G20 Nations Slam Quantitative Easing

Emerging nations also take measures to avoid currency valuation against the purposely concocted fall of the dollar.

Reuters

U.S. President Barack Obama defended the Federal Reserve’s policy of printing dollars on Monday after China and Russia stepped up criticism ahead of this week’s Group of 20 meeting.

The G20 summit has been pitched as a chance for leaders of the countries that account for 85 percent of world output to prevent a currency row escalating into a rush to protectionism that could imperil the global recovery.

But there is little sign of consensus.

The summit has been overshadowed by disagreements over the U.S. Federal Reserve’s quantitative easing (QE) policy under which it will print money to buy $600 billion of government bonds, a move that could depress the dollar and cause a potentially destabilising flow of money into emerging economies.

“I will say that the Fed’s mandate, my mandate, is to grow our economy. And that’s not just good for the United States, that’s good for the world as a whole,” Obama said during a trip to India.

“And the worst thing that could happen to the world economy, not just ours, is if we end up being stuck with no growth or very limited growth,” he said.

European Central Bank President Jean-Claude Trichet said all participants at a meeting of the world’s central bankers in Basel, Switzerland had insisted they were not pursuing weak currency policies.

“We’re attached to avoiding excessive volatility. It’s very counterproductive for global growth and global stability,” he told a news conference.

Washington has frequently criticised China, saying it deliberately undervalues its currency to boost exports.

China says the United States, via the Fed, is engaged in the same thing that it stands accused of, and some emerging nations have already acted to curb their currencies’ rise.

Resentment abroad stems from worry that Fed pump-priming will hasten the U.S. dollar’s slide and cause their currencies to shoot up in value, setting the stage for asset bubbles and making a future burst of inflation more likely.

“As a major reserve currency issuer, for the United States to launch a second round of quantitative easing at this time, we feel that it did not recognise its responsibility to stabilise global markets and did not think about the impact of excessive liquidity on emerging markets,”  Chinese Finance Vice Minister Zhu Guangyao said on Monday.

The Fed’s quantitative easing policy was unveiled last week to jeers from emerging market powerhouses from Latin America to Asia. Russia renewed its assault on Monday.

“Russia’s president will insist …. that such actions are taken with preliminary consultations with other members of the global economy,” said Arkady Dvorkovich, a Russian official who is preparing the country’s position in Seoul.

Bank of Japan Deputy Governor Hirohide Yamaguchi said on Monday that it too was ready to boost its asset-buying scheme if it saw clear signs of a downturn. Worth 5 trillion yen ($62 billion), it is so far just a tenth the size of the Fed’s.

U.S. DROPS KEY DEMAND

India is Obama’s first stop in a 10-day trip to Asia that will include Indonesia and Japan.

He will arrive in Seoul for the Nov. 11-12 summit weakened by a crushing congressional election defeat for his Democratic Party and under fire from all sides. Germany described U.S. economic policy as “clueless” last week.

The U.S. has already all but dropped its centrepiece proposal for the G20 — a measure that would cap current account balances at 4 percent of gross domestic product, something economists said was clearly aimed at China.

At the weekend, U.S. Treasury Secretary Timothy Geithner backed away from the numerical target that had been rejected by China, Germany, Japan and others in a sign that global financial power had slipped from U.S. hands.

On Monday, he was putting on a brave face, saying China was supportive of the G20’s framework for rebalancing the global economy, and that he expected broad consensus on it at the summit.

The risk of a negative outcome in Seoul appears to be increasing, or at the very least, an agreement that merely papers over the huge gaps and allows countries to pursue their own economic policies whether it be intervening in currency markets like South Korea and Japan or printing dollars.

“Judging by the critical response of emerging market governments to QE, the likelihood of a ceasefire in the currency war is slim,” RBC Capital markets said in a report published on Monday.

World Growing Independent of U.S. Economy

Bloomberg

Wall Street economists are reviving a bet that the global economy will withstand the U.S. slowdown.

