Okay so the US doesn't like something about how Japan's economy was doing in the 90s, what was the beef? I know Japan was manufacturing a ton of stuff, but I thought the US wanted consumer products manufactured overseas.
So they're not happy with this, so they do a run on Japan's currency. What does this mean? Like how do they do it?
The run on the currency causes the value of the Yen to go up. This is bad for some reason, even though your currency is worth more? Like can't you get more for a Yen? But clearly it's bad because it destroyed their economy, I'd like to understand why or how.
Because right now the best I was able to explain it to someone was "America did some money magic bullshit and destroyed Japan's economy", but I would like to be able to answer some follow up questions.
So the Plaza Accord was actually between the US and Japan, (West) Germany, UK, France where the latter four all agreed to let the US dollar depreciation vs their own currencies. The reason the United States wanted this is because a very "strong" US dollar puts a massive recessionary pressure on the United States. Why? Because now it's suddenly much more expensive for the rest of the world to purchase American goods, so exports fall. So the US wanted the dollar to start depreciating, and basically asked if it was ok if the other four nations "allow" this to happen. As a result, the yen started appreciating rather than the dollar, so suddenly Japanese exports are much more expensive for the rest of the world. Japan is and was far more dependent on exports (larger share of the Japanese economy and the reason for the "economic miracle" they experienced up until the 80's). So this caused massive inflationary pressure in Japan just to please their American overlords, which led to the Japanese government doing a massive amount of economic stimulus that then created the asset bubble that eventually crashed the entire Japanese economy and led to the lost decade of the 90's, destroying any chance Japan had at becoming the largest economy in the world.
Now, why would Japan do this? Because they're a client state of the United States. Their "self defense force" relies entirely on American arms. Their privileged status in world trade, their security in Asia, their access to capital and favorite trade laws, their status as members of the "developed world" is entirely dependent on the United States. Especially during the 80's. Nowadays they're starting to realize this is perhaps not a great position to be in, and untenable especially when so much of their trade is with China and American imperial power is waning, but that's a different conversation.
EDIT: As far as the mechanics of the Plaza Accord go, basically what happened is central banks like the German and Japanese central banks agreed to heavily intervene in currency markets to make the dollar depreciate by selling off large portions of their dollar reserves, essentially flooding the market with dollars so supply goes up while demand stays constant, which then leads to a price decrease.
EDIT2: I meant recessionary, not inflationary.
Okay this is v interesting and I have some follow up questions
Why does the dollar being worth more mean that it's more expensive to buy from the US? If one dollar goes further than it did before, it seems like that would be the opposite. Because other countries are still trading to the US in USD right? Or no?
On the opposite side, how did Japan's currency becoming worth more cause inflation? I thought inflation was when the money is worth less.
The value of a currency in relation to other currencies doesn't have one-to-one relationship to prices of goods in that currency. So if a pound is worth more euros than before, it doesn't mean that the price of a good in pounds will adjust to reflect that, and certainly not right away or in a way that cancels things out. So if a UK football is £20 and the exchange rate is €2 to £1, a UK football costs €40 in Germany (simplifying costs of import and export, tax, etc.) If the exchange rate changes to €2.5 to £1, the UK football now costs €50. The price of the football may change somewhat in response to this, but domestic markets for footballs, market lag, and the value of a pound domestically being tied to more than just the prices of export goods mean that it will ultimately still settle at a higher price in euro than before the change in exchange rate.
The value of a currency in relation to other currencies doesn’t have one-to-one relationship to prices of goods in that currency. So if a pound is worth more euros than before, it doesn’t mean that the price of a good in pounds will adjust to reflect that, and certainly not right away or in a way that cancels things out. So if a UK football is £20 and the exchange rate is €2 to £1, a UK football costs €40 in Germany (simplifying costs of import and export, tax, etc.) If the exchange rate changes to €2.5 to £1, the UK football now costs €50.
Wow. This is crazy to me. But it kind of makes sense.
So money being worth more doesn't actually meant I can buy more things with it????
Yes, since the exchange value of the money as it relates to another currency isn't the same as its exchange value as it relates to goods priced in the first money. It should ultimately clear at a price that equalizes things, but that's hindered by multiple currencies exacerbating the chronic inability for markets to perfectly account for all externalities, future pricing, etc. Economics is a really interesting field! I wish more people on the left didn't just dismiss it out of hand, because problems like this calculation problem are enormous hindrances to the accurate estimation of the real value and cost of things.
Okay ty, this has given me a lot to think about. I think I have a somewhat clearer picture now.
The other poster answered the first part so we're good on that. Now, on to your second question.
