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Obama Strikes Out Twice At G-20
This article originally appeared in The Daily Capitalist.
In a follow-up to yesterday's post on foreign exchange ("Hot Money, Gold, Foreign Exchange And The Fallout From QE"), the G-20 meeting in Seoul was not a good one for the Obama Administration and President Obama in particular. Mr. Obama was unable to conclude a free trade agreement with South Korea, and China told him to stop meddling in their internal affairs and put his own house in order first. Of course China's President Hu said that in polite, diplomatic language.
The whole controversy is about international "imbalances" which is a deceptive diplomatic code word. To everyone but China, Germany, Brazil, South Korea, and Taiwan, all successful exporters, it means that these exporters have to shoot themselves in the leg to give everyone else a "fair" chance in the foreign marketplace. To do that it means that China has to allow the yuan to rise in value (which it would if it was unpegged) and to open up their markets wide to imports from less successful countries. China isn't going to do that for obvious reasons:
"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," Zheng Xiaosong, director general of the Ministry of Finance's International Department, reiterated at a press briefing.
What he is saying is that the U.S. (the dollar being the major reserve-currency) is being reckless by pursuing QE2, and that the resulting devaluation of the dollar will make Chinese goods more expensive and therefore will hit their main industry (exports) hard which will harm their economy. If, as they would privately argue, you guys can't compete because you have harmed your industrial base from past reckless monetary and fiscal policies, don't expect us to take the hit for you to recover.
Another Chinese minister put it more bluntly:
“Don’t make other people take the medicine for your disease,” Yu Jianhua, a director general at China’s Ministry of Commerce, told reporters in Seoul late yesterday. “Quantitative easing will have a very big impact on developing countries including China.”
They are absolutely right for the most part. The part where they are wrong is the pact they made with the devil by pegging the yuan to the currency of their biggest buyer--the U.S. dollar. In a system of freely floating exchange rates, China's yuan, off-peg, would have been revalued long ago to the rate which the FX markets determined was correct based on the supply and demand for yuan and dollars. That would have made Chinese goods more expensive, U.S. exports to China would be more attractive, and the trade balances would be distorted far less. What the Chinese didn't foresee or chose to ignore was that our profligate government would use monetary policy as a mercantilistic tool to make U.S. goods more competitive.
This G-20 meeting has been a disaster for President Obama and his Administration. It shows you how great countries decline. By pursuing reckless fiscal and monetary policies, the dollar has been substantially devalued, our citizens will be burden for generations by high debt and high taxes, our ability to compete on world markets is weakened, and we lose our status and influence. I can't blame this on Obama alone. He was preceded by a hundred years of politicians who have chipped away at our freedoms and the free market. They have spent and promised more than they can deliver and we will have to pay for it through the destruction of our capital and/or high taxes.
There is a solution to all this foreign exchange mess and that is for nations to adopt the gold standard. In my studies of it I believe it would act to reign in the destruction of currencies and act to fairly balance foreign trade and foreign exchange. I am aware of all the claims of how it failed during the 1920s and that FDR abandoned it as a "barbaric metal" in place of "modern money." These views are incorrect and reflect a statist Keynesian approach to political economy.
Interestingly, Robert Zoellick, former U.S. Treasury official and now president of The World Bank, has floated the idea that gold should be used in foreign exchange as a "reference point." As he said in the Financial Times, "Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.” What he means is that in real terms gold has not increased so much as that currencies, especially the dollar, have devalued, and that is why people are buying it.
The FT sneered at this suggestion saying that "most economists" believe it would lead to tight monetary policies [true] which restrict growth [false]. In fact Martin Wolf came out with an article examining the possibility of returning to the gold standard. In his inimitable way, he appears to give it a serious analysis and then dismisses it as an impossible return to the 19th Century. Mr. Wolf's "inimitability" is to set up a straw man and then demolish it. Don't take him seriously.
Tight money (read "real money") would actually lead to growth. If we could print our way to riches, then we'd all have been rich long ago. That would be another article. But I think we can all agree that the post-Bretton Woods systems haven't worked and the solutions proposed on all sides will make things worse.
