Monday, April 4, 2016

Has a Secret International Deal Been Made to Drive the Price of the US Dollar Down?

By Robert Wenzel

According to Jim Rickards, a former CIA adviser and current economic analyst specializing in currencies, a secret meeting occurred in Shanghai on February 26th between Janet Yellen (US Fed), Christine Lagarde (IMF head), Mario Draghi (ECB head), Jack Lew (U.S. Secretary of the Treasury), and all their central bank and finance ministry counterparts from Japan, China, Brazil, Russia, India, and South Africa.

During this meeting, he says, a deal was struck — which he has named the Shanghai Accord — because of its similarities to the famous Plaza Accord of 1985, that was announced on September 22, 1985.

The Plaza Accord, which was negotiated by James Baker who was President Reagan’s Secretary of the Treasury at the time, was an agreement between the governments of France, West Germany, Japan, the United States, and the United Kingdom, to depreciate the U.S. dollar in relation to the Japanese yen and German Deutsche Mark by intervening in currency markets.

Here is what Rickards labels the "class picture" of those who attended the February G20 meeting in Shanghai where the alleged secret Shanghai Accord was made:

Reports Rickards:
The main meeting of the G-20 finance ministers and central bank governors was no secret. It was conducted with much fanfare and publicity. Thousands of reporters descended on Shanghai to cover the proceedings.
A side meeting of a core group consisting of the U.S., Europe, Japan, China and the IMF was a secret. This group really calls the shots.

What's behind the Accord?  Rickards writes that  it is the weak Chinese economy:
The G-20 central bankers and finance ministers agreed that China needed help. It’s the world’s second-largest economy and it was falling fast. There was some danger it could take the world down with it.

But further yuan devaluation was not possible (in the short run) because it was too destabilizing to markets.

The solution is to weaken the yuan on a relative basis by strengthening the currencies of China’s major trading partners, Japan and Europe. In other words, if the yen and euro get stronger, that’s the same as making the yuan weaker, but without the shock of Chinese devaluation...
Because of the close linkage between the yuan and the US dollar, such a weakening of the yuan will also mean a weakening of the dollar against the yen and euro.

Following various moves by the central banks of Japan, the EC and the Fed, in recent weeks, Rickards notes:
The euro and yen went up against the dollar immediately. Comparatively, the yuan went down with no explicit devaluation by China. This was the new Shanghai Accord in action.
The combo mercantilist-Keynesian theory driving the alleged Accord is, of course, theoretical absurdity to the Nth degree, but it does sound like power player machinations.

What can we expect if this secret Accord was made?

Rickards informs us at to what occurred after the Plaza Accord:
The dollar declined 30% after the coordinated action at the Plaza Accord in 1985.
I have fully expected a dollar decline and price inflation acceleration in the US without such an Accord.  If this deal was cooked up, and agreed to, the octane that will fuel the price inflation just got increased by an exponential  factor.

Hug your gold coins tonight.

Here's what happened to gold in the immediate aftermath of the Plaza Accord:

Robert Wenzel is Editor & Publisher at and at Target Liberty. He is also the author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics

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