G20 Breakdown

The money talk on the inside leading up to the G20 summit

• The G20: Fiscal Austerity or Coordinated Recovery? Excellent backgrounder by Andrew Jackson on the ‘state of play’ leading up to the summit, on whether countries should be working to expand demand (stimulus) or contract (ie spending cuts, deficit reduction).   The overall push is for deficit reduction as I have written about here, but some countries are going to have to expand domestic consumer demand in order for there to be a market out there.  The US has traditionally played this role, expanding deficits and credit to ensure growth in consumer demand, but there are signs that the U.S. may end this role at the G20.  Which countries might take it on?  Will it be the ones with large surpluses (esp. China) who can handle it, but may not want to?

• China doesn’t want the G20 to chastise them about their currency valuation (background here), and warns that focusing on them could derail the G20.  China also reiterated their warning about over-focus on deficits at the G20 and that stimulus should not be fazed out all at once.    Background on the G20 renewed focus on cuts and deficit reduction and the serious repercussions that will likely have for the world – here, and here.

• Canada wants the reform focus at the G20 to be on adjusting bank capital and leverage standards to reduce risk and increase solvency.  Canadian Finance Minister Jim Flaherty said this is “the main issue, we shouldn’t be distracted by side issues”.  By ‘side’ issues, he is clearly making another push to keep any form of  bank tax or levy off the agenda and quite possibly might also be hinting at not letting climate change get in the way either.

Other G20 news:

• Toronto Community Mobilization Network convergence space grand opening – Thursday June 17th

• Speak the f**k up. Great event Wednesday night in Toronto breaking down Canada’s G8 maternal health plan.  Watch panelist Antonia Zerbisias

• Toronto hotel workers plan strike:  The workers’ union is calling for the parent company, Accor to respect a previously signed trade union rights agreement.  Be there anytime all day to support or at 4:30 on June 24th for a planned rally!  Also, here is an audio interview on chronic understaffing at luxury hotels.

• G20 & capitalism – see, the G20 is bringing economic benefit to some people in the city:

• But I’m just a sapling. You’ve no doubt heard about the trees being uprooted in the security zone for the G20. But here it is again, humourously…

The U.S. and China are in a big battle right now over exchange rates – with serious global repercussions. Some are calling for this issue to be resolved through the G-20.

China relies heavily on selling cheap exports to the U.S., while the U.S. relies as much on China buying it’s treasury bonds in order to service the U.S. debt. This relationship has created a kind of an equilibrium where neither side wants to tread too strongly on the other.

However, the U.S. is accusing China of falsely depreciating it’s currency (the renminbi) so that China can increase its exports to the U.S. (and other countries) based on the low cost of buying their products. The U.S. is losing export opportunities due to it high exchange rate relative to the renminbi.

And there are calls for action against China, despite fears of retaliation. Even the U.S. Chamber of Commerce, which has done everything over the years to back China’s entrance into the world economy (at the behest of multinational corporations), is calling for the U.S. to name China as a ‘currency manipulator’ and possibly place tariffs on China.

It is also interesting to see the U.S. crying foul about a market (theirs) being artificially flooded by cheap goods (China’s). The U.S. agricultural industry has been doing this for years with cheap subsidies of corn and other products to Latin America, especially Mexico. This has wiped out much of Mexico’s domestic corn industry, knocked farmers off their land, and been a key factor in Mexican economic migration to the U.S. The U.S. has traditionally been fine with artificial markets, as long as they are not hurt themselves.

This all points to a key problem facing global capitalism in the wake of the financial crisis – lack of demand and overproduction. In the wake of low depressed wages worldwide and high unemployment, there is a scramble to get at whatever consumer demand they can round up. Thus the focus on countries like China that still have global demand for their products, and the concern that they are doing it artificially. The countries with strong trade surpluses like China are seen to be “taking more than their fair share of world demand and are under pressure to boost their domestic markets”.

Many are seeing this as a key issue for the G-20 to take up, especially as it moves to become the prime location for creating global policies for economic growth and financial reform.

It will be very interesting to watch in the weeks leading up to the G-20 meetings, as the game of cat and mouse continues between the U.S. and China.