The President emerged from a meeting on Friday with
the heads of state and finance ministers of the 20 biggest economies, in
Soeul, South Korea, saying they had agree to "get the global economy
back on the path of recovery."
But where are the specifics? The three-page communique that also
emerged from the session brims with bromides about the importance of
"rebalancing" the global economy, "coordinating" policies, and
refraining from "competitive devaluations."
All nice, but not a single word of agreement from China about
revaluating the yuan, or from the United States about refraining from
further moves by the Fed to flood the U.S. economy with money (thereby
reducing interest rates, causing global investors to look elsewhere for
higher returns, and lowering the value of the dollar).
China and the U.S. are the only big players in the currency game. And
with neither of them stepping up to bat, the game is in dangerous
territory. Other nations will now do whatever they can to reduce the
value of their currencies in order to stimulate more exports -- and
therefore create more jobs.
The underlying problem isn't just or even mainly an international imbalance.
It's an imbalance within many nations -- especially inside the United
States and China. In the U.S., more and more income is concentrating at
the top, thereby reducing the relative purchasing power of the vast
American middle class. That means more pressure on exports to fill the
In China, more and more income is going to the productive sector of
its huge economy rather than to Chinese consumers, thereby reducing the
relative purchasing power of the Chinese relative to what the nation is
producing. That means more pressure on exports to fill the gap.
It's always nice to talk about international cooperation, and to
create global photo ops. But the truth is much more needs to be done to
ease tensions that are moving the global economy closer to the brink of
outright protectionism. The key responsibility falls to China and
America -- both in terms of what they do internationally and also what
they do domestically.
Both have failed.
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