WSJ: Embarrassment in Seoul - The world won't follow slow-growth, weak-dollar America.

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    Nov 13, 2010 6:54 PM GMT
    Wall Street Journal - REVIEW & OUTLOOK NOVEMBER 13, 2010

    http://online.wsj.com/article/SB10001424052748704462704575609770024501384.html?mod=ITP_opinion_2

    Has there ever been a major economic summit where a U.S. President and his Treasury Secretary were as thoroughly rebuffed as they were at this week's G-20 meeting in Seoul? We can't think of one. President Obama failed to achieve any of his main goals while getting pounded by other world leaders for failing U.S. policies and lagging growth.

    The root of this embarrassment is political and intellectual: Rather than leading the world from a position of strength, Mr. Obama and Treasury Secretary Timothy Geithner came to Seoul blaming the rest of the world for U.S. economic weakness. America's problem, in their view, is the export and exchange rate policies of the Germans, Chinese or Brazilians. And the U.S. solution is to have the Fed print enough money to devalue the dollar so America can grow by stealing demand from the rest of the world.

    But why should anyone heed this U.S. refrain? The Germans are growing rapidly after having rejected Mr. Geithner's advice in 2009 to join the U.S. stimulus spending blowout. China is also growing smartly having rejected counsel from three U.S. Administrations to abandon its currency discipline. The U.K. and even France are pursuing more fiscal restraint. Only the Obama Administration is determined to keep both the fiscal and monetary spigots wide open, while blaming everyone else for the poor domestic results.


    The American failure was most acute on trade, as the U.S. and South Korea couldn't agree on a bilateral pact that the two countries had signed three years ago. Mr. Obama had campaigned against that pact in 2008, let it languish for two years in office, and now suddenly wants the South Koreans to agree to new terms.

    But the Koreans aren't pushovers, and they want new concessions from America in return. They also see a less urgent need for a trade pact with the U.S. because, while Mr. Obama has fiddled, the Koreans have been negotiating other trade deals with all and sundry—not least a pact with the European Union that carries nearly identical terms to what the Bush Administration negotiated in 2007. Mr. Obama's negotiators left Seoul empty-handed.

    Meanwhile, China and other Asian economies see first-hand that rather than spurring more U.S. growth (on which Asian exporters still depend), U.S. monetary ease has flooded the developing world economies with dollars they're not able to absorb; produced exchange-rate turmoil to the detriment of the region's traders; and sent the world's dollar-denominated commodity prices climbing.

    Far from distancing himself from this Federal Reserve policy, Mr. Obama defended it more than once. "From everything I can see, this decision was not one designed to have an impact on the currency, on the dollar," Mr. Obama said in Seoul. "It was designed to grow the economy."

    But this defense will only confirm to most of the world that the goal of U.S. monetary easing is solely domestic and political. Isn't the U.S. central bank supposed to be independent? Mr. Obama may come to regret his political embrace of Fed Chairman Ben Bernanke if commodity price increases flow through to consumer prices and leave Americans feeling poorer than they already feel.

    The Administration's dubious monetary theories also led it to waste valuable political energy pushing an unlikely deal with China to revalue the yuan (and devalue the dollar). Instead Mr. Obama could have argued for reforms to China's capital account that would do some genuine good. China's exchange rate by itself has not contributed to global imbalances, but China's capital-account regulations have.

    In particular, the fact that Beijing sterilizes capital inflows and recycles them into U.S. government debt instead of allowing capital to enter and exit more freely contributes to a global misallocation of resources. Mr. Geithner is too busy focusing on the exchange rate to notice, let alone to respond to Beijing's complaints about U.S. monetary instability by challenging China to liberalize its own capital account.

    The world also rejected Mr. Geithner's high-profile call for a 4% limit on a nation's trade surplus or deficit, which would amount to new political controls on trade and capital flows. This contradicts at least three decades of U.S. policy advice against national barriers to the flow of money and goods. We don't like to see U.S. Treasury Secretaries so completely shot down by the rest of the world, except when they are so clearly misguided.

    ***
    None of this should be cause for celebration, because a world without American leadership is a more dangerous place. The U.S. is still the world's largest economy, the issuer of its reserve currency, and its lone military superpower. No other nation has the will or capacity to lead the way the U.S. has for 70 years, so faltering American influence will produce a vacuum in which every nation can seek narrow advantage.

    If Mr. Obama wants to restore his economic leadership, both at home and abroad, he needs an urgent shift in priorities. Strike a deal with Republicans to extend the current tax rates across the board, pursue the spending cuts proposed by his own deficit commission, end the regulatory binge that has constrained America's animal spirits, stop trying to direct capital toward political mirages like "green jobs," and press Congress to pass the Korean and other trade pacts.

    The world will follow American leadership again only when it sees policies that restore robust U.S. economic growth.
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    Nov 13, 2010 7:15 PM GMT
    Just another signal that the era of American dominance is on the wane.

