Geithner at G20 Warns of Imminent Beggar Thy Neighbor Currency Policies

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As much as I have been a consistent critic of Geithner in his role as one of the chief enablers of the banking industry, he deserves credit for this succinct remarks at the G-20 via Bloomberg (hat tip reader Scott):

In a sign of tension among the world’s economic policy chiefs, Geithner flagged concern that others are turning to cheaper currencies and fiscal restraint, leaving their rebounds reliant on foreign rather than domestic buyers for strength.

“Stronger domestic demand in Japan and in the European surplus countries” is needed, Geithner said in a June 5 press briefing in Busan. “The value of the G-20 is to help each of us individually recognize the importance of economic policies that are in our broad collective interest.”

The conundrum is that governments are all trying to harness a rebound in trade, which the Netherlands Bureau for Economic Analysis last week estimated grew 3.5 percent in March, more than double February’s pace.

His comments highlight a related issue. The oft-cited Reinhat/Rogoff work on financial crises shows a strong correlation of high international capital flows with more frequent and severe financial crises. While it is in theory possible to have robust international trade without large international capital flows, that would require countries to run only small trade surpluses and deficits.

In the wake of a period of high international capital flows and increasingly intense financial crises, the remedy seems to be not merely to go back to status quo ante, but for a region that had been close to being in trade balance, the eurozone, to endeavor to go into a large surplus as a way to finesse addressing its internal imbalances. Needless to say, this does not bode well for economic stability.

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58 comments

  1. purple

    A Chinese-based solar company just got a huge contract to supply Shanghai with solar. America-based companies shut out. China simply doesn’t care want Geithner wants, or says, no matter how much he stamps his feet. Or how much Obama speechifies about an export-led recovery. The US elite smugly dismantled its domestic productive capacity thinking that ‘money (the dollar) and knowledge is power’. We shall see. There are many smart people in the world who are capable of design, and many more coming on-line as the huge populations of Asia enter the world economy.

    1. alex

      “A Chinese-based solar company just got a huge contract to supply Shanghai with solar. America-based companies shut out.”

      But of course if Americans have domestic content requirements for infrastructure and stimulus projects it’s the Evil Dreaded Protectionism. If China does it it’s business-as-usual and ignored by the supporters of so-called free trade.

    2. alex black

      China smiles politely and then does whatever it wants to. Europe just straight up gave Timmy the middle finger this weekend.

      I almost felt bad for Timmy, as yes, he actually seemed to be making sense.

      Europe can beggar thy neighbor all it wants looking for an importer. But who will import? Americans getting new HELOCS out of their rapidly rising home values?

      I have to wonder if they’re just trying to jawbone up their soon-to-be-sinking sovereign bond ratings, or if they genuinely mean to strap on their seat belts for the little deflationary ride.

      “Calling Dr. Krugman. Emergency. Dr. Krugman to Room 307. Patient John Maynard Keynes. Emergency. Paging Dr. Krugman.”

      Although he’s not a real doctor – he only plays one on the NY Times.

      1. alex black

        Wow, Euro at 118.90 and sinking.

        “Calling Dr. Trichet to room 604. Patient Euro. Calling Dr. Trich….. oh, cancel that – room 604 is the hospice. Never mind….”

        1. alex

          “Euro at 118.90”

          Wish I had the money to take a European vacation right now. I don’t think it’s been this cheap to do it since the early 1980’s.

        2. renting_time

          Try something a bit more current – the euro beneath the dollar (try .90 euros) is less than a decade in the past.

          And if anyone here honestly thinks that the ECB is going to prop the euro up against the dollar – well, why? Right now, eurozone banks have a balance sheet gift in terms of the exchange rates (companies like IBM have been doing this for decades, I might add – with a bit of clever choice of time spans, you just pick the peak points of various exchange rates to make the books look better than cooked), eurozone exporters (like Airbus – sorry about that, Boeing) are certainly big fans, and the EU is finished with anything that resembles a Washington consensus.

          Global economic collapse – I guess for people who see growth as the only solution, this is the only nightmare that matters.