I don't see any realistic solution to come out of any G-20 meeting on the topic of "global imbalances." There are no such imbalances; it is just an invention of countries like the U.S. to pin the blame for their policy mistakes on the Chinese. If I were China, I wouldn't worry about the long-term because the result of QE will be to weaken our economy by destroying capital which will lead to sluggish growth and be less of a threat to them despite a "cheap" dollar.
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"Tight money (read "real money") would actually lead to growth."
But it and a lack of a central bank wouldn't allows wars on credit. Citizens would need to be taxed for them which would reduce their lackadaisical attitude toward them. For an empire, that would not do. "Send the lower classes off to fight, that other person's kid, and put it on our credit card. We want to plant our obese asses on the sofa and watch American Idol, so go away and stop bothering us."
It's oversimplifying of course, but "elasticity" is really about war in a very fundamental way.
US does export some things like Donuts, cookies, Shamoo magic wash cloths.. oh.. wait a minute I think those are China made.
Many chinese manufactured products are made for US owned corporations and businesses who out source their manufacturing and production. Why blame the Chinese and do these US manufacturers really want to take the loss if the Yuan is revalued ?
obama has been swinging the bat ,, and has yet to hit a ball. at one time early he nicked one and it went down in the dirt ,,
Perhaps Omamas telepromter could be sent back to China for a rebate?
Not worth the effort. Just chuck it in the trash and head down to WallyWorld for another one.
'Cause Barry's not
http://www.youtube.com/watch?v=B26ORjxQdNA
How come nobody's addressing the topic of US exports? That's the other half of the trade balance/4X question. Even the administration has openly stated they have a plan (or was it a goal?) to increase our exports by something like 50+% (or was it double?) over the next 5 years.
And I say, Go For It.
And it should begin with America's biggest single export.
Waste Paper.
Fuckin'-A
Waste Paper export subsidies.
Make our trash more competitive on the global stage. And WTF, since we don't manufacture shit no more, we'll just need to import more crap (from China) in order to get the packaging to tear off the imports to throw away to weigh, bale and ship the shit out (to China) (using more precious fossil fuels, no less, so benefits the energy companies, too) to meet our increased export goals.
I'm so fucking happy.
Obama's comment was 'our goal is to double exports within five years' iirc.
According to Rickards this was a major screw up. It really gave the dollar devaluation game away and now the entire world knows that QE is not about 'restoring the US domestic economy' but devalueing the dollar to boost US exports. Not that it would have worked anyway.
And we're going to export... what? Even the Bureau of Engraving and Printing presses are imported!
The exportation of the manufacturing base was a major screw up (that giant sucking sound)...as was/is the continued reliance on energy importation.
Actually, we are exporting waste paper to them. They are called dollars.
"There is a solution to all this foreign exchange mess and that is for nations to adopt the gold standard."
and we musn't make the mistake we did in the 1920s with a faux gold standard. as antal fekete has pointed out, the gold standard without gold denominated real bills is not a gold standard at all. however, a gold reference point is politician-speak for no gold standard for such a creature would be an abortion.
i too have long criticized the yuan-dollar peg. the yuan and dollar are apples and oranges.....linking them together invites disaster....everyone was blathering like fucktarded imbeciles in the 1970s like milton freedman how the era of floating exchange rates would usher in currency stability and real time currency valuation correction mechanisms.....like friedman himself , it was just a lie and everyone else ain't nothing but a hound dog.
gold standard+balanced budgets+tariffs
We have been telling Obumbo for 2 years he doesn't know what he is doing. We were right.
He stands alone with Krugman and a few others against common sense and the ROW.
They're all peachy for stepping on the accelerator going over the cliff. In MY car!
Place the blame where it truly belongs. US politicians buying votes with chinese money.
Spineless, greedy, piss-poor management...that's all.
Failing to come to a free trade agreement with Korea is not a failure, reneging on all free trade agreements would be a success
WHY is anyone surprised that when it comes to economic policy Obama is in way over his head. The former community organizer knows full well how to extort money from local banking institutions for the redistribution of wealth to his fellow radicals, but when it comes to doing the same thing with heads of state, his lack of experience is mind boggling. What is he going to say to Merkel? "Yo bitch, you better play on our team or the workers of the world will crap on your lawn".
