Surging and Emerging

The second weekend in October brought finance ministers (including US Treasury Secretary Tim Geithner) together in Washington, D.C. to discuss a couple of major issues that are pushing against the economic recovery, particularly in the richest nations: trade imbalance hampered in significant part by a failure of some countries to revalue their currencies enough. The October 10^th New York Times summarizes the conundrum: “The debate over currency valuation is pivotal. World leaders broadly agree that for the global economy to be more stable, imbalances between creditor countries like China and Germany and debtor countries like the United States and Britain have to be fixed. Correcting those imbalances, some economists say, will help create jobs in the United States and reduce the threat of inflation and asset bubbles in China.”

But the net effect is to reduce the dollar-generating exports that these “debtor” countries have come to depend on. Since Germany is on the euro standard, the focus moved very heavily toward Asia and Latin America, regions that did not leverage themselves into oblivion like the rich “debtor” countries and whose economies have pushed through the economic mess relatively well. Strange, they actually like the jobs that they have created by exporting to the United States and other Western countries, and by keeping their currencies in line with the dollar and the euro (as opposed to reflecting their relative success in recession recovery by allowing their currencies to appreciate), they still get to keep those export businesses thriving. They don’t want to raise the value of their currency vis-à-vis the dollar as we are pressuring them to do.

The United States, to some a bit heavy-handed in its exhortations to these emerging nations to get their currencies in line with the markets, is finding resistance at every turn. Chinese barely budged, and the general reaction has been to ignore American efforts; they are addressing the issue gradually and hardly at the pace Americans think necessary. Most European nations think we’ve gone over the top in pressure tactics, which haven’t generated our desired results. “It’s not helpful to use bellicose statements when it comes to currency or to trade,” noted French finance minister, Christine Lagarde, to the Times. But their efforts – “kinder and gentler” – haven’t generated much movement either.

The U.S. is simply not used to being a supplicant. Our prestige because to suffer in the early 1990s with the rise of the European Union at a time when the world no longer needed the U.S. “nuclear umbrella” against a massive cache of Soviet nukes. That many still blame Wall Street (and the machinations of international Wall Street wannabees, primarily in London) for the global recession further tanks our bargaining power. Our own significant borrowings and inability to get our economic engine started is increasingly seen as our weakness and our problem. In a world that is profoundly interlinked economically, increasingly, it’s “every man for himself.” We’ve lost the credibility of being the premiere symbol of economic success to the rest of the world. China’s and Brazil’s economic miracles have become vastly more appealing models. Father no longer knows best; the American dream machine is no longer the platinum standard.

As the U.S. pushes for increased representation of emerging nations in the International Monetary Fund – which will pressure some of these economic separatists to administer this “economically leveling” institution and make them more responsible for global economic solutions – Europeans seem be the hardliners here: they don’t want to give up their power within the IMF.

With so many countries feeling their oats – perhaps with a smiling and vengeful tablespoon of comeuppance at the notion of a pleading and needy America that used to bully them all over the map – America is forced to rethink how to get policy changes without having the ability to dictate the results. One European official, engaged in the talks, summarized for the Times: “We have come to the end of a model where seven advanced economies can make decisions for the world without the emerging countries…Like it or not, we simply have to accept it.” It does appear as if a good many of these emerging nations have elected to follow the words of former US first lady, Nancy Reagan: “Just say no.”

I’m Peter Dekom, and the United States is still struggling with how to get a recession, which to many economists is officially over, to be “over” in the eyes of the American voters.