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USA on the defensive at G-20 SummitUS President Obama is in Seoul emphasizing that future Global growth depends on a re-balancing of trade, the other World leaders are saying NO to his approach.
Mr. Obama arrived in South Korea on the defensive Wednesday for a 2 day meeting with leaders of the World's biggest economies, a Summit that had once raised his hopes of charting a common path to a more balanced Global recovery but instead threatened to founder on the backs competing national interests.
Obama now has to try to contain a gathering storm over the recent US decision to open the cheap money faucet and flood the World with billions of USD's.
The move is aimed at spurring US jobs and exports with cheaper credit, but it has drawn the US into a confrontation with other export-driven economies, notably China and Germany as well as nervous emerging nations, because it is likely that most of that "Hot Money" will immediately find its way not to where the President hope it will go but elsewhere in the World.
Although the US economy is still struggling to recover from its housing asset "Bubble" recession, some of its top competitors are growing briskly, and are not in any mood to bow down to Washington's any longer to their economic detriment.
As a result, this meeting of the Group of 20 nations is taking place at a critical time. After co-operating to avert a Worldwide financial collapse 2 yrs ago, the leaders find themselves deeply divided on many issues, including currency imbalances and debt.
The question facing the leaders in what are expected to be tense sessions in Seoul is whether to join in a united effort to forge a new and more stable economic order, or pursue separate goals and risk another crisis.
"For the past 25 yrs, US consumers have powered the growth in the global economy on credit," said Mark Zandi, chief economist at Moody'sAnalytics. But in this post-recession period, "that is finished," Zandi said. "That transition, that Global re-balancing, is very difficult. It's a long process."
Obama's "prayer" at the G-20 table will be that future Global growth can only happen on a re-balancing of Global trade, that means other countries must sell more of their products at home — and consume more imports, and selling less to debt-impoverished American consumers.
"Just as the United States must change, so too must those economies that have previously relied on exports to offset weaknesses in their own demand," he said in a letter sent to G-20 leaders before the meeting began on Thursday.
The World leaders agree that a re-balancing is needed in the long run, they do not share Obama's urgency.
Embracing Obama's program now will likely mean damaging the economies of the major exporting countries. As a result, many World leaders favor a strategy spread over a period of many years, perhaps even a decade or more and this does not suite the American president who is facing higher than he finds acceptable unemployment, and a citizenry that just inflicted humiliating losses on his Democrat Party cronies in the mid-term Congressional election.
"Obama's timetable is not compatible with the timetable of our trading partners," said Clyde Prestowitz, a trade negotiator in the Reagan administration and author of several books on globalization. "Even if China, Korea and others in Asia agree to significant revaluation [of their currencies], it's clear they have no thought of revaluing in the time frame Obama needs."
In addition to economic factors, Obama's bargaining power has been sizably reduced by his party's election losses last week, which many viewed as a referendum on the President's handling of the economy.
Mr. Obama has pledged to double US exports in 5 yrs as a way to create new jobs. But critics warn that even that will not help generate a big rise in net employment if higher exports are matched and exceeded by continued growth in imports, I agree with his critics on the issues.
Wednesday, the US Commerce Department reported that the US trade deficit rose 40% in the 1st 3 Q's of this year, to US$379B, despite increased export sales by US companies. Yes, exports grew, imports grew much faster as consumers became more confident about spending. And China accounted for more than 40% of the imbalance.
The Obama administration has blamed China's cheap currency for the discrepancy. It has stepped up its criticisms of China's undervalued Yuan, which makes Chinese exports more competitive by making them cheaper overseas, thus sparking speculation of a "Currency War."
Chinese officials deny that they manipulate currency-exchange rates for competitive reasons, and although some analysts believe that Beijing has long held down the value of the Yuan to support export industries and jobs, there are wide differences among experts on how much the Yuan may be undervalued if at all.
The Obama administration once wished to use the G-20 gathering to put China's currency policy under scrutiny. Instead, Obama has found himseld on the defensive after the US Federal Reserve formally announced its plan to boost the economy by buying US$600B + worth of long-term T-Bonds.
Finance officials from China, Germany, Russia and Brazil complained about the US central bank's move as policy that would debase the USD and increase the risk of forming asset "Bubbles" in emerging countries as investors move cheap "Bucks" into faster-growing economies that pay higher rates of return. I believe that it is not a "risk of" but a "fact of" and that the bulk of that cheap money will turn into "Hot Money" and fly right out of the US into the emerging markets. Before the Seoul Summit, Chinese officials ramped up their criticisms of the UD Fed's bond-purchase plan, and a Chinese credit rating agency downgraded US debt and described the credit outlook for the United States as "negative."
China is America's largest foreign creditor, holding hundreds of billions of US Treasury securities.
German leaders also criticized the move, complaining that the US was merely extending its addiction to living on borrowed money.
Those sharp comments cast a dark cloud over the Summit's gathering, thus, reducing expectations for any major policy breakthrough and agreement.
US officials are trying to voice an optimistic tone, suggesting that the Summit might produce a commitment to broad principles on re-balancing trade while leaving the details for another day.
But at this moment it remains uncertain whether the leaders can gloss over their divisions in Seoul enough to calm fears of falling back into another recession. Stay tuned...Paul A. Ebeling, Jnr. www.livetradingnews.com
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