If less competitive domestically against producers that are not reliant on inputs to the same extent ... that's assuming the existence of competing identically those other producers, and may be turbulence but not a long term problem.
But in the long term, we're all dead.
Specifically, if all your industry relies heavily on imports, and you have a current accounts deficit, devaluing means that you'll temporarily increase your current accounts deficit during the transition. If the reason you devalue is that the guy who used to bankroll your current accounts deficit decided to stop doing that... it's not hard to see how that could get a lot worse before it got better.
And God help y'all if you go to the international institutions that were supposedly put in place to help bridge such a transition. While there would be a certain delicious irony to hoisting the US on their own IMF petard, it would be badly blemished by the resulting economic catastrophe.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Going to the international institutions, it turns out that it makes a big difference how many votes you have AT the institution.
devaluing means that you'll temporarily increase your current accounts deficit during the transition
Automatically, in the neoclassical model. Whether or not it works that way in the real world depends on in which currency the purchase contracts for the imports are denominated. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
How many other economists share that insight? The brainless should not be in banking -- Willem Buiter
