As Big As Plaza: A Farce in One Act

Dramatis Personae:

Ben Bernanke, a central banker
Jean-Claude Trichet, a central banker
Masaaki Shirakawa, a central banker
Henry "Hank" Paulson, a finance minister
Christine Lagarde, a finance minister
Alistair Darling, a finance minister
Peter Steinbrueck, a finance minster
J.M. Flaherty, a finance minister
Asian Bloke #1
Asian Bloke #2
Middle Eastern Bloke #1
Middle Eastern Bloke #2

All the finance ministers and central bankers are seated around a table in a meeting room in Washington, DC. The blokes are seated quietly in the shadows in a dark corner of the room.

Christine Lagarde (CL): So 'ank, when you say zat you want a strong dollar, what eggzactly do you mean by zis?

Hank Paulson (HP): Well, just what it says on the tin, Christine.

CL: Tin? What is zis tin? I am talking about zee currencies, not zee commodities.

HP: Sorry, it was just a figure of speech. What I mean is that I say what I mean and I mean what I say: I want a strong dollar.

CL: But strong? 'ow?

HP: Well, you know. I really like the dollar to squeeze out 10 reps of 140 kg on the bench press, and be able to squat 250 kg 10 times as well. That's what I used to do down at the Goldman gym.

CP: In France, we do not eat ze cheeseburgers and do not need to go to ze gym. But 'ank, what I want to know is what you are going to do with ze dollar!

Ben Bernanke (BB): Take it for a ride in my new whirlybird!

CL: But it ze dollar is killing La Belle France!

Jean-Claude Trichet (JCT): Have I mentioned recently that I am worrried about inflation?

CL: Tu est un traiteur, Jean-Claude. We are ze G-7! We must do something about ze dollar and ze euro!

Asian Bloke #1 (AB1), on the phone: Euro/dollar, fifty mine!

Alistair Darling (AD): Don't worry, Christine, the Government has everything in hand.

CL: But what can Gordon Brown do about ze euro and ze dollar?

AD: Well, we are having consultative meetings with the banks in the UK, and hope to have something resolved soon.

Masaaki Shirakawa (MS): Alistair-san, why you ask UK banks to cut mortgage rates, when Northern Rock owned by Gordon Brown not cut its mortgage rates?

AD: Errrr........

CL: But we must do something about ze dollar!

J.M. Flaherty (JF): How about nothing?

Peter Steinbrueck (PS): Ja, vee in Germany are doing OK.

CL: But somebody in zis room needs to do something!

AB1 and ME1, on the phone: Buy me two hundred euro/dollar at best, please.

CL: 'ank, we need something bigger zen ze Plaza!

HP: Is Le Crillon bigger? I know the bill is.

CL: Come on, garcons! We are ze G7, we can set ze exchange rates where we want!

ME2, on the phone: Buy me 500 million EUR/USD, please.

CL: Come on, 'ank, what are you going to do? (Starts screaming)

HP: Will no one rid me of this volatile floozy?

CL: Zat is it! Let's mention ze volatile fluctations of ze exchange rates and promise to intervene. Ben and Alistair have ze experience of intervening in ze private markets, and zat's gone well.

BB and AD: Err........

CL: But now ze world will know zat we mean business!

ME1, ME2, AB1, AB2, each on the phone: Buy me five billion EUR/USD at best please: pay up to 1.62.

Exeuent all

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Click here for comments
Richy Rich
April 15, 2008 at 9:52 AM ×

MM, these meetings are held "in camera" and you are going to be in big trouble for leaking the minutes like that. If you'd blurred the edges and not been so precise they wouldn ' have suspected you. But a straight transcript is very dangerous to post!

April 15, 2008 at 10:08 AM ×

I've seen these minutes on BBG this morning but i can't find that page anymore now!!!
ahaha you're great!!
Everyone knows that US is depreciating his currency but why 30 yr treasury remains at 4.3%?? have anyone ever seen an historical graph of this yield??
until now this devaluation has been partially hedged by a capital gain, but now??
if they devaluate at this rate without an increase on yields they've reached the nirvana of finance!!!

April 15, 2008 at 10:28 AM ×

Priceless MM, absolute priceless ... even better than your financial sonnet imho although I guess the latter did take more flexing of the scribing muscle.

Oh, on the EUR/USD will today's below expectations ZEW reading move anything in your lads' opinion.


April 15, 2008 at 10:45 AM ×

Standing ovation!

April 15, 2008 at 1:48 PM ×

I am still long all of my euros - accumulated since its introduction converting dolllar flows religiously at - 0.95 0.88. 0.98. 1.05, 1.15 and 1.28. As we've discussed, I've been loathe to buy more >1.30. Yet, I continue to hold these but feel increasingly uncomfortable and irritable with the concentration and position as if, while tactically "right" for the small positive daily skew, I am now on the wrong side of the fat-tail loss. So why am I still long? I suppose because I (and everyone's uncle) is waiting for the fact of ECB ease to sell, but it feel as if its 3 or 4 cents of upside grind vs. 10 or 15c down - with what I guess is symmetric probability.

No, I am not bearish on Europe, but I do think they've got a serious housing issue in perhaps half the community, they've got Italy to deal with, they've got turbocharging trade deficits with china, rising energy prices, and a deep US recession to contend with. While the US faces the same, it's already - mas/menos - baked into the dollar, and as a result not at all reflected in the Euro.

