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Opinion

Clark: Obama Drops Ball at G-20 Summit

Clark: Obama Drops Ball at G-20 Summit
Chuck Muth
November 15, 2010

(Jim Clark) – President Obama didn’t do much better at the recent Group of 20 world trade summit in Seoul, Korea than his party did in the recent mid term elections. The Associated Press described the summit as “a diplomatic setback for the United States.” The main US objective at the summit was to get other nations to pressure China to stop manipulating its currency.

What’s happening is that Chinese manufacturers sell goods to US interests (Wal Mart is rumored to be buyer of about 6% of China’s gross domestic product). US buyers pay Chinese manufacturers for the goods in dollars which the sellers exchange for Chinese yuan at China’s central bank. That central bank exchanges yuan for dollars at an artificially low price (relative to China’s trade surplus) so that Chinese manufacturers can undercut competition in world markets. And indeed just a few months ago countries from Brazil to Germany were openly criticizing Chinese trade policy.

But just before Obama showed up at the Seoul summit the US Federal Reserve Bank announced that it would buy $600 billion of US Treasury securities in order to further drive US interest rates down hoping to spur the US economy. And so the other G – 20 members accused the US of manipulating its currency and they ignored China.

Emerging economies also complained that the Fed purchases of Treasury securities would push yields so low that investors, seeking higher returns, would overwhelm their fragile markets pushing up their currencies, stocks and other investments which will hurt their exports, cause inflation and create bubbles which would leave them vulnerable to a crash when investors withdraw their money. So, the US got branded as the skunk at a picnic.

I’m just a simple person but it eludes me why the Fed. didn’t just quietly lower the rediscount rate which would have been just as effective in bringing US rates further down as buying Treasury securities, would avoid their having to print money and would not have derailed the US position at the G-20 summit.

Even a simple bilateral trade agreement with close ally South Korea fizzled. Readers will recall that the US has had 60,000 troops stationed there since 1950 to protect South Korea from its neighbor to the north and maybe ought to feel they owe us something. But when it came to relaxing restrictions on automotive and beef imports from the US the answer was “nothing doing”. They will drive their Hyundais and eat kim chi. US exporters need not apply.

Obama would do well to listen to Reno banker and investment advisor Robert Barone who points out that job creation was the most important issue in the recent election. The 2008 financial meltdown unmasked two business cost issues he writes: over-taxation and overregulation. The US has high income taxation coupled with state and local taxes, a 15% payroll tax burden and now additional costs of Obamacare. Moreover every Congress and state legislature piles regulation on top of regulations which, no matter how worthless, never seem to go away.

Fixating on a weak dollar policy will not cure the problem Barone says. Other nations will just do the same thing resulting in a “race to the bottom”. The road to economic health is one of lowering the costs of doing business in the US by lower taxes, less regulation and a low-cost energy policy. “I don’t think the policy makers in DC get this” Barone concludes.

Maybe the midterm election results will give them a different outlook.

(Jim Clark is President of Republican Advocates, a vice chair of the Washoe County GOP and a member of the Nevada GOP Central Committee. He can be reached at tahoesbjc@aol.com)

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