants of behavior
Convert into S&D diagram
Specify the Exchange Rate
There are two ways to specify the price of the
US$, what some would refer to as the value of
dollar or the exchange rate.
1. the number of units of a foreign currency needed
to buy a dollar (ex. 97 ¥ per US $).
2. the number of US $s to buy one unit of a foreign
currency (ex. $1.3 per 1 €)
In the next four slides you will see a few examples.
When we talk about the value of the US $ we will be
using the approach used in the Japan and Swiss
examples.
# US $s to buy a euro
What does this rise here mean
about the value of the US $?
The US $ is getting weaker = more
US $s to buy the foreign currency
# US $s to buy a UK £
What does this decline here mean
about the value of the US $?
The US $ is getting stronger=
fewer US $s to buy the foreign
currency
# US $s to buy a euro
What does the decline here mean
about the value of the US $?
The US $ is getting weaker = less
foreign currency to buy the US $
# US $s to buy a euro
What does this rise here mean
about the value of the US $?
The US $ is getting stronger =
more foreign currency to buy the
US $
2. Identify the players
There are four major players in the foreign exchange
market.
1.US consumers who want to buy foreign “Stuff”
2.Foreign consumers who want to buy US “Stuff”
3.US investors who want to buy foreign “assets.
4.Foreign investors who want to buy US assets
3. Specify determinants of players’ behavior
Everyone wants their own currency. German workers
want euros while the US government wants US dollars
when it sells Treasuries to British investors.
1.US consumers purchases of foreign “Stuff” depends
upon US income and wealth
2.Foreign consumers purchases of US “Stuff” depends
upon foreign income and wealth
3.US investors who buy foreign “assets are looking for
good returns = high interest rates abroad.
4.Foreign investors who buy US “assets are looking for
good returns = high interest rates in US.
4. Convert into graphs
supply of dollars is generated every time someone in the
US tries to buy goods, services or assets from
abroad. Americans must go to the international money
market where they will supply US dollars to the money
market to finance their purchases of foreign goods and
assets.
Supply curve has + slope because as $ increases
in value, imports look cheaper to Americans so
imports to the US increase which means more $s
being supplied to the international money market.
Supply of $s in international money market
Who comes to
international money
market with US $s?
S (US)
P$
Americans with US $s
who want to buy things
(consumers) or assets
(investors) in other
country.
0
Supply depends on
(US) residents
0
Q
Supply of $s in international money market
Initial situation (S)
S (US)
Increase in supply of US
$s to international money
market (because US
consumers feel wealthier
and travel abroad more
OR US investors move
more money to
investments in Europe
where interest rates are
higher)
P$
P1
*
*
0
0
Q1
Q
Ground Rules
Demand for dollars is generated every time someone
anywhere in the world wants to buy US goods, services
or US assets. Foreigners will need to go to the
international money market where they will demand US
dollars in the money market in order to finance their
purchases of US goods and assets.
As $ increases in value US exports look more expensive
so exports decrease which means fewer $s being
demanded on the international money market.
Demand for $s in international money
market
Who comes to
international MM
demanding US $s?
Foreigners with
currency who want to
buy things (consumers)
or assets (investors) in
US.
Demand depends on
foreign (ROW) residents
P$
D (ROW)
0
0
Q
Demand for $s in international money
market
Initial situation (D)
D
Increase in demand for
US $s in international
money market(because
foreign consumers feel
wealthier and buy more
US stuff OR foreign
investors move more
money to investments in
the US where interest
rates are higher)
P$
P1
*
*
0
0
Q1
Q
Model of exchange rate
As with all markets,
the equilibrium exists
$40
P
when S = D. In this
case the exchange $30
e*
rate would be e*, and $20
any “story” about
$10
changes in exchange
rates is a story about $0
a shift in the S or D
curve.
_______ Market
S (US)
D (ROW)
8,000
16,000
24,000
Q
What’s happening with exchange rates
In the following graph you see a time-series graph of the
exchange rate for Japanese yen. Every movement in the
exchange rate coincides with a shift in either the S or D
curves in the foreign exchange market. For example, in
the 1975-1978 period the value of the US dollar is
falling. This happens IF the supply curve shifts to the
right (US consumers or investors buy more from abroad)
OR the D curve shifts to the left (foreign consumers and
investors buy less from the US)
_______
US$ Market
Explain / forecast this
$40
P
S
$30
$20
$10
D
$0
-
8,000
16,000
24,000
Q
Now let’s get some practice
What would happen to the dollar if…?
a. Japan lowered interest rates that affected Japanese
investors. What is impact on US $?
b. OPEC raises price of oil and US imports rise. What is
impact on US $?
c. The Fed lowered interest rates and US investors
move money abroad?
d. Europe falls into a recession and buys fewer US
exports?
Try to convert the story into the S&D graphs – so get out those
writing utensils and start shifting those curves.
Questions
a. Japan lowered
interest rates that
affected Japanese
investors. What is
impact on US $?
_______ Market
$40
S (US)
P
$30
$20
$10
D (ROW)
$0
-
8,000
16,000
24,000
Q
Questions
b. OPEC raises price of
oil and US imports rise.
What is impact on US
$?
_______ Market
S (US)
$40
P
$30
$20
$10
D (ROW)
$0
-
8,000
16,000
24,000
Q
Questions
c. the Fed lowered
interest rates and US
investors move money
abroad. What is impact
on US $?
_______ Market
S (US)
$40
P
$30
$20
$10
D (ROW)
$0
-
8,000
16,000
24,000
Q
Questions
d. Europe falls into a
recession and buys
fewer US exports. What
is impact on US $?
