Opinion

Chrystia Freeland

Summers says currency interventions rarely end well

Chrystia Freeland
Oct 7, 2010 18:28 UTC

“When governments seek to manipulate exchange rates for competitive advantage, it rarely ends well,”  White House economic adviser Larry Summers said at the Yalta European Strategy Annual Meeting this past weekend.

Summers stressed the need for reducing global imbalances, which require both smaller surpluses in surplus countries and smaller deficits in deficit countries. Regarding the U.S. economy, Summers reiterated President Obama’s pledge to double exports in the next five years. He added that growth, “while still clearly unsatisfactory, is positive. The economy is growing. The process of recovery is underway.”

When I asked Summers if he is worried about America’s budget deficit, he said only in the long term. In the short term, Summers says the focus must be on growth:

There is no prospect that we will achieve fiscal health without the restoration of satisfactory growth in the United States and in the rest of industrialized world. That’s why putting people to work is also a central imperative for our economy. I think that other nations have to recognize that as the United States reduces its budget deficit, that, of course, means the government will be providing less of the demand energy that pushes the economy further. So that demand energy will have to come from other places, which goes to the question of the global growth strategy, goes to policies in other countries that either promote surpluses or very severely limit trade deficits and rely on the rest of the world, including relying on the United States, for growth.

Stiglitz says Fed policy is competitive devaluation

Chrystia Freeland
Oct 7, 2010 16:48 UTC

U.S. monetary policy is flooding the world with cheap liquidity, Nobel Prize-winning economist Joseph Stiglitz said at the Canadian Consulate’s “Invest in Canada” luncheon yesterday. Our current policy, he explained, acts as a competitive devaluation against emerging-market currencies. Stiglitz added that he is worried about the prospect of a currency war but conceded that there’s not anything we can do about it.

Stiglitz went on to say that what the Fed is doing is not so different from China’s interventions in the foreign-exchange markets and accused the U.S. central bank of undermining global financial market integration and only acting out of a sense of guilt:

The Fed, having created the problem in the first place, feels guilty and says, ‘We should do something to get us out of the mess.’ [...]   [Emerging markets] see this as competitive devaluation of the United States.  We say, ‘No, no.  We’re not engaged in competitive devaluation.  That’s something China does.  We don’t do those kinds of things.  We don’t manipulate our currency.  All we do is ordinary monetary policy.’  But the consequence of ordinary monetary policy is competitive devaluation.

IMF head: renminbi is very undervalued

Chrystia Freeland
Oct 6, 2010 22:45 UTC

The Chinese renminbi is “substantially undervalued,” IMF Managing Director Dominique Strauss-Kahn said at the Yalta European Strategy Annual Meeting. But, he added, too often that’s used as an excuse by rich countries to postpone structural reforms that would restore competitiveness:

The question of a revaluation of the renminbi should not be used as a curtain behind which you’re hidden to avoid to do what you have to do in your own country.

Strauss-Kahn noted that even a one-off revaluation of the renminbi by 20% would not right the world’s imbalances. Recently, while China’s trade surplus has decreased, America’s trade deficit has not.

Video: Steve Rattner says government rescues worked

Chrystia Freeland
Oct 1, 2010 19:00 UTC

In an exclusive video interview, Ex-Car Czar Steven Rattner tells Chrystia Freeland that without government intervention via TARP the economy would be ”dust.”

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