Just three years since America began dragging the world into its deepest recession in seven decades, Goldman Sachs Group Inc., Credit Suisse Holdings USA Inc. and BofA Merrill Lynch Global Research are forecasting that this time will be different. Goldman Sachs predicts worldwide growth will slow 0.2 percentage point to 4.6 percent in 2011, even as expansion in the U.S. falls to 1.8 percent from 2.6 percent.

Underpinning their analysis is the view that international reliance on U.S. trade has diminished and is too small to spread the lingering effects of America’s housing bust. Providing the U.S. pain doesn’t roil financial markets as it did in the credit crisis, Goldman Sachs expects a weakening dollar, higher bond yields outside the U.S. and stronger emerging-market equities.

“So long as it doesn’t turn to flu, the world can withstand a cold from the U.S.,” Ethan Harris, head of developed-markets economic research in New York at BofA Merrill Lynch, said in a telephone interview. He predicts the U.S. will expand 1.8 percent next year, compared with 3.9 percent globally.

That may provide comfort for some of the central bankers and finance ministers from 187 nations flocking to Washington for annual meetings of the International Monetary Fund and World Bank on Oct. 8-10. IMF chief economist Olivier Blanchard last month predicted “positive but low growth in advanced countries,” while developing nations expand at a “very high” rate. He will release revised forecasts on Oct. 6.

‘Partially Decoupled’

“The world has already become partially decoupled,” Nobel laureate Joseph Stiglitz, a professor at New York’s Columbia University, said in a Sept. 20 interview in Zurich. He will speak at an IMF event this week.

Sixteen months after the world’s largest economy emerged from recession, the U.S. recovery is losing momentum, with declining factory orders, a slowdown in pending home sales and rising unemployment, according to the median forecasts of economists in Bloomberg News surveys taken ahead of reports this week. Their predictions don’t include another contraction, with growth estimated at 2.7 percent this year.

Emerging markets are showing more strength. Manufacturing in China accelerated for a second consecutive month in September, and industrial production in India jumped 13.8 percent in July from a year earlier, more than twice the June pace.

Emerging-Markets ‘Outperformance’

“It seems that recent economic data help to confirm the story of emerging-markets outperformance,” said David Lubin, chief economist for emerging markets at Citigroup Inc. in London.

The gap in growth rates between the developing and advanced worlds is widening, he said. Emerging economies will account for about 60 percent of global expansion this year and next, up from about 25 percent a decade ago, according to his estimates.

The main reason for the divergence: “Direct transmission from a U.S. slowdown to other economies through exports is just not large enough to spread a U.S. demand problem globally,” Goldman Sachs economists Dominic Wilson and Stacy Carlson wrote in a Sept. 22 report entitled “If the U.S. sneezes…”

Take the so-called BRIC countries of Brazil, Russia, India and China. While exports account for almost 20 percent of their gross domestic product, sales to the U.S. compose less than 5 percent of GDP, according to their estimates. That means even if U.S. growth slowed 2 percent, the drag on these four countries would be about 0.1 percentage point, the economists reckon. Developed economies including the U.K., Germany and Japan also have limited exposure, they said.

Room to Grow

Economies outside the U.S. have room to grow that the U.S. doesn’t, partly because of its outsized slump in house prices, Wilson and Carlson said. The drop of almost 35 percent is more than twice as large as the worst declines in the rest of the Group of 10 industrial nations, they found.

The risk to the decoupling wager is a repeat of 2008, when the U.S. property bubble burst and then morphed into a global credit and banking shock that ricocheted around the world. For now, Goldman Sachs’s index of U.S. financial conditions signals that bond and stock markets aren’t stressed by the U.S. outlook.

The break with the U.S. will be reflected in a weaker dollar, with the Chinese yuan appreciating to 6.49 per dollar in a year from 6.685 on Oct. 1, according to Goldman Sachs forecasts.

Lower Yields

The bank is also betting that yields on U.S. 10-year debt will be lower by June than equivalent yields for Germany, the U.K., Canada, Australia and Norway. U.S. notes will rise to 2.8 percent from 2.52 percent, Germany’s will increase to 3 percent from 2.3 percent and Canada’s will grow to 3.8 percent from 2.76 percent on Oct. 1, Goldman Sachs projects.