          Personal bet – the U.S. will destroy the dollar in attempt to prove that spending beyond your means is the only way to get rich.

          1. Martin

            More over, how should the ECB prop up the Euro? Selling dollars for Euros? Why isn’t the Fed doing that, if the US thinks, that the Euro is too low? And the Fed can print dollars, the ECB can’t.

            Another possibility would be to increase the interest rate. But is this really a good idea with inflation still below the target rate of 2%? I doubt that.

          2. Timmy

            Nobody is going to do anything. Ben money printer is not big enough to saturate Chinese ability to absorb dollar and hold the peg. And China approve low Euro. The other big players are Japan and Russia. Japan is using their Yen to hold the peg. Russia is for lower euro. Arab world is flipping their middle finger on US/Israel.

            so. Dollar is floating up, and nobody can do a thing about it. The only thing Ben can do is to keep issuing Bond and printing dollar for liquidity and filling deficit.

      2. alex

        “Calling Dr. Krugman. Emergency. Dr. Krugman to Room 307. Patient John Maynard Keynes. Emergency. Paging Dr. Krugman.”

        I hate to beak it to you, but Keynes is dead. That explains a lot of our current situation.

        “Although he’s not a real doctor …”

        You sound like an M.D.

      3. alex

        “China smiles politely and then does whatever it wants to. Europe just straight up gave Timmy the middle finger this weekend.”

        I prefer the straightforward European approach, but that may just be my Western cultural upbringing.

      4. Martin

        Of course Krugman is a real doctor. A doctor is an academic grade, that you can have in almost any field. It is just especially easy to get one in medicine.

        1. Gavshire Hathaway

          Krugman a real doctor? Ha. The whole field is similar to Chiropractics.

          1. attempter

            How dare you! Krugman has a nobel-prize-type thing. It’s a legitimate Nobel, isn’t it?

            (Wait, at least “real” Nobel prizes are still legitimate, right? I mean, just because they’ve given the “peace” prize to brazen war criminals like Kissinger and Obama….hmm…)

          2. alex black

            Krugman stopped being an economist long ago, and instead became a political partisan. He still dabbles in economics, but most of his efforts seem to be a sales job for his party or politicos of choice.

            Yes, he’s a real doctor, but so are the MD’s who do research trials on new drugs, publishing the one favorable study and deep-sixing the 19 unfavorable ones.

  2. alex

    “While it is in theory possible to have robust international trade without large international capital flows, that would require countries to run only small trade surpluses and deficits.”

    Sounds good to me. Another fellow by the name of Keynes addressed that in his Bancor proposal. Far sighted (and yes I know that it was the Americans that shot it down).

    Keynes, looking on the Great Depression, realized that excessive current account surpluses and deficits were destabilizing. His Bancor proposal would have had forex adjustment mechanisms to compensate. Countries with excessive CA surpluses would have had them taxed and their currencies revalued upward. Countries with excessive CA deficits would have had their currencies adjusted downward. And it would have been done in an orderly way, rather than the panic that led to the Asian Crisis for example.

    There is nothing new about this (as Reinhart and Rogoff so thoroughly demonstrated). Insightful people like Keynes proposed serious fixes, but were of course ignored.

  3. dave

    What kind of a financial system prevented large capital flow imbalances again?

    Oh right, the gold standard.

    1. alex

      Bzzzt! Wrong!

      There were enormous capital flow imbalances during the first “great age of free trade” (latter 19th century to 1914). One of the problems that helped lead to the Great Depression was countries that re-pegged to gold after WWI. One of the solutions to the Great Depression was un-pegging from gold (countries that did so generally recovered faster).

      Gold bugs expect so much from a silly dead metal, but historical evidence show that most of it just ain’t so. Big trade/capital imbalances, financial panics and speculative bubbles all occured with the gold standard.

    2. jest

      Alex is right.

      Inflation, speculative manias, trade imbalances, etc. all can occur within a gold standard.

      You seem like a Rothbard fan. Read America’s Great Depression. He goes over this very fact vis-a-vis the UK and the British pound, and how FRBNY chief Ben Strong dealt with the imbalances between the dollar & pound, both of which were backed by metal, prior to the Depression.

