In October Treasury Secretary Geithner sent a letter to the G20 member nations asking them to join and set targets limiting trade imbalances to ensure “orderly rebalancing of global demand.” The idea is to set up a general sustainable framework for the G20 countries (and eventually the world) world to follow to keep things from getting as wildly out of balance as they have become lately.
Currently and historically every country is largely on their own, doing what they can to benefit themselves as much as they can, without concern for the worldwide effect. In the past this formula has caused imbalances, volatility, currency wars, currency (“hot money”) attacks, economic collapses, trade wars, even real wars.
China is the usual example today, manipulating its currency, subsidizing industries, blocking imports, undercutting world competition, bullying non-Chinese companies into giving up proprietary technology, and a while list of other schemes. But China’s schemes have created a huge imbalance bubble, which necessarily will one day explode, and after a period of chaos and devastation another country will emerge with a scheme of its own to capture the world’s industries.
Geithner is proposing that if countries could agree to stay within, say 4% of balance, the world would be better off as a whole. The idea is to assess each country against “indicative guidelines” that have yet to be defined. This would allow countries that, for example, mostly export raw materials to go over the 4%. Geithner is pushing for a 4% limit on surpluses. Germany is at 6%, China at 4.7%, expected by IMF to rise to 8% by 2015.
Chinese, German Pots Calling The Kettles Black
There are reports that the G20 meeting in Seoul has abandoned the plan at German Chancellor Angela Merkel’s insistence. (Germany is the one that is at 6% out of balance.) In examples of the pots calling the kettles black, China and Germany are counterattacking against international pleas that they increase internal consumption to reduce their large trade imbalances, with China attacking the U.S. Federal Reserve “quantitative easing” plan and Germany claiming calls for them to come into balance are “protectionism.”
