G20 Opposed To Fed QE2

Reuters reports in an article entitled G20 Finds Common Ground Opposing Fed that the Fed announcement to purchase 600bn in treasuries does not share in the ideal of the members sharing common ground in terms of responsibilities toward the global economic recovery, fearful that the Fed move will cause large capital inflows into countries like China and Brazil and make their exports less competitive.

Although these arguments at face value are good arguments, if thought about with rationale for more than just a second any validity is thrown like money from a helicopter. First, because the Fed is not a government entity and this is not government stimulus. Contrary to popular belief, the Fed only shares a common mission with the U.S. government in it’s recent announcement to purchase treasuries and that is to hopefully stimulate the economy and put Americans back to work.

Another very important factor is that the Sino-US trade imbalance has been growing for almost a decade and the deliberately manipulated currency of China, who maintain tight currency controls, is a leading factor. Notwithstanding the fact that introduced as congressional testimony for years running, the US government has failed to take action declaring China a currency manipulator before the WTO, an action that could ignite cold war style sentiments between the two largest economies of the world.

Finally, leading the global recovery are precisely China, Brazil and even Germany, the countries that complain about the Fed announcement the most, countries that while experiencing high levels of GDP growth do not appreciate the Fed effort of elevating the US out of a stagnant or stalled recovery.

Technorati Tags: China,Economy,Fed,QE2,US,Headline Reviews,News,Politics,G20

Developing Economies Owed No Explanation To Fed QE2 at G20

A recent article in BBC News entitled China, Germany and South Africa criticise US stimulus reports that China, Germany, Brazil and South Africa have criticized the Fed plan to pump $600bn into the United States Economy in an effort to kickstart growth.  Further reported is that China’s Central Bank head Zhou Xiaochuan has "urged global currency reforms."  If this is the case, the China’s Central Bank head should allow the Chinese Yuan Remnibi to appreciate to its full value, as many economists believe the yuan is undervalued anywhere from 20 to 50%!  Therefore, America’s position at the G20 should concur with China’s Central Bank head recommendation, beginning with currency reforms in China.

Interestingly enough, Bloomberg goes on to report in`Hell Week’ Ends With Central Banks Split on Recovery Policies:

China’s Vice Foreign Minister Cui Tiankai yesterday demanded an explanation from the Fed because “many countries are worried about the impact of the policy on their economies.” Brazilian Finance Minister Guido Mantega said this week that Bernanke is throwing “money from a helicopter.”

If the Fed is throwing money from a helicopter, then China’s Central Bank by deliberately pegging the yuan to the dollar in times of need and then allowing it to float during times they determine safe coupled with Brazil taking advantage during the exchange rate crisis of 2008 is parallel to the Chinese and Brazilian Central Banks committing "highway robbery."

China and Brazil are hardly  in positions to complain about the Fed QE2 while their economies enjoy nearly 10 and 8% growth rates while the United States is not even at 3%.  Bloomberg further reports that:

[E]merging markets account for a third of the global economy, yet two thirds of its growth. Keen to maintain that advantage, officials from Asia to Latin America prepared for stronger currencies and asset-price inflation as they criticized the Fed’s policy for pushing a flood of capital into their already robust economies.

Apparently, as long as emerging markets maintain their advantage of trade surpluses while the U.S. suffers from severe trade imbalances due to manipulated currencies, all is "hunky dory."  But heaven forbid the U.S. try to place its people back to work by stimulating an anemic economy because to do so, emerging markets like China hypocritically state "[i]t would be appropriate for someone to step forward and give us an explanation, otherwise international confidence in the recovery and growth of the global economy might be hurt."  The global economy or China’s economy?

Here are some important facts for the United States to consider at the G20 meeting in Seoul:

China’s GDP grew from 1.2 trillion in 2000 to 4.3 trillion in 2008, which is close to 300% growth. For the same period U.S. GDP grew from 9.7 trillion to 14.2 trillion, which is 45% increase.

U.S. trade deficit with China grew from $125 Billion in 2003 to 270 Billion in 2008. Foreign direct investment in China grew from $38 billion in 2000 to $138 Billion in 2008, a 250% increase. Per capita income increased from $2330 in 2000 to $6020 in 2008. China has a stable political environment since 1990. China’s foreign reserve increased from $623 Billion in January 2005 to $2.3 trillion in September 2009. All the economic factors indicate that Chinese Yuan value should strengthen and leads us to believe, that had it not been pegged to U.S. Dollar, the Chinese Yuan would have appreciated.

Developing economies are owed no explanation to Fed QE2 at the G20 summit in Seoul.  The U.S. position should be that Central Banks who encourage currency reforms while experiencing near double-digit growth in large part due to manipulated currency creating enormous trade imbalances begin with a "balancing act."

Explanation indeed!

Technorati Tags: China,United States,Brazil,Fed,QE2,Emerging Markets,Economy,Yuan Remnibi,Currency Manipulation,Global Economy,U.S. Dollar