      Even Austrians tacitly admit the gold standard is not fool proof.

      1. dave

        The UK went off the gold standard during the war. That was the problem. Then it compounded the problem by trying to re-peg at the original rate like nothing happened. The US central bank tried to aid them in their farce with devastating consequences for all.

        If the UK had stuck with the gold standard, or at least re-pegged at a devalued post war rate that made sense, then there would have been no problem. The problem was with boneheaded central bankers on both sides of the Atlantic trying to manipulate the gold value of their currencies.

        1. jest

          Dave-

          As I said, you need to read the book.

          The problems occured in the 20’s, before the war. The pound was under heavy pressure because the US was becoming a major repository of gold at the time. In other words, gold was leaving the UK, and ended up in the US, which boosted the dollar vs. the pound.

          To keep the dollar/pound exchange rate from spiraling out of control, the FRBNY tried to intervene by propping up the pound & making the dollar fall. The resulting dollar excesses in NY banks in part fueled the blow-off in the NYSE, among other nasty things.

          All of this occurred prior to them coming off the gold standard.

          I agree that central bankers screwed up, but that is not proof of the viability of the gold standard. Any fractional reserve system, gold backed or otherwise, will be prone to stress because bankers aren’t terribly bright people. Gold will not make these people smarter.

  4. Glen

    Well, realistically, the US never had a snowball’s chance in hell of exporting it’s way out of debt unless it was somehow able to export all the WalMarts selling Chinese trinkets, and the TBTF banks selling even more (bad) debt.

    1. jest

      It’s actually far more tragic than that.

      The US’s main export has been liquid, tradeable securities. Mainly debt, but sometimes equity. Exporting our way out of debt is highly problematic when our best export *is* debt. It’s the only thing the US makes that other countries want in spades; just look at what interest rates have done.

      It’s a subtle point most haven’t picked up on in the debate, and in the end I think that is what Wall Street & deregulation will be remembered for: triggering the destruction of our only real “export.”

      It’s a game we had no chance of winning, once we decided to financialize the economy.

  5. Timmy

    Opening firework on currency alignment. Say goodbye to Dell folks. That puppy will be crushed between HP and taiwanese competition in this coming currency battle. After that HP will join the too big to fail ala Pan-Am, Amtrak, GM, Boeing.

    Q1 PC rankings: Acer closing gap with HP


    The strongest year-over-year growth among the Top 10 OEMs was posted by Asian OEMs ASUSTeK Computer Inc., Samsung Electronics Co. Ltd., Lenovo Group Ltd. and Acer Inc., iSuppli said.

    Acer, the No. 2 ranked supplier, saw first quarter shipments increase by 47.1 percent year-over-year, giving the company a 13.3 percent first quarter market share, up from 11.1 percent in the first quarter of 2009, iSuppli said.

    Acer closed the gap with top-ranked PC vendor Hewlett-Packard Co., which was sales rise just 6.3 percent year-over-year to nearly 16 million units, good enough for 19.6 percent market share, iSuppli said. In the first quarter of 2009, HP held 22.2 percent of the market, according to iSuppli.

    http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=225402010

  6. Hugh

    Great posts. I think the US May jobs report was a killer. Meanwhile elites around the world pursue policies that are bound to fail. The Europe/eurozone is just the most obvious example of countries opting for exactly the worse wrong perscriptions. But let’s remember the US, UK, Japan, and China are right there with them. We tend to concentrate on the US case but the mad rush for the cliff has become an international phenomenon. The next shock that sends us over the edge could well come from abroad, and among the most likely candidates to do the trick Europe looms large. We are at a point where no country can fix its problems in isolation. We need global economic coordination. The US is the only country that can exercise this function. But it will never happen with Obama, the Democrats and Republicans currently in office. They are all too much part of the problem to ever be part of the answer. So looking forward we need to factor in likely outcomes given a lack of US leadership and uncoordinated responses throughout the world. I still think this points to general worldwide depression, but I would certainly like to hear alternate points of view.

    1. don

      Well stated, Hugh.

