Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: smolejv@gmx.net who wrote (18714)	5/5/2002 11:37:14 AM
From: Ilaine	Read Replies (1) of 74559

Can't remember what I said about Argentina, but the reasons for the collapse are the same as any other country with a pegged exchange rate. They can't adjust slowly, but adjustment is inevitable, and when it comes, it causes what economists call a shock. Typically, they put off adjusting because they hope the adjustment will swing the other way, but if they put it off too long and it keeps getting wider, they have a real problem. Then they have to shut down the banks to keep all the capital from being withdrawn before it is devalued. Another problem is when trading partners engage in competitive devaluation in an attempt to increase exports. That's one of the things that happened in the 1930's. There's no easy answer to foreign exchange. And I have only started studying it so I don't pretend to know the answers. But I do see that you, Jay and I live under completely different exchange systems (I don't mean Hong Kong, I mean China). You're right that no one is living under a pure system, but the exchange rate systems are based on very different policy tradeoffs.

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