Beggar-Thy-Neighbor Goes Global
Posted by Michael A. Kamperman on September 28, 2010
In yet another return to the 1930′s, a Beggar-Thy-Neighbor style global trade war has broken out. Right now the war is mainly focused on currencies, with the exception of a few trade spats between China and the U.S. Switzerland’s central bank has been intervening in currency markets all year to try and hold down the value of the Swiss Franc, which has come into great demand ala gold from Europeans trying to get out of the Euro. Japan has drawn a line in the sand and has printed money to buy other currencies to hold down the appreciation of the yen. Brazil is now saying it too will defend the Real from unwanted appreciation. The Fed’s plan to print enmasse after the election is driving down the dollar on world markets. Now, the Bank of England says it too is ready to return to quantitative easing. All of this is causing a surge in of all things the soon to break apart Euro, because they refuse to print….so far. The bottom line is every nation in the world is looking to export its way out of the global depression. This of course leaves unanswered the question of where is the nation willing to be the net importer? It used to be the U.S., but the Obama adminstration is wanting to become a net exporter by doubling current U.S. exports within 5 years….fat chance.
The crisis is being driven by a combination of unacceptably high levels of unemployment throughout the globe and bloated deficits throughout most of the globe. Quantitative easing can ease the deficit crisis and help with internal demand, but it cannot solve the thirst to look to others via exports to solve broken domestic economies. Unfortunately the Whitehouse is a leading proponent of wanting to solve the U.S.’s problems on the backs of others. With a chance to bring in outsiders as his new advisors the President is content to promote from within and remain insular. Don’t hold your breath for a change in policy near term. In fact, look for an escalation into an all-out trade war with China sooner rather than later.
The Whitehouse’s failure to promote aggressive policies to create jobs is making the depression worse. At the end of this week 240,000 people will lose their jobs as the part of the stimulus plan that paid employers to hire workers expires. The economy never recovered sufficiently for the companies to afford the extra workers. Where is the Whitehouse plan to extend the program or start a new one? It seems that the professorial-law-review-editor side of President Obama lacks conviction on what method is best to restore America’s economic prosperity. He has tried Keynesean stimulus spending and hasn’t seen the return he expected on his investment. Now he appears ready to try the Austrian School prescription of austerity and time. Clearly he doesn’t realize the time it will take to the end the depression could be decades if he sticks to the Tea-Party call to just stop the spending. Just ask Japan, they are about to embark on the third decade of their debt induced deflationary depression. Lacking a clear idea on how to solve one’s own problems makes it easy to look to others to solve them, but Mr. President there is no big buyer waiting to scoop up U.S. goods. The solution is to return to the consumer demand driven economy of the last 65 years. Yet the President believes this is irresponsible and that we should invest, produce, save, and export.