_______ Market
S (US)
$40
P
$30
$20
$10
D (ROW)
$0
-
8,000
16,000
24,000
Q
Compare your results
a. Japan lowered interest rates that affected Japanese
investors. Foreign investors = D curve, lower interest
rates in Japan make US more attractive = increase
demand = outward shift in D = stronger $
b. OPEC raises price of oil and US imports rise. What is
impact on US $? US imports = S curve, imports rise
= increase supply as we buy more from abroad =
outward shift in S = weaker $
Compare your results
c. The Fed lowered interest rates and US investors
move money abroad? US investors = S curve, lower
interest rates in US make US less attractive = increase
supply as investors buy foreign assets = outward shift in
S = weaker $
d. Europe falls into a recession and buys fewer US
exports? Foreign consumers = D curve, recesson in
Europe means lower US exports = decrease demand =
inward shift in D = weaker$
Try a few more
What would happen to the dollar if…?
a. World recession deepened and foreign investors
became very nervous about $?
b. US investment in China slows down as result of
recession?
c. US recession lowers imports from China ?
d. Chinese investors get nervous about $ and sell US
treasuries?
e. Foreign investors get worried about financial crisis
and begin to buy US government securities?
Try to convert the story into the S&D graphs – so get out those
writing utensils and start shifting those curves.
Questions
a. World recession
deepened and foreign
investors became very
nervous. What is impact
on US $?
_______ Market
$40
US
P
$30
$20
$10
ROW
$0
-
8,000
16,000
24,000
Q
Questions
b. US investment in
China slows down as
result of recession.
What is impact on US
$?
_______ Market
$40
US
P
$30
$20
$10
ROW
$0
-
8,000
16,000
24,000
Q
Questions
c. US recession lowers
imports from China.
What is impact on US
$?
_______ Market
$40
US
P
$30
$20
$10
ROW
$0
-
8,000
16,000
24,000
Q
Questions
d. Chinese investors get
nervous about $ and
sell US treasuries. What
is impact on US $?
_______ Market
$40
US
P
$30
$20
$10
ROW
$0
-
8,000
16,000
24,000
Q
The short answers
a. World recession deepened and foreign investors
became very nervous about $? Foreign investors =
D; more nervous = lower D = D shifts left
b. US investment in China slows down as result of
recession? US investors = S; Less investment =
lower S = S shifts left
c. US recession lowers imports from China? US
consumers = S; lower imports = lower S = S shifts
left
The short answers
d. Chinese investors get nervous about $ and sell US
treasuries? Foreign investors = D; sell Treasuries =
lower D = D shifts left
e. Foreign investors get worried about financial crisis
and begin to buy US government securities? Foreign
investors = D; buy Treasuries = higher D = D shifts right
“Special” cases
Now let’s look at two special cases – Europe and China.
China is special because it has tried to hold its exchange
rate constant and override the influences of S&D, which
is why it is accused of being a currency manipulator.
Europe has embarked on an experiment in which a
number of countries have given up control of their own
money supply and currencies and adopted a common
currency – the euro (€).
China
What is happening?
Why would China try to keep the exchange rate at 8
instead of letting it fall to 4 yuan per US$?
The answer can be seen with the simple example – the
US price of a China T-short.
Tshirt costs 16 yuan in China @ exchange rate of 8
costs $2
Tshirt costs 16 yuan in China @16 yuan @ exchange
rate of 4 costs $4
Question: How does China manipulate its
currency?
You can see in the next slide that at the exchange rate
of 8 the US has a trade deficit with China so US$s are
flowing out of the country as we buy China’s exports.
This would put downward pressure on the US $ increase the value of the yuan. The only thing China can
do is to offset the outflow of $s by using them to buy US
assets. So we buy Chinese toys and computers and
they buy US Treasuries and US land and US
companies. So, why would China do this?
Here is the situation
stable yuan
US trade deficit
D
US $ Market
_______
S
$40
P
$30
P2
$20
The US runs a trade deficit
at the existing
$10
exchange rate, which should push the US $
$0
lower. Why does it not fall?
-
8,000
16,000
24,000
Q
And here is the answer
stable yuan
US trade deficit
D
US $ Market
_______
S
$40
P
$30
P2
$20
$10
The Chinese buy US assets and this
increase D for US $.
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Q
Europe’s euro
Europe’s euro
Winston Churchill proposed the creation of the United
States of Europe right after WW II, and since then a
number of countries have joined in the experiment. We
have not quite gotten to the US of E, but a number of
European countries did adopt a common currency – the
euro – that has been in the news a lot since the financial
crisis. In the diagrams that follow you can see the growth
of the European Union that allows pretty free movement
between these countries and the subset of those
countries that have adopted the euro. You also see the
slide of unrest in Greece, a country that was running a
trade deficit that needed to be closed.
European Union: Political and Economic
• 1951 European Coal and
Steel Community (Treaty
of Paris)
• 1957 European Economic
Community (Treaty of
Rome)
• 1973 add England,
Ireland, and Denmark
• 1986 Greece, Spain, &
Portugal
• 1995 Austria, Norway,
Finland
• 2004 Poland, Estonia,
Latvia, Lithuania,
Hungary, Czech
Republic, Slovenia,
Slovakia, Cyprus, Malta
2015
?
Europe’s 21st century: US of E?
EU
European Union
Euro
Common currency
Greece
Greece was running a trade deficit, so what were its
options – and why did they choose one that ended up
with scenes like the one above?
Greece’s Options
We know from our earlier work that Greece had three
options because of the trilemma
1.Simply stop the flow of currency – could not do this
while on the euro
2.Devalue its currency – could not do this while on the
euro
3.Strangle its economy to reduce imports and increase
exports – the only option if it stayed on the euro – and
you can see the results.
England’s Suez Moment
Greece’s problem looks very much like England’s Suez
moment
America’s Suez Moment?
Will the US suffer its own
moment?