      But . . . as far as global coordination: won’t happen due to the very nature of the global economic system. Namely, competition, whether that competition is in attempts to devalue one’s currency, increase exports, etc., all done in competition with one another. After all, isn’t that at the very core of capitalism. So cooperation is ruled out not only because it runs against the grain of economy but also thus the political. The political elite will not be able to overcome this very contradiction.

      1. alex

        Keynes. Bancor. 1944.

        Already been thought out but “we” were too stupid or greedy or something to implement it. Ignore the Master at your own peril.

      2. Toby

        Agree with Don and Hugh. Basing global resource management and governance on competition precludes cooperation, and competition rules right now, for all the wrong reasons. When things get rough, the nation state will look out for number 1. Because we are almost at 7bn souls and rising, this whole model is no longer benefecial. We need systemic changes at the local and global level, changes which encourage/foster a cooperative effort, one broad enough to dig us all out of this very deep whole. That, or we face worldwide collapse. Captain, she can’t take much more of this.

        We need a new money system, one that promotes long term thinking, investment in the health of the ecosystem, is not addicted to non-stop growth, and also copes with the need for a revolution in things like education and pensions. The current system is a busted-flush; only a new one can take us forwards from this point. Delaying makes the situation worse, but humans, having been brought up in a culture of propaganda and group-think, are not going to wake up and smell the coffee. Even though all the solutions are right there in front of our noses, only deep collapse has a chance of making us sieze them.

    2. RagingDebate

      I don’t disagree with you depressionary opinion I dont believe you have been watching American politics lately Hugh. I’ll give yiu a hint. We’re pissed.

  7. Timmy

    Airbus could be close to breaking even on its troubled A380 superjumbo program five years from now if present trends–notably the stronger dollar–continue, a senior executive of Airbus’s parent company said Friday.

    Airbus is struggling to overcome issues that are hampering the industrial ramp-up of the A380, and have caused costly delivery delays and been a financial drain on the company in recent years.

    Airbus, which sells its planes in dollars but has most of its costs in euros, is benefiting from the dollar’s recent strength against the euro.

    If the dollar remains at present levels, Ring said, “That might impact very positively the whole situation.”

    Production of the A380 has been held back by technical and design hiccups that caused only 10 aircraft to come off the assembly line in 2009, compared with an initial plan for twice that number. Ring said Airbus is still aiming to deliver 20 planes “or a bit more” this year

    http://online.wsj.com/article/BT-CO-20100514-706461.html?mod=WSJ_World_MIDDLEHeadlinesEurope

    1. alex

      Cheaper euro gives Airbus a competitive advantage, but still leaves it with the minor problem that no one will be buying airplanes.

      “Airbus, which sells its planes in dollars but has most of its costs in euros …”

      Is it always done that way? Say Air India wants to buy A380’s. Is the sale price always set in USD? Given the long delivery on airplanes exchange rate changes could make a big difference. What’s to prevent the parties from choosing to set the sale price in rupees or euros?

      1. Timmy

        Top of the line model has a price tag around a third of a billion dollar. I am sure at that business level, politics, corruptions, loopholes, backroom backslapping, etc are rampant. Nobody, except the inner circles, knows what the final price in any currency.

        So, who knows.

  8. Raging Debate

    Protectionism & Deflation = Depression. About time the public got some honest information from the Treasury. Time to become Americans again and kick ass. Reinvest that dough in the banks now.

    1. alex

      “Protectionism & Deflation = Depression”

      America’s one saving grace in this may be that, judging from the First Great Depression, the creditor/trade surplus countries often suffered more (that was us back then).

    2. Bates

      “Reinvest that dough in the banks now.”

      Right, Americans are going to reinvest dollars in banks that are paying .00000000000001% on savings while charging 12% and much more on credit cards? Guess again. Americans are fed up with Wall St, Americans are fed up with DC.

      If America cannot compete with the remainder of the world because we off shored our manufacturing capacity then America screwed up big time. Time to pay the piper. Look in the mirror to see who allowed this train wreck to happen…It’s a waste of time to point fingers at Europe and Asia because they are still practicing capitalism in manufacturing while America is manufacturing and exporting credit. The world has enough credit and that is what Geitner heard at the G20.