I don't know where to start with this article, the chicken part or the egg part.
China's currency reserve policy and dollar peg were a tactic to avoid speculative runs against the yuan similar to those made against currencies during the Asia crisis. The peg gave China AN advantage with regards to US producers but not as much as (environmental control- free) coal use and dirt cheap labor.
The cheap labor bailed out US corporations that were choking on pension/healthcare/worker benefits alongside rising 'input' costs such as for fuel.
China also took over zero/negative margin production such as socks & underwear, plastic consumables, animal by- products, counterfeits of all kinds (accessories and software) and processes with waste 'ramifications' such as refining rare earth metals.
China could raise the yuan vis. the dollar 100% and it would still have a trade advantage for these structural reasons. At the same time, if the US was to cut China imports and reduce its trade deficit the first country to suffer would be China.
As it is, China's inflation is home- grown due to actual flooding the country with currency into circulation (unlike QE which is an asset swap into reserves). The Chinese might be working for Bernanke alongside all the gold pimps ...
I wouldn't put it past them.
China is Japan-1989
China is an opportunity of a lifetime. But in agricultural products...
What if there is war?
No ticky - no trade.
No buying John Deere or CAT or Monsanto.
Ooops.
The savy Asians see right through the community organizer. Unlike the ignorant electorate in the US they don't consider him a rock star or a worthy opponent. Obama just went for the ride so GE would get some engine orders. And he no longer has a domestic agenda so he will try to pretend he is busy with foriegn policy.
The Red Army financed by Walmart. Now, there's "Capitalism" for you. Make certain you make a profit on the gun they kill you with.
Is this a great country or what !!!
The US military funded by the Chinese who own our soon to be worthless bonds. That's American free market capitalism. Fraud and thievery followed by war.
"Americans free market capitalism" does not equal a free market system just so we are clear on this point.
listen. "it's pissin' the world off because we're gettin' away with it. AGAIN." What is it? Well...you explain to me how we haven't been wrecked by the combination of QE, ZIRP and "girls gone wild" in Congress? No other sovreign can even ATTEMPT this on this planet. That's why the world calls the "IMF" the "IAmPhucked" for "long" as Europe (which has deployed this weapon btw) is about to find out. Does it really matter that our President "didn't get a free trade deal with Korea"? A what again? I mean "wake the phuck up!" This ain't 1984 (the year, not the book--although i've been wonderin' of late) where we were producing a million jobs a month, kapiche? "I don't know what the rest of the world is doing but i know what we're doing"--it's called "retrenchment" and "eeking out gains in the economy." if policy makers can find a way to restart securitization then i think we might finally get this "TurdFurgeson to the bathroom for a final flush" (nothin' against u, Turd!)--needless to say "that ship's smokestack that's our rescue boat sure looks a long way off." We shall see...but BB and TG have either gotta give the Prez "a reprise of The Plan...and where it went wrong" or turn in their resignations.
Thanks for the excellent article. Not a surprise to see BO slapped around by people dealing in reality.
EVERY Country in the World is busy covering their own ass, and no one is gonna volunteer to get back into the barrel for Obamatron!
From The Daily Reckoning:
“I’m really struck in a way I haven’t been before,” says Dan Denning from his post at down under in Melbourne, Australia, “by how clearly the rest of the world sees what’s going on in the U.S. and with the U.S. dollar... and how blase they all are when talking about the inevitable lower standards of living in the United States associated with a collapsing currency.”
Dan recently attended a gold conference in Sydney where “speaker after speaker got up and said that Wall Street’s story of double dip and deficits simply doesn’t matter to the commodity story...to gold (being remonetized), to uranium (China), to iron ore, coal, etc. That’s why one analyst felt comfortable forecasting the A$ would do to 1.50 v USD. ‘America doesn’t matter,’ he said, referring to commodity demand.
“The folks at the conference, attendees and speakers, were talking about the U.S. like it’s a written-off monetary basket case.”
