NIALL FERGUSON
19/11/2008 1:00:00 AM
Future historians, I suspect, will look back on Saturday's anticlimactic G20 gathering in Washington, DC, less as Bretton Woods 2.0 and more as a rerun of the London Economic Conference of 1933.

Back then, representatives of 66 nations completely failed to agree on a concerted international response to the Great Depression. The fault lay mainly with the newly elected US president, Franklin D. Roosevelt, who vetoed European proposals for currency stabilisation.

This time around, it wasn't the newly elected Democrat but the outgoing Republican who wielded the veto. Even before his counterparts reached Washington, DC, President George W. Bush made it clear that recent events had done nothing to diminish his faith in free markets and minimalist regulation.

At the weekend, it was the United States that resisted European calls for a new international regulatory body, opposed significant redefinition of the International Monetary Fund's role and showed no interest in the idea of a global stimulus package.

A real opportunity has been missed. Just as happened in the 1930s, what began as an American banking panic has now escalated into a global economic crisis. And just as happened in the 1930s, a lack of international coordination has the potential to turn a recession into a deep and protracted depression.

The problem that seems scarcely to have been discussed over the weekend is that each national government is responding to the crisis with its own monetary and fiscal measures. Some central banks have already slashed official rates to close to zero. Some treasuries have already launched multibillion-dollar bail-outs and stimulus packages. The devil lies in the different timing and magnitudes of these measures

The absence of coordination makes it almost inevitable that we will see rising volatility in global foreign-exchange and bond markets, as investors react to each fresh national initiative. The results could be nearly as disruptive as the protectionist measures adopted by national governments during the Depression. Now, as then, a policy of ''every man for himself'' would be lethal.

At the heart of this crisis is the huge imbalance between the US, with its current account deficit in excess of 1 per cent of world gross domestic product, and the surplus countries that finance it: the oil exporters, Japan and emerging Asia. Of these, the relationship between China and the US has become the crucial one.

More than anything else, it has been China's strategy of dollar reserve accumulation that has financed America's debt habit. Chinese savings were a key reason US long-term interest rates stayed low and the borrowing binge kept going. Now that the age of leverage is over, ''Chimerica'' the partnership between the big saver and the big spender is key.

In essence, we need the Chinese to be supportive of US monetary easing and fiscal stimulus by doing more of the same themselves. There needs to be agreement on a gradual reduction of the Chimerican imbalance via increased US exports and increased Chinese imports. The alternative a sudden reduction of the imbalance via lower US imports and lower Chinese exports would be horrible.

There also needs to be an agreement to avoid a rout in the dollar market and the bond market, which is what will happen if the Chinese stop buying US government bonds, the amount of which is now set to increase massively.

The alternative to such a Chimerican deal is for the Chinese to turn inward, devoting their energies to ''market socialism in one country'', increasing the domestic consumption of Chinese products and turning away from trade as the engine of growth.

Memo to President-elect Barack Obama: Don't wait until April for the next G20 summit. Call a meeting of the Chimerican G2 for the day after your inaugural.

Don't wait for China to call its own meeting of a new ''G1'' in Beijing. Washington Post

Niall Ferguson, a professor of history at Harvard University, is the author of The Ascent of Money: A Financial History of the World.

http://www.canberratimes.com.au/news/opinion/editorial/general/obamas-priority-focus-on-china/1364493.aspx?page=2



For Liberty

Bullsh!it.



Here an array of the 8 world biggest economy with their GDP in PPP (Power Purchase Parity), then translated in US dollar. The last number in blue show the difference between PPP value and USD value.





1...United States...............PPP 13,543,330.....$ 13,244,550......102

2...People's Republic of China..PPP 11,606,336.....$ 2,630,113.......441

3...India.......................PPP 4,726,537......$ 886,867.........533

4...Japan.......................PPP 4,346,080......$ 4,367,459........99

5...Germany.....................PPP 2,714,469......$ 2,897,032........92

6...United Kingdom..............PPP 2,270,884......$ 2,373,685........96

7...France......................PPP 2,116,969......$ 2,231,631........95

8...Italy.......................PPP 1,888,492......$ 1,852,585.......102



Source Intenational Monetary Fund (April 2007)

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

As we see, for the 8 biggest economy the difference between PPP value and USD value isn't bigger the 10% .... but China where it's 441!!!