      1. Raging Debate

        I am talking about the several hundred billion the TBTF banks are sitting on. Instead of the citizenship looking up at shiny pretty bank buildings from tent cities, release the funds for a major energy independence initiative.

        In the short-term, inflation in energy would emerge and hurt. It would pull investors off the sideline and help recapitalize the banks the healthy way by Investment Banks doing what they were designed to do instead of becoming speculative commodity traders. It would add a couple of million sustainable jobs.

        Long-term, adding supply decreases the costs of doing business. It is more like the Brazil model in how government stimulated the economy.

  9. Frank Ohsen

    “In a sign of tension among the world’s economic policy chiefs, Geithner flagged concern that others are turning to cheaper currencies and fiscal restraint, leaving their rebounds reliant on foreign rather than domestic buyers for strength.”

    Let’s see. Hmmmmm. What other viable choices do these countries really have? I mean, honestly.

    Ah, yes. Here’s what they can do.

    They have 20% – 25% of their ‘domestic consumers’ either unemployed, underemployed, or employed by their very own government, their housing markets presently de-bubbling, and the effective purchasing power of their currencies as a consequence essentially being destroyed domestically by (and who can blame them) in a race for the last bastion of consumerism out there, the over-indebted American consumer.

    There’s nothing quite as easy as making your own financially broke indebted up to their as(s)cots citizen-consumers to buy your domestically-produced refrigerators regardless if they cost 3-times as much as the U.S. version due to all the extra taxes you impose upon your very own products.

    Yeah Tim, your request is very, very, workable.

    Pass me that hopium pipe when you’re done brother, Tim. Just leave a little more this time, ok?

    TIA

    1. S.St

      exactly.

      I think all these debacle could easily been prevented had they done proper repair of US banks last year. Putting them in receivership instead of “blank check” bail out.

      They could have known a) true price / exact damage of those toxic asset. b) more importantly, they can regulate the most dangerous class of product and stop the most corrosive one.

      hence, hedgefunds/banskters singing “down with PIIGS” shouldn’t have happened. Spain for eg. had positive budget last year, all of a sudden they are hit with that deadly “spread” because of “geithner style stimulus”. (Greece obviously is a fraud case, they deserve what they have now)

      As of now, they are empowering those banskter criminals with more money than ever to destroy the remaining weak economies. (can’t really blame them, it’s very profitable shorting those PIIGS.)

      And they still haven’t fixed the US banks yet (hedge, swap, creation of more toxic trade). Zero political will.

      1. Frank Ohsen

        “…..the world’s economic policy chiefs”.

        Someone seriously needs to sit down with these top-tier policy financio/politico wonks and tell them in no uncertain terms face-to-serious-face that their global audience now not only knows what they’re seeing is Really Really Bad Kabuki the acting has gone into Extreme Kabuki Bullshit.

        You know the end is near when these Professional Extreme Kabuki Bullshitters don’t give a shit that everyone else knows it’s bullshit.

  10. Sundog

    Lots of bad debt out there, and writing it down hits Western economies’ most basic of hedges: insurance company assets and pension fund reserves.

    This as peak oil will be playing hell with the consumers of last resort, and capitalism confronts the question of whether it’s a pyramid scheme after all as the demographic profile squares off to replacement rates of reproduction.

    No worries, though. It’s all the gubmit’s fault and we’ll nuke Iran for Jeebus once we get our country back.

  11. Gaucho

    Agreed Yves. Finally the US takes a stand. It’s not possible that Europe will also rely on the US (and the US consumer) to solve its internal issues. If there is a country that needs to export more, it is the US. and you probably noticed that savings rates in the US are declining again. We didn’t learn anything from the crisis.

    1. Frank Ohsen

      “If there is a country that needs to export more,it is the US….”

      What the HELL do we manufacture anymore to export?

      Hamburgers?

      Quick, someone pass this person the hopium pipe. He’s rapidly losing incoherence.

      1. alex black

        Hey, we export Hope! Remember the swooning crowds at Brandenburg Gate when Obama gave a speech there during the campaign? They OWE us for all those good vibes they felt that day.