The Gold standard...(shaking my head in disbelief)
If I applied that type of thinking to my patients, I would forgo Glyburide for diabetes, simvastatin for lhypercholesterolemia, sumatriptan for migraines...and go back to bloodletting and the Theory of Humors.
Unreal!
How many patients have you poisoned to death?
Just wonderin'.
Allopaths and Keynsian Economists == Dinosaurs
>>If I applied that type of thinking to my patients, I would forgo Glyburide for diabetes<<
do your patients a favor and get them on joslin diabetes center's anti-inflammatory diet and maybe they wouldn't need the drugs.
PDF warning...
http://www.google.com/url?sa=t&source=web&cd=1&ved=0CBYQFjAA&url=http%3A...
the leading edge dietary technology is the zone diet - think of it as the next iteration of the mediterranean diet... the one that reduced the incidence of diabetes by 83%...
http://news.bbc.co.uk/2/hi/health/7426326.stm
i know, correlation isn't necessarily causation - but sometimes it is.
it is worth the research - and the 83% reduction came in the at risk population vs the lesser risk population.
BIG Pharma isn't god - and nothing they produce can correlate to an 83% reduction in diabetes, either.
Do you look your patients in the eye?
Do you think of them beyond their physical manifestations?
Methinks I wouldn't want you to be my doctor.
Well...........as a physician myself..........you can keep your lousy simvastatin.
Gold is similar to the Golden Standard of clinical research. It works and fiat money has failed miserably. Fiat money is like leeches to cure cancer.
Comparing life-saving medications to fiat currency
Excuse me while I LOL
They are about as dumb as a box of rocks but they also hold large positions so they try and talk up their asset. Gold worked only because the colonial empires of the day controlled all the large mines. In the modern world if you want Russia, South Africa, Chile and Mexico to be far and away the richest nations on Earth then go back to the gold standard. They could very easily mine a bilion ounces a year between them.
paul, if they are the richest nations on earth, so what? We should stick with fiat? Thats macho , jealousy talking. We dont have to be the richest! I would be pleased if we were the freest and happiest , even if poor.
I'm with you!
Unlike fiat currencies, thermometers HAVE REFERENCE POINTS -- 0 K is an absolute, sphygmometers also have a reference point of 0 in/Hg. As a Physician, you should know this. Check your premises.
Another "Daily Capitalist" in love with the Communist Party's 5-Year plan for their currency and predatory trade practices.
Next article up - "How to be an Entrepreneur - like the Chinese Red Army".
You're dead on.
Guess who the new love of China is? Yup, the good old "free market" capitalists who get out the flag and wave it anytime someone says that capitalism and liberty aren't synonymous.
I have business students in love with China, and I mean IN LOVE. They are star-crossed. They DO NOT BELIEVE ME when I tell them that the average Chinese citizen does not have a right to property, or cannot practice a faith.
Love is Blind, and Ignorance is Bliss.
Which cities in China have you visited?
Which cities in the U. S. would I need to visit in order to comment on its predicament?
I've only been to 30 or so of the 50 States. Is that enough?
ebworthen was telling the gospel truth. China is a huge bubble. By and by, which cities in China have you visited?
I'll be very happy to answer your question ... when 'ebworthen' has paid me the courtesy of answering mine.
"predatory trade practices"
Really? What business school did you go to? The US has been manipulating it's currency as well as committing massive financial fraud for 100 years. China also has been funding the US budget deficit for the last few years thus paying for the illegal wars agaoinst Iraq and Afghanistan.
After the US lost 4 proxy wars against China and was on the edge of bankruptcy, Nixon cut a deal with the Chinese. The deal was we would stop anymore proxy wars with China and we both agreed to cooperate to contain Russia. Without constant war, the Chinese then had money to invest in it's development. The Chinese have raised the standard of living of more people that the entire rest of the world. It has built out it's infrastucture and is the fastest growing economy in the world. US president Bush broke the agreement with China and restarted the proxy wars. The US has been pumping money and weapons into China in an attempt to to trigger multiple civil wars. The US also has placed hundreds of military bases around China in preparation for a future conflict.
The attempt by the US to screw all it's foreign bond holders as well as all the toxic debt sold by US financial institutions is a declaration of war against Europe, China, India, Russia..etc.