The G20 summit produced plenty of photo opportunities and some general goals. But with no real agreement agreement between the US and China on currency issues, the substance of international cooperation is absent, and the global economy teeters closer to the brink of outright protectionism.
President Barack Obama emerged from the G20 summit in Seoul, South Korea last week saying the heads of state and finance ministers gathered there had agreed to “get the global economy back on the path of recovery.”
But where are the specifics? The three-page communiqué that also emerged from the session brims with bromides about the importance of “rebalancing” the global economy, “coordinating” policies, and refraining from “competitive devaluations.”
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All that sounds nice, but there was not a single word of agreement from China about revaluating the yuan – or from the United States about refraining from further moves by the Federal Reserve to flood the US economy with money by purchasing massive amounts of US Treasury bonds. Such purchases result in reducing interest rates, thus causing global investors to look elsewhere for higher returns and lowering the value of the dollar. Emerging economies in particular worry about “hot money” flowing into their markets, looking for higher returns.
China and the US 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. In economic lingo it’s called “competitive devaluation.”