  12. emca

    A little off topic, but I was reading this little bit in Business Week on the labor situation in China:

    http://www.businessweek.com/news/2010-06-06/suicide-tops-2-8-million-years-work-william-pesek-update1-.html

    The article argues the expected demand for increase wages by the working masses of China is now taking shape, much to the chagrin of Walmart, Apple, H.P., et al. who, no surprise, see low wages as a unavoidable, if not desirable business model. It also argues a tricky situation for Chinese government who wants to keep their exports competitive (albeit also on the backs of laborers), but can’t gage the tipping point for mass unrest of the governed (who may have little to lose in embarking on more risky ventures or in another word, are not as yet bloated by manifestations of their own material indulgence).

    I would though suggest another scenario, that increase wages in China will result in increased consumption and that will in time take-up the slack which would (theoretically) be the resultant of increase prices on exports. Consider,with 1.2 billion people, only a small incremental increase spread over the whole would total some pretty large numbers. Add China’s Red government disinclination to share the wealth and is moreover, as it seems to this observer (and as suggested above), to be engaged in a campaign to accumulate as much raw materials, infrastructure, expertise and whatever else would ease the transition to a more internalized economy, global hegemony not withstanding.

    The only loser then would be Western consumers who after the Mo(u)rning-in-America appear to be, outside their assign roles as avarice consumers, dispensable in larger scheme of have and have-not.

  13. frequent

    Saving vs. Spending

    I guess it’s a “showdown” of what will work best to get out of the crisis. Considering what got the world into its current state, I’m more in favour of the “saving idea”, although nothing beats creating a back-up system and then orderly defaulting/deflating/devalueing the current system in my point of view. Too bad, everybody in charge thinks of re-election instead of Todos…

    More consumption

    If we all need to have 5 cars and 8 TVs (private or public debt financed) to keep the world economy afloat, look for “Cloud Atlas” (by David Mitchell – no economics, just fiction) to see one way how this could pan out. Maybe it would make sense to think of a new “business model” altogether. Oh, I forgot… also not on the political agenda anywhere.

  14. Martin

    Well, if Geithner doesn’t want the Euro to fall, HE SHOULD BUY EUROS!
    Geithner is a hypocritical asshole. The European gov’ts don’t buy up Dollars, but there is market reaction. It is much much easier for the country, that wants to have a lower exchange rate to stem against market forces, than for countries that want higher exchange rates, because you can print your own, but not foreign currency.
    Well, for not making a loss at constant exchange rate, you have to buy something with at least the same interest. There are plenty of Italian, Spanish, Greece,… bonds out there in Euro, that the US could buy. The fact, that nobody wants to buy them, is the very reason for the declining in the Euro rate.

    It is completely beyond, how you, Yves, can agree with Geithner with respect to the Euro exchange rate, and who is responsible for it. And btw. a more expansionary fiscal policy in Europe would reduce the Euro rate further.

    1. Yves Smith Post author

      Martin,

      It would help if you related your comment to the post rather than setting up straw men. Did Geithner say he wanted the euro stronger? No, he said he wanted surplus countries to consume more. That would support global rebalancing.

      Moreover, it is central banks, not the Treasury, which engages in currency intervention.

      And if the US were to want to drive the euro up, single country action would fail, particularly from a country with little firepower (FX reserves) like the US. But coordinated actions have been quite effective in the past.

      Moreover, your assumption about fiscal deficits is incorrect. It would raise the inflation rate and the GDP, both of which would support the currency.

      The US also does not need to resort to bolstering the euro via intervention if we think the eurozone is de facto using its currency to gain unfair trade advantage. Protectionism like tariffs works just fine.

      1. Martin

        It would help if you related your comment to the post rather than setting up straw men. Did Geithner say he wanted the euro stronger?

        In a sign of tension among the world’s economic policy chiefs, Geithner flagged concern that others are turning to cheaper currencies and fiscal restraint, leaving their rebounds reliant on foreign rather than domestic buyers for strength.