Actually the chinese bought mountains of USD to keep this huge gap.
The Yuan currency isn't under-evaluated, it's MASSIVELLY under-evaluated. 441%!

Because of this, the US (but also Europe to a lesser extense) suffered a reverse industrial revolution because it's impossible to compete with a 441% currency bonus, even if you robotize production like mad.


Put it back to "normal", i-e put back chinese prices 441% higher and don't worry, they'll be a competitive alternative of quality, locally made, on front of every chinese sh!tty products. Enough to remake a industrial revolution - the right side this time.


20 years of growth on front of us. Crisis solved!

c-seven you can't blame the Chinese for that. Blame our governments for not putting high import taxes on Chinese goods.


Mobile airpower

"The enemy dies relaxed," observed a Lockheed Martin manager.

^^ Absolutely. Do not for a second believe that Western governments are fighting on our behalf tooth and nail, trying to force the Chinese to revalue their currency and make our manufacturers competitive again. This is not true. Western governments and corporations are in league with the Chinese and all other mercantilist Asian countries. Each party gets when it wants from the status quo. Western corporations get cheap labor, Western politicians get corporate money, and Asia gets to suck in all the parts of the Western economy that made the West the world's preeminent economic power with the highest standard of living. The only losers in this deal are the 700 million Westerners who do not happen to be millionaire businessmen or cabinet level government officials. But hey, the more fool they, right?

F.uck an eye for an eye. You take my eye, and I will kill you, and all those you care about. That is our policy.

There's no conspiracy. Just that current situation is distorted but it worked: some growth, inflation down, etc

People are pragmatic.

Now it doesn't work anymore so it gona change.

Specially since it's the burocrats who suffer now. When it was only the blue collars, nevermind but now that's the paper pushers do you realize this?! Awfull.

A jobless worker who loose his house and all: no prob'.
But now the bank may even take back the Jaguar of a financial service burocrat.

With such horrible prospect ahead things are going to change and that now that we're gona see what the chong have in the belly.

Either way they adapt, let their currency rise gradually, take their responsability as a world big economic power, higher the level of quality of their products to sustain the more expansive prices, and turn to their internal market. And everything will be all right.

Either way they cry, threat, shout loudly, gesticulate... and the 441% adjustment will be brutal ..... and by the way their 1900 Trillion $ reserve will finith with only the value of the paper and the ink to print them...

You live in a dreamworld.


Mobile airpower

"The enemy dies relaxed," observed a Lockheed Martin manager.

That's it. We'll re-talk about it end 2009.

Well, you better beg that the chinese never adjust their money into their real value.. if they do.. game over for west...







believe me... dont fall for the corporate propaganda... who trully benefits from cheap chinese products? well you and me... at least now we still can afford a computer to chat with...







Imagine the Chinese adjust their price 400% ... what does that acutally mean.. that their goods get more expensive? sure.. but the true horror is that they will be able to buy everything West has to offer (dont forget ultimately that means they get 400% richer -dont just look at one side of the coin) and you can forget about driving cars and eating exotic food...even all the estern eurpean hookers will flock to china... So be careful about what you wish for!



Edit: what i meant by they getting richer is essentially creating a global inflation... less resource for us (as their goods get more expensive)... mean they get more resources... the computers that use to be sold to us are now used by chinese themselves... same thing happened with Japan.. that is why japanese are so rich today and their good so expensive!







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No Matter Who Wins, our troops are always in Good Hands!

I hear someone forecasting the downfall of china again (frenchie)....this just brings back the memory of Pax Americana who used to rant the downfall of china every single day.....l1o1l1o1l1o1l1l

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Imagine the Chinese adjust their price 400% ... what does that acutally mean.. that their goods get more expensive? sure.. but the true horror is that they will be able to buy everything West has to offer (dont forget ultimately that means they get 400% richer -dont just look at one side of the coin) and you can forget about driving cars and eating exotic food...even all the estern eurpean hookers will flock to china... So be careful about what you wish for!

Don't be foolish my friend, economics don't work that way.

