STAFF NEWS & ANALYSIS
What's Behind the US Currency Promotion?
By Staff News & Analysis - October 25, 2010

US fails to win support for currency agreement at Group of 20 … The Group of 20 has reached an agreement Saturday to refrain from devaluing their currencies competitively and will also provide the developing world with greater say in the activities of the International Monetary Fund (IMF), which monitors global currency stability. Although the G20's currency agreement will give some solace to the United States, which is engaged in a high-profile currency disagreement with China, stronger measures introduced by the US were opposed by several countries, including China. The United States had wanted to introduce an agreement whereby members of the Group of 20 would have to limit current account balances to 4% of GDP, a proposal clearly targeted at China, which is accused of devaluing its currency to prop up its trade surplus, which is at record amounts. – Karachi News.Net

Dominant Social Theme: This is great! Everybody said they'd agree to agree about agreeing. We agree too. The crisis is ovah.

Free-Market Analysis: We wrote just the other day how China's intransigence when it came to putting numbers to interest rates, purchasing dollars or printing yuan was a significant event in the erosion of the Western power elite's dominance over the rest of the world. This Kaarachi News article excerpted above, documents that diminishment. But it is in stark contrast to a number of other articles, hundreds and even thousands of them, that declared the recent Korean G20 meetings a success. Here is one from the Washington Post that is a good deal more upbeat:

G-20 powers agree to Geithner (Above left) currency and trade plan … Finance ministers from the world's major nations agreed to a U.S.-brokered plan for easing tensions over exchange rates and world trade patterns, saying that a "fragile and uneven" economic recovery was at risk if top powers pursued conflicting policies or used the value of their currencies to gain an edge for their exports.

Aiming to head off what some have dubbed a developing "currency war," the statement from the finance leaders of the Group of 20 nations was a carefully worded bargain across a range of issues. It put China on the record as seeking to bring down its massive trade surplus and let its exchange rate fluctuate more. It also hinted that any move by the U.S. Federal Reserve to further ease monetary policy would be measured so as not to disrupt currency values or capital flows in emerging market nations.

From our point of view, the US is basically devaluing the dollar and asking other countries to go along with it, while taking haircuts on their own dollar holdings. Additionally, the US, basically, is asking other countries to suffer for ongoing US profligacy. A cheaper dollar offloads the US's dysfunctional monetary system onto the rest of the world. Finally, the US and Britain, too, may be embarked on a back-door campaign to make the dollar so fragile that the rest of the world will find an IMF SDR or bancor preferable. In this case, the dollar would be removed as the world's reserve currency. Perhaps to this end, the IMF recently announced a "surprise" overhaul to IMF power sharing, as follows:

G20 agrees historic reform of IMF … The Group of 20 leading economies has reached a surprise agreement on a landmark reform of the International Monetary Fund to give a bigger voice to developing countries, reflecting a broader shift of global economic power. European countries will give up two of their eight seats on the 24-member board, giving more weight to emerging powers such as China and India. Over 6 per cent of IMF voting power will be transferred to underrepresented countries at the fund. China will become the third-biggest member of the 187-strong institution.

In a deal concluded in the South Korean city of Gyeongju, the G20 also agreed to double the IMF's $340bn quotas, which will put it in a better position to cope with future financial crises. … After the changes take effect, Brazil, Russia, India and China will be all included in the fund's 10 biggest shareholders. The US, with a 17.67 percent share of IMF quotas, will retain its veto power for the fund's key decisions as they will continue to require a super-majority of 85 percent.

Of course the Anglo-American axis still retains control of the World Bank, Bank for International Settlements and sundry appurtenances of the global money system including the United Nations itself. Additionally, the US is fully in charge of the world's reserve currency. So much of what has been written and discussed recently is just "gilding the lilly" – as we can see in the Post article, above. The only real news to come out of the meetings of the past week was that Chinese would not cooperate and said so. That's a big deal in our view. We reported on that here: The Day the Earth Shook: China Dictates to G20.

The great game goes on, of course. Yesterday, Treasury Secretary Timothy Geithner met again with Chinese officials on the currency issue. The Daily News From Korea reports the following: "U.S. Treasury Secretary Timothy Geithner and Chinese Vice Premier Wang Qishen have met in eastern China to discuss economic relations that have been strained by a currency dispute. Geithner and Wang held brief talks Sunday in the city of Qingdao, where the U.S. official made a stop-over after attending a Group of 20 finance ministers meeting in South Korea."

The simplest explanation of all this activity is that the US is worried about a trade war for which it will be blamed. In order to make sure that doesn't happen, it has to strong-arm the rest of the world into accepting its devaluations. The second explanation is that the US is raising the issue in order to blame China for the continued unraveling of the world's financial situation. The third explanation, as we indicated above, is that the Anglo-American axis does indeed intend to ruin the dollar and is laying the groundwork for an IMF currency of some sort.

All of these explanations (and others we have not thought of) have extensive ramifications for the world community and of course savers and investors, especially those in dollar denominated securities. Here at the Bell, we are power elite meme watchers and this is a promotion of some sort. Yes, it is an obvious promotion. The power elite is trying hard to create some sort of sub dominant social theme, as regards global currencies, a nascent trade war, etc.

The easiest interpretation is that the US wants China to do just what it has asked China to do repeatedly, raise the value of the yuan relative to the dollar. Since China has now apparently unpegged the yuan, there seems to have been some movement on the Chinese side, though not enough. Additionally, China's resolve, as we have stated, to maintain its own yuan policy despite US hectoring is proof positive that the Anglo-American axis does not have the clout to shove the Chinese around behind the scenes. (And China is in fact shoving back with its suspension of militarily important "rare earth" supplies.) Times have changed.

Yet what else has changed? The Anglo-American axis remains in control of the global financial infrastructure; China and other BRIC countries continue to defy the Western powers-that-be by basically going their own way (despite endless negotiations); and the West still controls the IMF despite the internal shuffles. Presumably this still means the world is headed toward some sort of currency and trade confrontation.

Despite all the negotiating and reporting, the US remains committed to printing trillions of additional dollars that will inflate domestic stock and bond marts and weaken the dollar against other major currencies, including India's Brazil's, Russia's and China's. US and British elites, in our view, are probably concerned at the prospect of continued and expanding social unrest if the economic and unemployment scenarios do not improve.

While the elites will never provide money directly to individuals, they continue to try to add liquidity to Western economies in massive amounts using various strategies. It is this "quantitative easing" that has sparked a potential trade war and placed the American Treasury Secretary on the road again. The Western elites must now juggle the prospect of increased domestic unrest against the potential for a further weakening of the global financial structure. There are apparently no easy answers.

After Thoughts

Unlike in the past, people can read about alternative, free-market economics on the 'Net; we argue regularly that this is gradually causing a revolution in cultural perceptions towards the Anglo-American system of governance and regulatory democracy in general. The underlying problem, which is the West's inability to move the economy forward, seemingly remains the elite's intractable economic issue – and the world's as well.

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