From: Randall Parker 

Gene,

The US in the early 1970s had a much smaller portion of its economic
activity involved in trade. A decline in the dollar couldn't cause that
much inflation. Your
fictional recall of history as you imagine it continues to be a source of
entertainment however.

In 1973 trade was 11.7% of world GDP versus 1993 where it ws 17.1% of world GDP. See
the last chart on page 3 here:
    http://www.rit.edu/~sctgse/files/econ454/lectures/ch1trade.pdf
Look on page 4 and you will see that in 1970 that trade was only 4.4% of US GDP. A
big shift in the US dollar could simply not create much of a blip in US
prices because so little of what the US used came from abroad.

As for defending Nixon as a Republican: I am critical of his economic policies. But
you are dreaming if you think that the devaluation of the dollar played a big role in
the 1970s inflation. It didn't because trade was not a major factor in the US economy
at that time.

The essence of the Plaza Agreement was to lower the US trade deficit. It worked:

http://www.pkarchive.org/trade/ShrinkingTradeDeficit.html
1980 0.7 pct.

1981 0.7 pct.

1982 0.9 pct.

1983 1.5 pct.

1984 2.8 pct.

1985 2.9 pct.

1986 3.3 pct.

1987 3.4 pct.

1988 2.4 pct.

1989 2.1 pct.

1990 1.8 pct.

1991 1.2 pct.

The Japanese government has been engaging in huge operations in recent years to prop
up the dollar against the yen. See here:
http://www.upi.com/view.cfm?StoryID=20031204-041446-8074r

Excerpt:

The euro's surge, however, has nothing to do with this progress on reform. It has to
do with U.S. frailties, to which international investors are beginning to open their
eyes. The United States 4 percent plus budget deficit has helped to push the annual
deficit on current account (a full measure of trade, including services and income
payments) over the half trillion dollar mark. Consequently the United States needs
high capital inflows to offset this huge deficit in current payments (and also to
help finance the government's growing debt.)

Foreign investors are growing wary. According to Dr. Rob Van de Wijngaert,
a strategist at ABN AMRO in Amsterdam, U.S. Treasury numbers show that
"apparently
there is not a single institutional fund in Japan which is willing to buy
U.S. Treasuries and instead the Bank of Japan purchased no less that $150bn
this year"
According to Van de Wijngaert, the latest numbers show that foreign
"demand for U.S.
Treasuries, bonds and stocks is plummeting."

And here:
http://business-times.asia1.com.sg/story/0,4567,101487,00.html

Excerpt:

For example, the Bank of Japan has already spent 18 trillion yen (S$283 billion)
slowing US dollar losses against the yen this year, and the strongest signals on our
charts are for further euro, Sterling pound and Australian dollar gains
versus the yen.


Gene McAloon wrote:

  > Although Reagan pulled the plug on the dollar, that had little to do with
> helping the trade deficit. In essence the Plaza Agreement was about getting
> Japan to import more US goods. It did so and that is what lowered the trade
> deficit, although obviously cheapening the dollar contributed to that as
well.
>
> Contrary to the usual Republican excuses, it was not the increases in oil
prices
> that caused massive inflation. That didn't cause massive inflation anywhere
else
> either. The massive inflation in the US was directly attributable to Nixon's
> lowering of the dollar and the increase in import prices that caused it,
> combined with US industry's commensurate increases in its prices. Recall
Ford's
> railing against those latter increases, but getting nowhere.
>
> You will have to do better than repeat tired old Republican arguments
defending
> Nixon and Reagan's policies if you are going to have a chance of
contradicting
> what I have said.
>

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