If it was so good for China they would be doing it already - duh - unless you think they like to remain 400% poorer! LOL.

If they adjusted their price 400% suddenly there would be massive, massive infation across China, when the price of a bowl of noodles increases 4X overnight and suddenly people salaries become 4X smaller. This would quickly be followed by massive protests and strikes and collapse of chinese government. I don't think the average chinese can survive with salary 4x smaller than the low salary they are already getting today.

And don't pretend to tell me salaries will be raised 4x as well. that is daft as many of them are contracts signed and stamped at a price range far lower than the 400% increase, so the factories are going bankrupt as well.

The whole world would suffer - Western companies shifting thier operations to china would also see horrific inflation but the catch is they can always shift their factories someplace where they don't have to contend with this 4x rise in inflation. Places like vietnam, india, indonesia, brazil, etc. Of course, though in the process all these companies will lose the billions they invested in China, so they will be burned badly too.

So it is not the end for the West, although it will hurt like hell, especially the big companies and the average western consumer who will also experience high inflation (although not as high as chinas). but it will 100% be the end for china.

the chinese government by hook or by crook can't and won't let this happen. it will be like suicide.

Adjusting Exchange rate does not affect domestic inflation rate. It only inflates prices in foreign countries.

"the chinese government by hook or by crook can't and won't let this happen. it will be like suicide. "

Why is china called a crook when we are only looking after our interest? What happened to all the bailouts throughout the western economy? is that not a crook reaction?

Tunnel-visioned and brainwashed westerners, please stop your double standards and stop inventing words for others that apply equally well for yourselves, such as crooks, currency manipulators, terrorists, axis of evil.....

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..........

You don't know the meaning of by hook or by crook don't you? LOL.

Think before typing. Thanks.

Please enlighten me uneducated soul.

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by hook or by crook .........simply means "by any means/method necessary" ...right or wrong ....

OM SWEET OM

ok, my bad....learn sth new every day.

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No, don't say that friend. Only your flesh has been uneducated.

Brutal scenario:


If the Yuan raise suddenly 400% (to reach its PPP value), that'll mean that the US Dollar fall 400% comparativelly (same thing)

-> the chinese 1900 billion USD reserve worth 4 time less suddenly
-> the poor chinesse have worked free for the richs for decades, how it's called? 'colonialism'
-> the poor arabs (who own heaps of $$$ too) have given their natural ressources for free to the richs for decades: that's called 'colonialism'
-> all chinese goods are 4 time more expansive -> kicked out of the market.
-> a new interesting industrial revolution to re-do for us. 20 years of growth.

Time are changing. The gold mine is empty, time to go elsewhere.

Now the more reasonable (and more likely) scenario:

The chinese agree to let their currency raise gradually (say 10% a year)

- The inflation it generates in industrial countries is reasonable.
- The chinese have time to increase the quality of their products to sustain higher prices,
- They have time to turn their production machine more to the internal market,
- Little by little new competitive alternative appear in industrial coutries to compete fairly the now more expansive chinese products.

IMO that's all about what Obama is going to talk with the chinese.

Even if China does all of that, some other nations is going to take over China as a cheap manufacturing hub. But China by that time should be a consumer nation as well, buying high grade goods from other nations.



For Liberty

Oki, you realise in the world of economics and politics there is always a reaction to something like a 400% hike in value of the currency?

Just because China suddenly can buy more doesn't mean it will... Especially when barriers go up, massive job losses happen when corporations move out... Then what? You think money will let you buy anything and everything?

There's one thing China does not want and that's a move back to the Protectionist West of the 19th and early 20th century.

Siege of Tobruk - One German POW said: "I cannot understand you Australians. In Poland, France, and Belgium, once the tanks got through the soldiers took it for granted that they were beaten. But you are like demons. The tanks break through and your infantry still keep fighting." Rommel wrote of seeing "a batch of some fifty or sixty Australian prisoners ... marched off close behind usimmensely big and powerful men, who without question represented an elite formation of the British Empire, a fact that was also evident in battle."

