G-20 refuses to back US push on China’s currency – Yahoo! News
Is there a trade war brewing? There seems to be tension between China and the United States of America over currency valuations.
The gist of the problem is that the USA is upset with China because of the US trade deficit with China. The USA is accusing China of deliberately undervaluing her currency. The US position has been undermined as a result of Ben Bernanke’s decision to print $600billion to “boost a sluggish economy” (not that this action will work anyway).
Other nations such as Thailand and Indonesia fear that the “hot” money will flood their markets, where returns are higher. These emerging markets are more vulnerable to a crash if investors decide to pull out and move money elsewhere (Soros-style).
The dispute between China and the USA seems set to revive destructive protectionist policies like the policies that worsened the effect of the Great Depression in the 1930s. The big fear is that trade barriers (which Øbama wants to erect will send the global economy back into recession.
Whilst it seems that the G-20 nations are unable to come up with specific answers to the problems, I think that there is an obvious solution to the trade deficits: Americans need to produce more of the goods and services that are currently supplied by China.
One might not think that this is a viable solution, but I would disagree because the solution that is required is one that requires every State government to do something about the increases in taxes that have been crippling the U.S. economy during the past decade or so… I will use California, New Jersey and Massachusetts as examples. In each state where there has been increased welfare spending and at the same time there has been a hike in general taxes there has been a flight of capital. The only way to reverse the trend is to reduce those taxes and encourage entrepreneurs to set up shop so that employment opportunities will increase.