Goldman Sachs isn’t alone in making the case for decoupling. Harris at BofA Merrill Lynch said he didn’t buy the argument prior to the financial crisis. Now he believes global growth is strong enough to offer a “handkerchief” to the U.S. as it suffers a “growth recession” of weak expansion and rising unemployment, he said.

Giving him confidence is his calculation that the U.S. share of global GDP has shrunk to about 24 percent from 31 percent in 2000. He also notes that, unlike the U.S., many countries avoided asset bubbles, kept their banking systems sound and improved their trade and budget positions.

Economic Locomotives

A book published last week by the World Bank backs him up. “The Day After Tomorrow” concludes that developing nations aren’t only decoupling, they also are undergoing a “switchover” that will make them such locomotives for the world economy, they can help rescue advanced nations. Among the reasons for the revolution are greater trade between emerging markets, the rise of the middle class and higher commodity prices, the book said.

Investors are signaling they agree. The U.S. has fallen behind Brazil, China and India as the preferred place to invest, according to a quarterly survey conducted last month of 1,408 investors, analysts and traders who subscribe to Bloomberg. Emerging markets also attracted more money from share offerings than industrialized nations last quarter for the first time in at least a decade, Bloomberg data show.

Indonesia, India, China and Poland are the developing economies least vulnerable to a U.S. slowdown, according to a Sept. 14 study based on trade ties by HSBC Holdings Plc economists. China, Russia and Brazil also are among nations with more room than industrial countries to ease policies if a U.S. slowdown does weigh on their growth, according to a policy- flexibility index designed by the economists, who include New York-based Pablo Goldberg.

‘Act Countercyclically’

“Emerging economies kept their powder relatively dry, and are, for the most part, in a position where they could act countercyclically if needed,” the HSBC group said.

Links to developing countries are helping insulate some companies against U.S. weakness. Swiss watch manufacturer Swatch Group AG and tire maker Nokian Renkaat of Finland are among the European businesses that should benefit from trade with nations such as Russia and China where consumer demand is growing, according to BlackRock Inc. portfolio manager Alister Hibbert.

“There’s a lot of life in the global economy,” Hibbert, said at a Sept. 8 presentation to reporters in London.

Asset Bubbles

The increasing focus on emerging markets may present challenges for their policy makers as the flow of money into their economies risks fanning inflation, asset bubbles and currency appreciation. Countries from South Korea to Thailand have already intervened to weaken their currencies, along with taking steps to restrict capital inflows.

Stephen Roach, nonexecutive Asia chairman for Morgan Stanley, remains skeptical of decoupling. He links the optimism to a snapback in global trade from a record 11 percent slide in 2009. As that fades amid sluggish demand from advanced economies, emerging markets that rely on exports for strength will “face renewed and formidable headwinds,” he said.

“Decoupling is still a dream in much of the developing world,” said Roach, who also teaches at Yale University in New Haven, Connecticut.

The Goldman Sachs economists argue history is on their side. The U.K., Australia and Canada all continued growing amid the U.S. recession of 2001 as the technology-stock bust passed them by, while America’s 2006-2007 housing slowdown inflicted little pain outside its borders, they said. The shift came when the latter morphed into a financial crisis, prompting Goldman Sachs to declare in December 2007 that 2008 would be the “year of recoupling.”

The argument finds favor with Neal Soss, New York-based chief economist at Credit Suisse. While the supply of dollars and letters of credit that fuel international commerce dried up during the turmoil, that isn’t a problem now, so the rest of the world can cope with a weaker U.S., he said.

“Decoupling was a good idea then and is a good idea now,” Soss said.

Bilderberg 2010 Agenda Leaked

Corbett Report

Veteran Bilderberg researcher and bestselling author Daniel Estulin has once again acquired a copy of the agenda for the annual meeting of the world’s power elite. In an exclusive interview with The Corbett Report earlier today, Estulin revealed what the Bilderbergers will be discussing at this year’s confab in Sitges, Spain on June 3-6, 2010.

