The global recession risk : dollar devaluation and the world economy

A fire sale of US debt could cause a global recession through disorderly devaluation of the dollar, raising interest rates and crashing stock markets. The G7 doctrine of shared responsibility intends to coordinate regional efforts. This book analyzes the main issues and individual regions, including China, Japan, the EU and the USA.

Author Notes

CARLOS M. PELÁEZ received a PhD and BS, Phi Beta Kappa, from Columbia University, City of New York, USA. He has published books, essays and articles worldwide. He was Director of Banco Chase and of the Rio de Janeiro Association of Banks and Vice President of Chase Manhattan Bank, USA. He is Managing Director of CMP Associates, USA.

CARLOS A. PELÁEZ received the AB in Statistics from the University of Chicago, USA. He published International Financial Architecture with Palgrave, as well as a book on globalization, and an essay on the global electric industry. He is an Associate Editor of the Journal of International Economic Law at the University of Pennsylvania Law School, USA.

Reviews (1)

Choice Review

The large and widening US current account deficits and corresponding current account surpluses of industrial countries and some Asian economies have produced a voluminous literature regarding their cause, consequences, and policy implications. Carlos M. Pelaez (managing director, CMP Associates) and Carlos A. Pelaez (editor, Journal of International Economic Law) examine these issues from the perspective of different regions and the domestic and multilateral adjustments required to bring these imbalances under control. Their undertone is somewhat alarming, echoing others who have predicted for a number of years that the huge US deficits are unsustainable and will lead to disruptions in international financial markets, a global financial crisis, and worldwide recession. The authors suggest these growing external imbalances may well result in abrupt adjustment involving a huge US dollar depreciation fed by (massive) disinvestments of US dollar holdings by surplus countries. However, they fail to explain why, despite ongoing dire forecasts, the US and world economies and the international financial system have performed remarkably well and why the sizable dollar depreciation thus far has been relatively smooth. William Cline's The United States as a Debtor Nation (CH, Mar'06, 43-4137) analyzes these issues in a more coherent and balanced manner and draws on and summarizes the relevant literature more effectively. Summing Up: Not recommended. C. J. Siegman formerly, Federal Reserve Board/International Monetary Fund

Antonio Delfim NettoRichard T. McCormack

List of Tables	p. ix
List of Abbreviations	p. xi
Acknowledgments	p. xiv
Preface	p. xvi
Leading Essay: Lessons from Adjustment of the Current Account	p. 1
Introduction, Scope and Content	p. 8
1 Policy Contributions	p. 20
The United States current account	p. 20
Risks	p. 21
Savings and investment	p. 27
Financial flows	p. 38
2 China in Need of a New Paradigm	p. 56
Introduction	p. 56
The two Chinese economies	p. 59
The Chinese exchange rate	p. 66
The need of a new paradigm	p. 78
3 Japan after Deflation	p. 81
Summary	p. 81
The lost decade	p. 82
Fear of deflation in Japan, China, Europe and the Federal Reserve Board	p. 83
Monetary policy	p. 95
Exchange rate intervention	p. 107
Structural reform	p. 109
Conclusion	p. 111
4 The Euro Area	p. 116
Summary	p. 116
The decline of Germany	p. 117
Monetary policy	p. 119
Fiscal imbalance	p. 127
Productivity and structural reform	p. 135
External balance	p. 144
5 Currency Crashes	p. 147
Sudden stops	p. 147
The vulnerabilities of Mexico	p. 154
Original sin and debt intolerance	p. 162
The balance sheet approach	p. 174
Appendix: Balance sheet effects in practice	p. 178
6 The Restrictions of Policy of the United States	p. 188
The budget and current account deficits	p. 188
The economic and financial fundamentals of the United States	p. 202
The limitations of policy	p. 212
Policy guidelines	p. 215
Conclusion	p. 218
Appendix	p. 230
Notes	p. 232
Bibliography	p. 234
Index	p. 255

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