Treasury Secretary Timothy F. Geithner called for cooperation to rebalance currency markets and warned of a “damaging dynamic” of competitive weakening that could limit global growth.“More and more countries face stronger pressure to lean against the market forces pushing up the value of their currencies,” Geithner said in a speech yesterday in Washington. Currencies are “inherently a multilateral issue” that is “much easier to solve if countries come together.”
Global exchange-rate policies are a source of contention ahead of this week’s meeting in Washington of the International Monetary Fund, World Bank and Group of 20 officials. Brazil’s Finance Minister Guido Mantega last week warned of a “currency war” as governments in Asia and Latin America seek to spur exports and economic growth.
This is the latest development in a multi-pronged story. I believe it started with the Brazilian statement regarding a currency war, although the US House's action on raising tariffs on Chinese imports may have also started the wave. Now we have the US Treasury Secretary entering the fray.
I think it's great that this issue is now out in the open.
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On the other hand, I can't help but think our world leaders are squabbling over an economic theory that was shown to fail back in the 18th century.
GDP equals consumer spending plus capital investment plus government spending plus exports minus imports, yes? Consumers aren't spending because they're jobless and tapped out in debt. Investors aren't investing because consumers aren't spending. Democratic governments are fighting austerity movements; so much for stimulus spending. So what's that leave? Exports! Yes! Exports will lead us to salvation!
Dude, that's mercantilism. It's impossible for every country to export its way out of economic slowdown at the same time. It's politically palatable to these stubbornly deadlocked governments, but it just won't work.
Something far more dysfunctional is at work here. I doubt a little dialogue over currency will change anything, considering how sooo cooperative everyone was the last time around. But mercantilism is unsustainable. The endgame could be decades off, but I feel some pressure building up that's leading to no good.
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