According to the documents—which Estulin obtained from his sources inside the secretive group—issues to be discussed in this year’s formal deliberations are:

1. Will the Euro Survive?
2. Development in Europe: Europe’s Exit Strategy…On Hold?
3. Do We Have Institutions to Deal With the World Economy?
4. Greece: Lessons and Forward-looking Strategies
5. NATO and Afghanistan: The Practical Agenda for the Alliance
6. Iran and Russia: Economic and Financial Threats to the Alliance
7. The Consequences of War Against Terrorism
8. The Influence of Domestic Issues on American Foreign Policy
9.The Outlook for Japan’s Economy
10. The Future of the U.S. Dollar: Alternative Scenarios

That the Bilderbergers—essentially a talking shop for European and North American power players—are interested in discussing the current meltdown of the European economy should come as no surprise, especially as the group’s attendee list includes many of the key financiers and string pullers who helped steer Europe into the crisis in the first place. Past attendees of the meeting include current EU President Herman Van Rompuy who got the job as the first non-elected head of the undemocratic European Union after a special wine and dine session with Bilderberg steering committee members. Last year he heralded the beginning of global government, praising the increased role of G20 in dealing with the global financial crisis. Other key Bilderbergers include Jean-Claude Trichet, who, as head of the European Central Bank, was instrumental in helping to craft the current European bailout which itself is designed to incentivize the bankruptcy of Europe. Trichet, too, also recentlycalled for global government to regulate the world economic meltdown that his fellow Bilderbergers helped to create.

Those familiar with the Bilderberg group’s long-cherished dream of achieving global government through the creation of an international financial framework will be unsurprised to see that a debate on the question “Do We Have Institutions to Deal With the World Economy?” is the third order of business at this year’s meeting. Nor will it be a surprise when the question is inevitably answered with the standard globalist line that international institutions like the IMF and the World Bank need to be “strengthened” and even given enhanced regulatory powers as a result of the crisis they have brought about, exactly as Bilderberg observers have been predicting for years. Indeed, as Estulin himself notes in his latest book, Shadow Masters, former U.S. Undersecretary of State George Ball expressed the ambition of the globalists in an address to the 1968 Bilderberg meeting in Mont Tremblant when he stated that they were interested in developing a “world company” to take over the “archaic political structure of nation states”

Other items on the agenda are exactly in line with the issues and plans made at last year’s Bilderberg and those ideas debated at last year’s G20 Finance Ministers meeting, both of which Estulin was able to infiltrate with his inside sources. The fact that the Iran-Russia alliance is on this year’s agenda is doubly telling, not only because a strike against Iran was on the table at this year’s Trilateral Commission meeting, but because, as Estulin notes in today’s interview, it indicates that the real object of the Bilderbergers’ aggression against Iran is the destabilization of Russia, a country that has traditionally been a thorn in the side of the globalists.

Perhaps the only thing that is surprising about this year’s leaked agenda is that the secretive group, which has gone to great length to conceal itself from media and public scrutiny, has failed to take precautions to prevent Estulin and his sources from acquiring the information yet again. “I’m a little bit disappointed in the Bilderbergers,” he said on the line from Spain, where he currently resides. “I would think they would have taken certain precautions and measures, especially coming to my part of the world.”

While the agenda is only a guide for the larger group discussions and the real decision-making takes place among the core members of the group behind closed doors, it does serve as an indicator of the issues and events that are preoccupying the globalists at this sensitive stage of their operation, just as they begin to realize their dream of instituting global government by manufacturing a global depression. Even as these plans begin to come to fruition, the people of Iceland, Greece, and other developed countries are beginning to rise up en masse to throw off the yoke of financial oppression and key Bilderbergers are openly talking of their fears of a global political awakening.

This year’s conference marks a new level of exposure and opposition to the Bilderberg group itself. Daniel Estulin will be making an historic speech to the European parliament on June 1st along with Mario Borghezio, Nigel Farage, and other key MEPs. Then Charlie Skelton, reporting once again for the UK’s Guardian newspaper, will be taking part in a mass counter-conference where those opposed to the Bilderbergers and their secret proceedings will gather to draw attention to the group.