        Either I don’t understand what this means, because my English isn’t good enough, or this sentence means, that Geithner accuses other countries of devaluation of their respective currency. The next sentence speaks of Japan and European surplus countries – most of which are in the Eurozone.

        Moreover, it is central banks, not the Treasury, which engages in currency intervention.
        Just because it is a historical pattern doesn’t mean it is the right way to do it. I don’t know the laws in the US, but I doubt, that buying foreign currency is explicitly forbidden to the gov’t. As there is the risk of losing money with this operation it should be fiscal or the treasury would have to promise to the Fed, that they would make the Fed’s balance sheet whole, for every loss on this operation.

        And if the US were to want to drive the euro up, single country action would fail, particularly from a country with little firepower (FX reserves) like the US. But coordinated actions have been quite effective in the past.
        The US doesn’t need FX reserves for this. It just needs dollars. You sell dollars and buy Euros. Of course the Dollar will then as well loose against other currencies, like the Real or whatever, but this would be acceptable, wouldn’t it?

        Moreover, your assumption about fiscal deficits is incorrect. It would raise the inflation rate and the GDP, both of which would support the currency.
        Why is the Yen not much much lower, if deflation means lower exchange rates? With which intent should anybody prefer to buy a currency with higher inflation rather than one with lower inflation?
        Well, the higher real GDP could help, but there could be serious adverse effects, if this results in increased expectation of default. You can now read speculation in the newspapers, that even France might loose its AAA rating, and actually Germany is only protected from loosing its AAA rating, because Germans are like they are. If Germany would change its manner, I would expect, that Germany looses as well any save haven status and AAA rating. This would send the Euro down for sure.

        The US also does not need to resort to bolstering the euro via intervention if we think the eurozone is de facto using its currency to gain unfair trade advantage. Protectionism like tariffs works just fine.
        In contrast to currency interventions, this would be against international treaties. However, why then is the US gov’t complaining about China’s currency manipulation? In this case, it shouldn’t matter, if you can buy the renminbi or not. And the bilateral asymmetry in trade is likely larger between China and the US rather than Europe and the US.

      2. Martin

        In addition: How did you make the title of the post:

        “Geithner at G20 Warns of Imminent Beggar Thy Neighbor Currency Policies”

        when his comments aren’t focused on exchange rates, but on fiscal policy?

  15. Timmy

    Dow Chemical is toast. Will get squeezed out in asia and europe while US market is going sideway. no growth. Oil price/raw material is also not helping dow.

    Dow CEO Says ‘Stop Panicking,’ Demand Is Improving

    Dow Chemical Co., the world’s second- largest chemical maker, said financial markets shouldn’t panic over the European debt crisis or Chinese growth because company sales indicate consumer demand is improving in both regions.

    April sales topped the monthly average in the first quarter, and May probably beat April, Chief Executive Officer Andrew Liveris said today in a webcast from New York. June order books show the gains are continuing, he said. Emerging markets are leading the recovery, and demand in Europe and North America is improving, Liveris said.

    “When I come to Wall Street, I feel like the sky is falling. When I go back to Main Street, everything is fine, folks. Stop panicking,” Liveris told investors gathered at the Goldman Sachs Basic Materials Conference. “Demand is good.”

    Improvement in European demand is allowing price increases, and a weaker euro boosted Dow’s exports from Germany, Liveris said. U.S. consumer spending is rising on everything from appliances and cars to electronics, he said. April sales volumes for coatings and infrastructure materials rose 12 percent, leading gains.

    http://www.businessweek.com/news/2010-06-02/dow-ceo-says-stop-panicking-demand-is-improving-update4-.html

    1. Raging Debate

      The sky is falling for Wall St. because the easy money, circle jerk days of doing business are coming to a close. My Lord, what will THEY do when they have to actually invest in companies for the long-term again! Oh the horror…

      As for Main St., they are flat on their back. A guy like Liveris doesn’t cohort with Main St. Perhaps Dow should get back into conducting consumer market research as they once did to get a clue. I also loved Dow at one time. They brilliantly conducted research into how much each person could handle in close relationships (7) and loose relationships (150) and built the manufacturing plants accordingly. They traded a successful model for short-term profits like every other major corporation.

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