Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18
The Value of Bitcoin - 11th Jul 18
America a Nation Built on Lies - 11th Jul 18
China, Asia and Emerging Markets Could Result In Chaos - 11th Jul 18
Bullish Gold Markets in the Big Picture? - 11th Jul 18
A Public Bank for Los Angeles? City Council Puts It to the Voters - 11th Jul 18
Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - 11th Jul 18
Argentina Should Scrap the Peso and Dollarize - 11th Jul 18
Can the Stock Market Close Higher For a Record 10th Year in a Row? - 11th Jul 18
Why Life Insurance Is A Must In Financial Planning - 9th Jul 18
Crude Oil Possibly Setting Up For A Big Downside Move - 9th Jul 18
BREAKING: New Tech Just Unlocked A Trillion Barrels Of Oil - 9th Jul 18
How Trade Wars Penalize Asian Currencies - 9th Jul 18
Another Stock Market Drop Next Week? - 9th Jul 18
Are the Stock Market Bulls Starting to Run? - 9th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

G20 Summit Fails to Resolve Global Trade and Currency Conflicts

Politics / Global Financial System Nov 15, 2010 - 10:12 AM GMT

By: Barry_Grey

Politics

Best Financial Markets Analysis ArticleThe G20 summit of leading economies held in Seoul, South Korea concluded Friday without any agreement on policies to bridge differences over global currency and trade issues that have grown increasingly bitter in recent weeks.

President Barack Obama failed to obtain a consensus to demand that China allow its currency, the renminbi (also known as the yuan), to appreciate more rapidly. But the US continued to defend its policy of printing hundreds of billions of dollars, dismissing complaints from countries ranging from Germany, Japan and China to Brazil, Thailand and South Africa that Washington is deliberately devaluing the dollar in order to obtain a trade advantage over its competitors.


The US cheap-dollar policy has been compounded by the Federal Reserve’s decision last week to launch a second round of “quantitative easing,” effectively printing dollars to purchase $600 billion in US Treasury securities. The flood of US dollars is driving up the exchange rates of major exporters such as Germany and Japan as well as of more rapidly growing emerging economies in Latin America, Asia and Africa. The Fed’s policy is generating waves of speculative money that are destabilizing the emerging economies, creating asset bubbles and the danger of rapid inflation.

The run-up to the two-day summit, the fifth G20 meeting of heads of government since the financial crash of September 2008, was marked by unusually blunt and public recriminations, with the world’s biggest exporters, China and Germany, in particular, accusing the US of currency manipulation and protectionism. For its part, Washington blamed the vast and growing imbalances in the world economy on surplus nations such as China and, by implication, Germany.

To avoid an open breach, which could spark a collapse of financial markets and the eruption of uncontrolled currency and trade war, the warring camps worked into the early hours of Friday morning to craft a communiqué sufficiently vague to paper over the unresolved differences and allow the participants to interpret the various points according to their national interests.

The statement said the leaders had agreed to move toward “more market-determined exchange rate systems, enhancing exchange rate flexibility to reflect underlying economic fundamentals…” That was inserted at the insistence of the United States and directed primarily against China, which regularly intervenes in currency markets to control the rise of its currency relative to the dollar. Beijing, however, insists that it is already moving precisely in the direction indicated in the communiqué.

The leaders also pledged to shun “competitive devaluation of currencies.” This was largely directed against the US and inserted at the insistence of a host of countries opposed to the Fed’s ultra-loose monetary policy. The US delegation had fought unsuccessfully to replace the word “devaluation” with “undervaluation” in order to shift the onus more to the Chinese. In any event, US officials from Obama to Treasury Secretary Timothy Geithner spent much of the two-day meeting solemnly avowing that the US did not now, and never would, pursue a cheap-dollar policy.

The basic US line was that monetary stimulus was needed to revive the US economy, and what was good for America was good for the world.

The G20 statement went on to pledge: “Advanced economies, including those with reserve currencies, will be vigilant against excess volatility and disorderly movements in exchange rates.” This was also directed against the US, which has been widely and justifiably accused of exploiting the privileged role of the dollar as the primary world reserve currency to pursue a unilateralist and nationalist course that is exacerbating global financial instability.