Macro Man
April 15, 2008 at 2:14 PM ×

Cassie, trust me, as some one who tended to err (and err is the correct word) to the bull side of the buck for much of 2H06 and 1H07, I know the feeling of unease you have.

That having been said, the mercantilists and serial piss-takers don;t seem to have the same level of unease...or if they do, it hasn't yet stopped them from taking the piss.

What inspired me to write today's little drama is the fact that a) I believe this is more or less how the G7 discussion played out, albeit with a few artistic liberties, and b) the US investors don't understand either the (ig)significance of the G7 statement or the (huge) significance of Voldemort and co in setting exchange rates.

Just doing my bit to further the education of the US institutional investor!

April 15, 2008 at 4:03 PM ×

...Which is why, if I were King, I (as sovereign of USA) would be pro-actively doing everything to insure that no one has us by our collective short & curlies, the best way which is NOT to beggar-thy-neighbor, but insure one is running a tight ship. For the US this means consumption taxes, hefty energy taxes, and subsidies for guaranteed grid-purchases of wind/solar /geothermal renewables all-around.

Sorry to keep veering off into the Shangri-la of idealism but it been sooo BGO, it's almost unfathomable the US has spent the entire 7 years of Bush-rule wallowing in our own sh*t!!

April 15, 2008 at 4:37 PM ×

Well done, MM.


April 15, 2008 at 7:41 PM ×


I hate to pour negativity on your alt-energy ideals, but my mother worked as a budget and policy analyst at DOE in renewables in the Clinton years. Perhaps it has changed since then, but at least in the '90s the whole field was a nest of Beltway bandits, as skilled at working the Post as working the Hill. Synfuels redux. Don't believe everything you read in the fishwrap - perhaps some of these technologies are indeed promising, but there is no reliable algorithm for determining which.

If USG really wants to constrain its energy imports, there's an easy way: fix the quantity of energy imported, buy it at the world price, and auction it domestically, for a huge steenkin' profit of course. The resulting dollars can then be burned, pour encourager les autres...

April 15, 2008 at 8:25 PM ×


All serious nations that have used the tax levy route on use (however generated) and Pigouvian taxes to further encourage/discourage
undesirable behaviour (shading the odds for/against more/less efficient devices) and with further subsidy on the generation side (legislating two-way rights to the grid) are light-years ahead of the USA. Taxing seems both more efficient and more Libertarian than auctioning since it reduces volatility allowing for better and longer-term investment deicisions (or allows the potential/leeway to reduce it). It is also less-vulnerable to abuse by carpetbaggers and speculators. I can imagine the perverse outcomes of the the auction as the year proceeds, aggravating volatility adn shortages through out the supply chain.

I admit that there does seem to be some probably explicable reasons why the US seems so inept at designing and implementing good public policy (in comparison to EU or Japan), though I do not believe this is in anyway related to the general logic or potential benefits arising from state intervention, but rather whether the intervention itself has been co-opted by parochial business interests or The Public Interest, more generally defined.

April 15, 2008 at 9:02 PM ×


Not to disagree on a fundamental level, but the issue of population density has a lot to do with the efficient use of energy. In Spain, if you want to know how old a car is - divide the odometer reading by 15,000. That's 9,000 miles a year. This ratio been constant for a pretty long time, in my experience, despite the fairly notable cheapening of fuel with respect to incomes. The reason is if you drive very far you've probably missed your exit or you no longer speak the language. Same goes for electricity distribution, public transit, all that 'common good' stuff. The difference in the amount of cable you have to string to provide electricity to 10,000 homes in L.A. or Dallas or Toronto and that in Madrid is almost calculated exponentially.

Worse yet, in North America infrastructure improvements invariably come up against NIMBY. Here that seems to be restricted to cell phone towers, for whatever reason.

The wide open space lifestyle is becoming a very expensive proposition.


April 16, 2008 at 12:20 AM ×

Great job!

Am a newbie here and glad I stumbled upon this blog. Have a newbie question -- over the short-to-medium term (ie 6-12mo) what currency would you recommend? That is holdable, that is.

April 16, 2008 at 4:24 AM ×


I think it's because the US has this thing called "Congress," a phenomenon unknown in other lands, in which power is confined to the relevant ministry. The lobbyists get in between the Hill and the agency, resulting in the well-known "iron triangle" effect.

On the other hand, bureaucracy without Congress is essentially the Brezhnev model. As an enthusiastic reader of Richard North's blog, I'm less convinced than you of the effectiveness of the Brussels Beamtenstaat.

As for my auction model, it simply replicates an economic scenario in which it was physically impossible to import energy. Futures markets do a pretty good job of regulating price fluctuations, I feel - I am unconvinced that speculators can profit by hoarding and dumping. In any case they have the global market to do that.

But the auction proposal is of course politically infeasible - its main point is to demonstrate that. The advantage over a Pigouvian tax is that it directly controls the number that most people actually want to control, the quantity consumed. Whereas it is impossible to predict the demand impact of a Pigouvian tax.

April 18, 2008 at 4:40 AM ×

Brilliant as always Macro Man, this is your best work since the Sherlock Holmes spoof. I am only sorry Charles Danforth Ogden wasn't invited to the meeting.

Absoulutely hilarious. And utterly, frighteningly true.