You're right in that inflation is when the purchasing power of money is lessened. Japan's yen appreciation didn't directly cause inflation or the asset bubble; what happened is the yen being worth more meant exports from Japan starting falling because Japanese goods were now more expensive for the rest of the world to buy. This meant factories started to have to lay off workers, business slowed down, and Japan's economy began tipping into a recession. As a result the Japanese government turned on the spigot for mass amounts of stimulus and easy money to try and stop Japan from falling into recession. This worked, but the stimulus started overheating the economy to the point where the stock market and real estate market were vastly overvalued, everybody was way overconfident, and things ran too hot until they all burst about 6 years later in 1991. Incidentally this is like exactly what happened after covid in the United States; the Fed keeps easy money going, everybody gets overconfident, asset prices of everything swell to insane figures, then it all explodes.
So if America (or I guess, an American business) wants to buy a bunch of manufactured goods from Japan (or a Japanese business I guess), do they pay in dollars or yen?
Money is traded on markets just like anything else. There’s a real demand source for foreign currencies as you have to use it to buy imported goods. So if you buy up all the yen, the supply shrinks but demand stays the same so the currency gets more expensive.
Now, for Japan this causes exports to fall, since for countries buying stuff from Japan everything Japanese gets more expensive— a 100 yen item still costs 100 yen, but because the yen appreciated you need to spend more of your domestic currency to buy the same amount of yen. So domestic stuff, stuff made in other countries gets more competitive
In general if you are an export economy you want your currency to stay cheap, and the opposite if you’re an importer
Money is traded on markets just like anything else. There’s a real demand source for foreign currencies as you have to use it to buy imported goods. So if you buy up all the yen, the supply shrinks but demand stays the same so the currency gets more expensive.
This is so hard for me to wrap my head around for some reason. Just none of it is intuitive. You can just buy a country's money on mass to make it so people wanting to buy their exports have to pay more for the yen to buy them with so they can't sell them.
It’s all bullshit tbh money isn’t real it only works bc we believe in it
It’s superstition
Money is very much real, just because it's not a social construct doesn't mean it's not real. Tell your landlord that money's not 'real' and see what that gets you. And even if we all 'stopped believing in it" and it vanished as a social construct we would still need a means of account to determine what goes where and how much, money is just the particular form of this that takes place in capitalism.
That’s simply not true
If the concept of money vanished overnight we would still be able to provide goods and services for each other. People lived for much much longer without the concept of money than with it. There’s no need to account for anything
That's not what I said. I said that just because money is a social construct doesn't mean it isn't real, it serves a very real function that has material impacts on the world and in this way we make it very real. Those societies did not use money in the modern sense with all the intricacies and nuance that this implies, but they did use some means of account to allocate labor and goods be it something abstract as socially recognized honor or a system of credit between people, otherwise there was no way to properly measure and distribute goods. Debt by Graber is a good primer on this, even hunter gatherer societies had systems of account.
Money's first use was probably even as a material object that could serve as an accounting unit. This is why early currency was made of durable metals, which could be counted and set into piles to represent e.g. a measure of grain. It gets hard to remember how much you've got or to move it around on clay tablets, but coins you can just put into different piles and keep track of things.
It’s no different than state sanctioned bitcoin
It has no intrinsic value, other than serving as a medium of exchange, which is unnecessary
It has a very real exchange value by virtue of the fact that it is used as a means of exchange, no?
This is similar to how a word gains it's meaning from how it is used. Just as the meaning of a word is not contained in the physical sound, the value of a $1 note is not contained in it's paper (if it were we'd be discussing it's use value, perhaps as tinder).
Ok, but why Japan agreed to this if it was doing so well before?
What was the "or else" that US pulled? Did South Korea got the same treatment?
Would the US do that again against another competitor like China?
It's also important to keep in mind that part of the Japanese miracle was that the USA had set the Yen at an espcially low rate back after the war. This was done for several reasons, 1) as a means to boost the Japanese economy in the face of communism and a strong japanese communist party, 2) a sop to the Japanese bourgeois to get them on side and play ball as a subject state in the American empire, 3) so that japan could act as a manufacturing hub in asia for the US military. In a sense this was the USA going "alright no more special deal, you are starting to bit the hand that feeds."
The future of the japanese economy was basically already bankrolled on the superconductor industry at that point and the accords pulled the rug out from under that by making their exports more expensive. At that point they basically switched to real estate... and well.... Thats the reason Silicon Valley was the main tech hub and not Tokyo, or whatever equivalent in Japan.
I don’t know anything about this particular scenario but it doesn’t require anyone to “sign on” to anything, it’s the same reason the US malds about China doing “currency manipulation” ie keeping the RMB low to favor its exports vs the US
if the currency goes up in value exports lose profit to arbitrage while imports increase in profit due to arbitrage.
the modern neoliberal west imports so much we think of a high value currency as an inherent good but to a nation which has an export based economy it might not be good for them
i think people just inherently think higher value currency is good because it intuitively sounds good, even before neoliberalism i imagine your layman would have blindly considered higher currency value = good.
