See Eichengreen and Sachs (1986), "Exchange Rates and Economic Recovery in the 1930s". History repeats itself, the first time as tragedy, and the second time as… tragedy.
Let's All Devalue Against Each Other: Jeremy Siegel echoes a lot of what some of us have been saying for years about the infeasibility of internal devaluation, but then argues that the answer is devaluation of the euro as a whole. Um, against whom? I mean, it’s not as if America or Japan are towers of economic strength, easily able to provide the demand Europe lacks. That leaves emerging markets. And while I and others have been pushing for years for an end to Chinese currency manipulation, China is at this point (a) not looking very strong itself (b) just not that big in the world economy — not yet. More generally, Europe as a whole, like America, remains a relatively closed economy. Its salvation must be mainly internal.
Now, if devaluation is a code word to mean raising the inflation target, fine.
The last time I got to hear the late James Tobin, he gave a talk in which he joked that as far as he could tell, all the world’s major currencies needed to devalue against each other. This is sort of one of those times — and what that actually tells you is that we need fiscal and monetary stimulus.