At the behest of emerging markets that have increasingly resorted to capital controls to contain the influx of hot money from abroad, the communiqué sanctioned “carefully designed” control measures.

It repeated the by now ritual call for the Doha round of trade liberalization talks, launched in 2001, to be concluded.

On the most contentious issue—the US proposal for imposing a limit of 4 percent of gross domestic product on nations’ current account imbalances, surpluses as well as deficits—the G20 put off any action. Leading exporting nations such as China, Germany and Japan are adamantly opposed to the US plan, which they fear would be used to force them to cut their exports in favor of those from deficit countries—first and foremost, the United States.

The US advanced this scheme at a meeting of G20 finance ministers in October, but abandoned the attempt to push through a quantitative measurement of imbalances in the face of fierce opposition. The communiqué issued Friday lamely called for G20 finance ministers and central bankers to report next year on “progress” in formulating non-binding “indicative guidelines” on trade and balance-of-payment imbalances.

There are reports that the negotiations over the wording of the communiqué were fractious and heated. “This hasn’t been a love-fest,” said one official who participated in the negotiations. The Financial Times quoted a British official as saying, “You can tell how difficult the negotiations were by how bad the language was.”

In another setback for the US and the Obama administration, intense talks to finalize a long-sought free-trade agreement between the United States and South Korea failed to produce a deal. The talks evidently foundered on US demands for concessions from Seoul on trade in autos and beef compared to the terms of a pact worked out in 2007 between South Korea and the Bush administration, but never brought to a vote in Congress.

The failure of the G20 summit heralds an intensification of currency and trade conflicts that threaten to unleash a global trade war. That the opposed camps remained at loggerheads was underscored by the outcome of bilateral meetings held Thursday by Obama with Chinese President Hu Jintao and German Chancellor Angela Merkel.

At his press conference in Seoul on Friday, Obama said that he had “raised yesterday with President Hu of China” that “emerging economies need to allow for currencies that are market-driven.” In a thinly veiled attack, he continued: “All of us need to avoid actions that perpetuate imbalances and give countries an undue advantage over one another.”

In reply to a question, Obama was more bellicose, saying that “the issue of the [renminbi] is one that is an irritant not just to the United States, but is an irritant to a lot of China’s trading partners and those who are competing with China to sell goods around the world. It is undervalued. And China spends enormous amounts of money intervening in the market to keep it undervalued.”

For their part, the Chinese suggested that Washington’s monetary policy was reckless and heedless of its international consequences. Zheng Xiaosong, the director general of the Minister of Finance’s International Department, told a briefing at the summit: “The major reserve currency issuers, while implementing their monetary policies, should not only take into account their national circumstances, but should also bear in mind the possible impacts on the global economy.”

Merkel, in a speech in Seoul, alluded disparagingly to the massive external debts and trade deficits of the US, declaring, “In the task ahead, the benchmark has to be the countries that have been most competitive, not to reduce to the lowest common denominator.”

The summit is another indication that the entire post-World War II system of global economic relations is breaking down. At the center of this crisis is the vast decline in the world economic position of the United States. The US is deliberately seeking to leverage its economic decay—reflected in the huge fall in the value of the dollar and the corresponding rise in the price of gold—to offload its crisis onto the rest of the world.

On the eve of the summit, the president of the World Bank, Robert Zoellick, acknowledged that the current monetary system, based on the preeminence of the dollar, is no longer viable. He proposed a system based on multiple reserve currencies and linked in some way to gold.

French President Nicolas Sarkozy, who will host of the next G20 summit, said Friday: “There was a time when there was one dominant economy, the United States, and one currency, the dollar. We’re facing a new world … and we need a multilateral monetary system.”

Following the summit, the Bangkok Post reported that Thai Prime Minister Abhisit Vejjajiva had proposed using the Chinese renminbi as a major trading currency in the Asian-Pacific region to lessen the impact of the weakening of the US dollar.

World Socialist Web Site

Barry Grey is a frequent contributor to Global Research. Global Research Articles by Barry Grey

© Copyright Barry Grey , Global Research, 2010

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules