Why should you care about currency wars?

Leaders from the G20 major economies are heading for the South Korean capital Seoul for their fifth summit. But have they run out of steam?

They certainly have some important and difficult issues to tackle. Arguments about currencies and the related question of international trade imbalances have generated a lot of heated debate in the run-up to the summit. And they will be difficult to resolve.

The central issue in what has been called a currency war is currencies either being driven down or prevented from rising to maintain or improve a country’s competitiveness.

The US has a central role on both sides of the argument as accused and accuser.

The US Federal Reserve has been widely blamed for driving the dollar down with policies that force down interest rates and increase the US money supply.

The effect has been to encourage investors to seek better returns outside the US, and by selling dollars to buy foreign assets, they lower the value of the US currency.

US proposal

At the same time, the US have kept up the long standing criticism of China for maintaining its Yuan at a level that they, American officials, think is artificially low and unfairly competitive.

Ahead of the summit, the US came up with a concrete proposal – quantitative limits for current account imbalances – the current account being made up of trade in goods and services plus some financial flows.

To achieve that, China would have to allow its currency to rise, exactly as the US wants.

But there is little chance of that being accepted at the summit.

There is too much opposition, from China and others too.

That is not to say this summit will not achieve anything.

There will almost certainly be an official endorsement of new rules for banks, already agreed by regulators, to make them better able to withstand storms.

It is another, and controversial, matter whether the new rules are up to that task.

Earlier action

Nonetheless, there is a view that the G20 summits have lost momentum.

Certainly, in the early stages – the first summit was in Washington in November 2008 – the gravity of the global economic situation helped to focus minds. It was still pretty scary by the time of the second one, in London’s Docklands in April last year.

Language such as “on the brink”, “the abyss”, “another depression” was widely used at the time, and some big decisions were taken quickly.

They agreed to triple the resources available to the International Monetary Fund for rescue loans.

There was also more or less coordinated economic stimulus from government spending and tax cuts.

Whether that works is controversial, but many economists think it helped prevent things turning out even worse.

Morris Goldstein of the Peterson Institute of International Economics in Washington says that without G20 coordination there would probably have been less stimulus.

He says that if a country acts alone, some of the extra spending “leaks out in terms of imports”.

He argues that G20 cooperation also helped make the effort to fix the banks more effective.

Overall, “in terms of crisis management, I give them pretty high marks”, Dr Goldstein says.

More recently, he says, the record has been much more modest.

Alistair Darling, the former UK Chancellor of the Exchequer also says that momentum of the early summits has gone, though it has to be said those early summits were the ones he was involved in.

Still, it does seem that, now the global economy has stepped back from the brink, progress is slower, and world leaders in less of a hurry to do deals.

Given the uneven nature of the recovery, and the tensions in the currency markets, it would be too much to say we are back to business as usual.

But it is certainly a lot less unusual than it was when the G20 summits got started.

 

Source: http://www.bbc.co.uk/news/business-11725352

 

 

 

What would Americans think of the French strike?

Over a million people have taken part in protests against pension reforms By Matthew Price BBC News, France The widespread protests against the French government’s plans to raise the age of retirement from 60 to 62 are part of a wider battle about the future of French society and how much the government spends to support the poor. I am going through a little bit of culture shock. For the last three years I have been based in the US. And the only protests I have covered, the only ones vocal enough to have been worth reporting on, have been angry mobs demanding the government stop spending and get out of their lives. Now, just one week into my new role as Europe correspondent, I am faced with angry mobs demanding the exact opposite – an end to government cut backs and a promise that the state will continue to provide for them. Talk about a change of scene. Oil tankers have been stranded outside Marseille for weeks The Americans could never stomach – or indeed even understand – what has been happening in Marseille. The stench of rotting oranges, old coffee grounds and the occasional soiled nappy, sticks in the nose as you walk through the narrow lanes of the old city. And every day that the rubbish collectors remain on strike, the piles of overflowing black bags and cardboard boxes grow ever higher. Wind your way past them and down to the port where 1,000 stylish yachts bob quietly, and look out across the sparkling blue waters of the Mediterranean, and you will see more evidence of these strikes – the oil tankers anchored offshore waiting for port workers to return to their posts. Then there are the petrol stations – the bright red covers strapped over the pumps which tell you they are “hors service” – out of service. Out of petrol to be more accurate. The strike is taking its toll. Will the French people finally get back what the workers want – a government that sees its main purpose as being to look after the citizens? But what Americans would also perhaps not understand, is how despite this slap in the collective face, everyday life is not on hold. Basically, it is to be expected here. “It’s France – it’s normal, huh?” one man shrugged before heading off back to work. Another, having found a petrol station with supplies said he had to drive around the city a bit, but it was okay. In fact, for a city that has been deemed the epicentre of French union militancy, there was not at first much evidence of it. Yes, there was the rubbish, and the thought in the back of your mind that you might run out of petrol, but where were the picket lines? Road blocks For three glorious hours, I drove along the coast looking for strikers and watching the wind surfers zip across the sea. At one junction leading to a fuel storage depot, a sun-tanned policeman and his swaggering colleagues told me there had been a protest earlier but they had closed it down. Eventually I ended up at a Total refinery, which I knew to have been having problems. Even here – no picket. Just the wind whipping across the massive empty car park out the front and a sign tied across the gates – “plant on strike”. The next day though came word of a shut down at the airport. Strikers had blocked the road to the terminal. This sounded more like it. A proper bit of “argey bargey a la Francaise” surely? Well, not by the time I had made it there. Within an hour or so, the strikers had forced perhaps 100 or so people to abandon their hire cars a short walk from the terminal, and then cleared off. Airport in disarray – job done. ‘Personal responsibility’ Some hours later, I received a call from the main train station. A group had plonked themselves on the tracks in front of a TGV bound for Paris. They shouted for a bit, but again soon vanished. Lightning strikes, I guess you could call them. The big question, of course, is where all this is leading? Is this indeed the big social movement that the unions say it is, a movement that in true revolutionary style will end with the overthrow of the court of Sarkozy? Will the French people finally get back what the workers want – a government that sees its main purpose as being to look after the citizens? My sense is the answer is twice, “Non”. And indeed, most French know the world has changed since the days of the all-embracing welfare state. They know the age of austerity inevitably implies an age of personal responsibility. And personal responsibility is something the Americans I have lived among for the last three years have adopted as a way of life. I am reminded of a trip I took with a truck driver – named DuWayne – from Wisconsin. One thousand kilometres (600 miles) into an epic ride across the states, he mentioned the French lorry drivers’ proclivity to strike. “We’d never do that here,” DuWayne proudly told me. “We work hard.” And it is true – they do. One year he spent 352 days on the road, in order to pay the bills. I told him that the French strike to protect their working conditions, which were far better than anything he had ever known. He looked at me, shocked, as if to say, “You mean the French have it better than us?”   Proposed Pension Reforms:   Raise the retirement age from 60 to 62 by 2018 Raise the security contributions qualification from 40.5 to 41.5 years Raise the age pensioners can receive a full state pension from 65 to 67

Source: http://news.bbc.co.uk/2/hi/programmes/from_our_own_correspondent/9118869.stm

Oil price drops on recovery fears

The price of oil has dropped to below $72 a barrel, its lowest level in more than two months, on renewed fears about the strength of the global recovery.

US light crude fell by $1.4, or 2%, to $71.66 a barrel, while London Brent dropped by the same amount to $72.26, after disappointing US home sales data.

Figures showed that existing home sales fell by 27% in July compared with the previous month, to a 10-year low.

The figures also pushed shares on Wall Street lower.

The main Dow Jones index closed down 134 points, or 1.3% at 10,045.

‘Continued pressure’

The weak housing sales figures fuelled concerns about the strength of the recovery of the world’s biggest economy.

They follow weak jobs market data and worse-than-expected retail sales figures released earlier this month in the US.

These have caused investors to question the strength of demand for oil going forward – the price of oil has now fallen by more than $10 a barrel this month.

“The shaky global economy continues to put pressure on crude prices,” said Victor Shum at Purvin and Gertz energy consultants.

Source: http://www.bbc.co.uk/news/business-11078345