So now President Obama is accusing China of currency manipulation. Straight off, I apologise for the sarcasm and name calling in this blog, but talk about the pot calling the kettle black! In a previous blog (Obama and the Economy), I attempted to analyse his decision making processes. The conclusion was that he had a problem with his priorities. The hope was that he would get it right as his presidency matured. So far this has not happened.
To be fair, Obama was left holding the baby. However, to be completely fair we need to look at both sides of the coin. The promise was of a new political determination from Washington. The key word used was "change". He was going to fix the mess. Without getting into the details, the mess continues and the only change is that the majority of Americans, with a vote of no confidence in this administration, have sent a message to Obama..."get the job done, or take a walk".
So back to the pot and the kettle. For the last forty years, successive American administrations have been devaluing the dollar and creating debt. The idea is quite simple. Borrow from China, Japan and others and repay the debt with devalued dollars. Pretty smart if you are 35% of world GDP. But as they say, you can only fool all the people some of the time. Today the US is only 20% of world GDP, has enourmous debts, a stagnating economy and high unemployment, but whose president continues to behave as if they are the most powerful nation on earth. Time to wake up and smell the coffee.
As long as the world accepts the USD as the worlds reserve currency, they can and will continue to print paper money and create debt. In fact, this is the only way to repay the ballooning debt. The normal family knows how much money they have in the bank. They know what their debts are, and adjust accordingly. Buy less, save more and prepare for their childrens future. They leave the "complicated" decisions to their leaders.
Bottom line is that the G20 rejected President Obama's demand for a resolution calling for China to revalue its currency. A new coalition is forming that is aligning itself with China, and this coalition includes the developing economies and parts of Europe. So the question arises, why did Obama choose this time and place for a confrontation with China? Especially since it led to such a devastating defeat for him.
To quote ABC News "The G-20's failure to adopt the U.S. stand has underlined Washington's reduced influence on the international stage, especially on economic matters. In another setback, Obama also failed to conclude a free trade agreement this week with South Korea."
Once again we have the problem of timing. A few days ago, Bernanke decided to execute QE2 and print a further 900 billion dollars. The clear conclusion is that the US is pushing to devalue its currency and minutes later, Obama calls on China to revalue. There are a lot of stupid people around, Barak my man, but not that stupid! Twice within a week, the once revered rock star has egg on his face. Sometimes it pays to take a step back and rethink one's situation.
Lets take a look at the situation. Let us assume that a country's economic strength is measured by the strength of its currency. The USD is the world's reserve currency, but China clearly has ambitions to take over this role eventually. For this they would have to let their currency float. At the end of the day, nobody is bigger than the market. And in todays atmosphere, one could be sure that no matter what was decided, China would do what was good for China and nobody will dictate to the rising economic star. So what was the point of all this? It appears that presidential decisions are made by a flip of the coin, or maybe even a little panic driven. Most presidents are either good politicians or good leaders, or both. I doubt whether this president fits into any of these categories. Hopefully he will prove me wrong.
A word of warning to all who are writing off the US. There is nothing more dangerous than a wounded and cornered animal. I would be the last to write off this great power.
Never confuse a single defeat with a final defeat - F. Scott Fitzgerald
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