G20 - Papering over the cracks, still blaming surplus countries

There was so much in the G20 meeting over the weekend but we think comments and the communiqué still tell us the “west” for want of a better term doesn’t get it. Originally US Treasury Secretary Geithner wanted to try to reign in current account imbalances but the Chinese apparently kicked this to the curb.

You have to question whether policy makers in the advanced economies really get it. The "IT" we mean is the type of Economic Imperialism they have practicing with regard to emerging economies and particularly China over the past 20 years.

The GFC is often blamed on the global surpluses of cash flowing from the trade surpluses of China and other nations as if the other side of global trade, current account deficits, were the responsibility of the sellers. Advanced industrial economies went to Asia and more latterly and largely, China, because they had massive underpaid, by Western standards, workforces who could produce stuff for the consumers of the advanced economies cheaply. In a sense the logic that underlies this thinking relies on the Keynesian postulation of Say’s law that is “supply creates its own demand”.

But western policy makers, especially in the US, cheer led the consumerism and inflation moderation that China and other Asian nations bought to the global economy and western companies reaped massive margins and profits from these new producers. Certainly China benefitted and has turned itself into the 2^nd biggest economy in the world but continuing to blame surplus countries seems to point to a papering over the cracks rather than a recognition of culpability.

This makes BOE Governor King's speech last week all the more prescient. http://spotlight-onmarketsandeconomics.blogspot.com/2010/10/mervyn-king-is-worried-about-imbalances.html

The G20 addressed the risk from global protectionism directly in the communique saying:

"given the high interdependence among our countries in the global economic and financial system, uncoordinated responses will lead to worse outcomes for everyone. Our cooperation is essential."

And so say all of us! That's code we think for no beggar thy neighbour trade or currency policies. But high minded rhetoric may be difficult to hold in the current dire economic landscape particulalry given short termism of electorates and the

Will the Finance Ministers of the G20 who met, along with their Central Bankers actually be able to deliver co-operation if the political going gets tough or, as we may see in the US on Melbourne Cup day, the dynamics and makeup on Capitol Hill change after the mid-term elections. We hope so