The Commentary That Follows Is Taken From the Globe&Mail
A well-known Canadian newspaper, the Globe&Mail sent a journalist to Paris this last weekend, where the latest G-20 meeting of the major economies in the world gathered for a discussion and their representatives engaged in limited negotiations, most of them frustrated by Chinese resistance to their complaints about that country's two related problems: its cheap currency tied to the $US, and its roaring overheated economy.
As a result of the blasting Chinese GDP, the prices of global commodities --- food, minerals, energy --- have soared, causing additional problems for global recovery outside China besides its unparalled multilateral current account surplus --- almost $200 billion in 2010 ($273 billion with the USA alone). In the EU and elsewhere, not to mention in China itself, a further result has been the renewal of inflationary pressures that may force central banks to raise interest rates at a time of a slow, perilous recovery. The USA, please note, is an exception: its GDP growth rate has returned to pre-recession performance, yet inflationary pressures are very limited . . . with the major problem that we face, a serious one, a slow and disappointing reduction in our high unemployment rate: still over 9.0% 38 months after the Great Recession began, and 18 months since it officially ended.
Complaints About China's Cheap Currency
At the G-20 meeting, it wasn't just the US and the EU countries that complained about China's undervalued Yuan (called the Renimbi for foreign trade) and its disruptive fall-out world-wide. India and Brazil, two fast-growing emerging economies, maintain floating exchange rates, and their representatives voiced vigorous criticisms of the unfair competition that China's cheap Yuan cause for their own exports. On this score, the best criticism was voiced by the French finance minister:
"That can't go on too long," French Finance Minister Christine Lagarde, the host of the summit, said of China. "As is often the case with big imbalances, a system collapses."
In an unusual move that prof bug hasn't know about --- this, even though he and his wife watch the daily news out of Paris carried by the French-speaking deuxieme channel, which reported extensively on the G-20 meeting ---the Chinese representative did agree to better monitoring of global currency imbalances and somehow prevent a country like China from rolling up huge amounts of foreign currency like dollars, Yen, and Euros. True, the mechanism for "preventing" such lopsided currency-exchange rates that --- together with unusually low domestic consumption and hence uniquely high savings rates (in China's case, consumption at a staggeringly low 36% of GDP!) --- cause these huge global imbalances . Is the agreed-upon compromise just so much hot air then? Hard to know.
Oh, by the way, the rate of national consumption in Japan and Germany, which also rely heavily on export-led economic growth, is about 20% higher as a percentage of their GDP's. And the Euro and the Yen have been freely-floating against other currencies, including the $US, for years now.
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