    The US is going to have to get used to more of this- and i don;t think they are going to like the dose of reality. The Case for Goliath ( a book that argued the US has a responsibility be the "world's policeman") has been lost.


    This G20 merely reflects that new reality - and how unprepared the US is for it.
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    Nov 13, 2010 7:24 PM GMT
    UpperCanadian saidJust another signal that the era of American dominance is on the wane.

    The US is going to have to get used to more of this- and i don;t think they are going to like the dose of reality. The Case for Goliath ( a book that argued the US has a responsibility be the "world's policeman") has been lost.


    This G20 merely reflects that new reality - and how unprepared the US is for it.

    That is a fair interpretation based on current US policies. The editorial does suggest that the situation will change when the US again pursues "policies that restore robust U.S. economic growth", although countries such as China will remain a force to be reckoned with.
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    Nov 13, 2010 7:30 PM GMT
    southbeach1500 said
    UpperCanadian saidJust another signal that the era of American dominance is on the wane.


    Hmmmm.... I wonder if any of the usual American liberals on here would agree with you.

    I think some of the libs would not only agree but enthusiastically celebrate. Whatever knocks the country down a peg or two is music to their ears.
  • rnch

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    Nov 13, 2010 9:14 PM GMT
    UpperCanadian saidJust another signal that the era of American dominance is on the wane...
    icon_exclaim.gif

    the good ol' USA should immediately stop sending any and all foreign aid dollars now being sent to foreign countries that do not back us up 100%.

    those dollars are far more needed in this country, helping out OUR poor and unfortunate than supporting ungratefull foreign countries.

    icon_exclaim.gif
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    Nov 13, 2010 9:20 PM GMT
    Socal again you slag those liberals with a falsehood, "Whatever knocks the country down a peg or two is music to their ears. " and then complain about the decorum on political topics. If you don't want to set the house on fire, stop playing with matches!

    Yeesh.

    As far as a devalued dollar goes, if your dollar is lower your goods are cheaper on the international market, great for exports and....job creation. Canada's conservative groups were having a fit that our dollar was going up to the point of approaching par with yours. It meant less exports to the US, resulting in Canadian lay-offs and rising unemployment.

    When our dollar was only 65 cents US, your big corporations shut down offices and jobs in the US and moved 'em up here to "Mexico North" as they called us, for the cheap labour. They could pay, for example, 7 dollars US an hour up here instead of 10 US dollars an hour down there.

    Now here's food for thought..if our dollar keeps going up, and the US dollar is only worth let's say, 75 cents Cdn, then Canadian companies will do the same and close offices up here and open 'em down there (can you smell job creation?) due to the exchange rates. As well, companies like JP Morgan with huge call centers up here will move those back to the US because the exchange rate will make their Canadian employees too expensive (can you smell more US job creation?).

    -Doug

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    Nov 13, 2010 9:35 PM GMT
    Lastly, there's this: your country has often been thought of as, "Hey, big spender" icon_wink.gif because your high dollar meant you could consume consume consume and other countries just loved selling stuff to you (Canada, China etc). Well, now you're becoming vendors and they don't want to buy from you when they'd rather suck you dry by selling to you. As well, you're going to be able to undercut their prices, which means their huge economic successes from selling you stuff are going to take a hit. No wonder they're mad.

    -Doug
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    Nov 13, 2010 11:31 PM GMT
    meninlove said Socal again you slag those liberals with a falsehood, "Whatever knocks the country down a peg or two is music to their ears. " and then complain about the decorum on political topics. If you don't want to set the house on fire, stop playing with matches!

    Yeesh.

    Well I think you have a point. I was a bit less than my normally charming self. icon_biggrin.gif When I said "some of the libs" it could reasonably be interpreted that I was referring to specific RJ members. I wasn't.

    There is, however, a view among conservatives that some liberals often run down the country. (I'm sure liberals will disagree or give reasons to support their positions.) We sometimes refer to them as the "blame America first" crowd. I could list some examples and point to some links, but that would likely start a whole new round of debates. So suffice it to say that is a viewpoint among conservatives, that I'm sure liberals do not agree with, and leave it at that.

    Regarding the effects of policies under discussion, I think most are aware of the impact and how in the short-term, at least, the policies could work in the US's interest. I have to admit I sometimes take the view that we (US) should look out for ourselves first, and if others don't like it, too bad. However in this case, my opinion is consistent with the WSJ editorial.
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    Nov 14, 2010 1:16 PM GMT
    rnch said
    UpperCanadian saidJust another signal that the era of American dominance is on the wane...
    icon_exclaim.gif

    the good ol' USA should immediately stop sending any and all foreign aid dollars now being sent to foreign countries that do not back us up 100%.
    icon_exclaim.gif


    Except for Israel, which is by far the country receiving aids that most closely aligns its beliefs with Americas beliefs. Just sayin icon_cool.gif