China Knows What Has Happened to Japan after the 1985 Plaza Accord.

The U.S. has pressed China to appreciate its currency. Yet China is fully aware what has happened to Japan after the Plaza Accord. Its resulting strong currency against the U.S. Dollar tanked the Japanese economy. The U.S. rebalanced by 51% so that the U.S. could pay Japan back at 49 cents on the dollar. The Japanese economy has never recovered since then. Some argue that the U.S. rode its own recovery from the oil shock recession on the backs of the Japanese.

On the other hand, has the Plaza Accord helped the U.S. strengthen its productive capacity? Nope.

Of course we all know that China faces its own problems. Their bubbles will implode at some point down the road. The Chinese has to realize that basing its wealth on the USD wouldn’t be sustainable in the longer term.

It is true that China has trade and current account surpluses and engages in currency manipulation. Yet, if China appreciates its currency, that would force American firms to ship their operations back to the U.S.?

The bottom line is: it is not China’s fault that the U.S. economy is doomed and the USD is toast. Getting China to raise its currency wouldn’t solve the U.S. conundrums.