It must have seemed like a good idea at the time.  Of course, the time is always right for government policy makers to improve upon the natural order of things.  In their dim minds, the unintended consequences of their actions are not to be considered…they can always be rectified later by another policy fix.

Evidently, none of the officials from West Germany, France, the United States, Japan, and the United Kingdom, who gathered at New York’s Plaza Hotel on September 22, 1985, knew they were letting the genie out of the bottle.  Regrettably, once out, it’s near impossible to put back in.

By 1985, fourteen years after Nixon severed the last remnants of the linkage between the dollar and gold, floating currencies had resulted in grotesque distortions to the global economy.  The U.S. dollar had appreciated 50 percent between 1980 and 1985 against the Japanese yen, West German Deutsche Mark, and British pound – the currencies of the next three largest economies at the time.  American manufacturers could not compete with the dollar valued so much higher than its competitors. Continue reading →