"The chinese agree to let their currency raise gradually (say 10% a year)

- The inflation it generates in industrial countries is reasonable.
- The chinese have time to increase the quality of their products to sustain higher prices,
- They have time to turn their production machine more to the internal market,
- Little by little new competitive alternative appear in industrial coutries to compete fairly the now more expansive chinese products. "


You do realize that even if this happens all it means is that the manufacturing will just shift from China to other countries which now have the cheapest labour thats all. There's no way in hell jobs lost from Shanghai or Yunan is going to come back to Toulouse or Marseille or Crewe or Detroit for that matter.

What difference does it make to France if its cheap consumer goods are made in China, or India, Indonesia, Vietnam, Brazil or maybe even (one day long into the future) Africa? It is still outflow. Then what? We are going to force India to raise the ruppee to the level of the Euro too?

This "offensive protectionism" (trying to force china to raise its currency, as opposed to the "defensive" kind of imposing high taxes on imports) plainly doesn't work as well as you hoped.

I think you French are living in your own dream world. Europe and US have already moved on from the heavy industrialization and manufacturing-based economy of the 19th, 20th century. its time to let go boys.

Europe needs to work together find a new economic niche, not fight keep clinging on to the past in hopes of return to glory days. Like Germany proves, even without cheap labor, it doesn't mean a country can't be an economic power with high growth.

First of all, stop speaking of "cheap labour" because 'cheap labour' isn't the problem.

The problem is currency eveluation as shown by the Purchase Power Parity value of currencies, and their US$ value (how can you explain that for the 8 workd biggest economies the gap between PPP value and $ value isn't bigger than 10% but China where it's 441%?)

If it was only cheap labour, there is possibilities to compete everywhere thanks to automatisation. But with such curency gap, better scrap everything and keep only a fax, a secretary, a internet site and buy everything in china.

(And people just have to work as pizza delivers and that's all...)

Also, stop talking about 'protectionism' because here the problem is a reverse-protectionism.

Now some are right to talk about others ahem cheap labout hubs but we talk about China only because it's the biggest.
The problem isn't China in perticular but it is the way currency are managed.

Haven't you heard about 'new Bretton Wood'? Hummm? The problem is on the table. And the deepper the crisis, the more it'll be on the table. The current system is exhausted, it isn't working anymore and if you think that current crisis is just a little benin adjustment, again: we'll re-talk about it end 2009.

How you call a country who doesn't build anything anymore? A thirld world country.
A thirld world country is poor and consume few. The US and many other developped countries kept consuming a lot thanks to debt, good reputation and dominant positions. That last for some time, not eternally.

Some idiots invented nice stupid theories to justify this: society of sevices, society of comunication bla, bla, bla. BS like the rest.

The reality is that all this bubble is crunching down and current crisis is just what is fair at this point: thirld world-ization. No more, nor less, because that's what is deserved.

10 more years and it had been finished for us. But fortunatelly it's not too late and there still the know how that survive in small market niches.

Those little companies don't mind to become big ones in the coming decade...

Like Germany proves

ROLFMAO. First we're gona see what Germany proves in 2009....

Secondly, since all prices are pulled down by chinese price, in spite all its effort GDP per head in Germany is lower than on UK and France!

Tell you what: they deserve more than both of us.

Lastly, France import less and export less and is thus less depedant of external market like Germany is. Stop with the Germans please.

I think you French are living in your own dream world. Europe and US have already moved on from the heavy industrialization and manufacturing-based economy of the 19th, 20th century. its time to let go boys.

You have a severe lack of imagination dude. If you can't imagine industrial production other than in Detroit, Liverpool, Pirmasens, other 19th century places...
... or in China because you're bored with the marxist waves of blue collars in the big factories old style at home,

that's you who should upgrade your brain.

Now there are very efficient and very automated units. Smaller units. Using laser, CNC machines, robots, Cad-cam...

Smaller but very optimized units displayed in the countryside. Clean, envirnment friendly with nice architecture buildings, and with young well educated, well paid people working in them. Those units use mostly electricity (made by nuclear plants) better than fossile ressources, are closer to the consuming centrer (less CO2 for transportation) and offer diversity to the consumer better than standardized chinese sh!t.

Those examples can only grow and multiply making the true society of the 21th century...
... and provinding growth for highly qualified jobs to invent all those machines, process, automation, etc.