Friday, 12 November 2010

Germany sides with China against UK

Well perhaps we should not be that surprised. At the G20 meeting in South Korea (hat-tip of the day to whoever told this porky of the Daily Mail which they have fallen for) a very sketchy agreement on what to do with the World's currencies is being hammered out.

I doubt it is going to lead to very much as the G20 is a nice global talking shop.

However, when it comes to managing trade imbalances Germany is backing China. Both these countries follow mercantilist policies of boosting exports and restraining domestic demand. This helps to foster the deficits with the US and UK. Clearly in a free market system the exchange rates of countries would adjust to correct the imbalances. China and Germany would get richer compared to the US and UK, who would now be able to export more as their labour costs had relatively declined.

But China and Germany don't play this game. China holds the Yuan at a pegged rate to the dollar, costing it internal overpsend but hollowing out the USA. Germany is in the Euro and poorer Euro countries help to reign in the strength of the currency where the D-Mark once soared.

In response the US has gone for Quantitative Easing - they have every reason too despite it being a dangerous gamble.

Today though reading the reports, Germany has not backed China in resisting a real cap on trade imbalances and trying to rebalance the world. The UK is onside with the USA. German politicians are also criticising Ireland and Greece for their poor deficit positions; partly caused by the Euro having interest rates set for Germany and it is also having the effect of weakening the Euro, which helps German exports globally.

In times of stress you learn who your friends really are; Die Deutschen spielen schmutzig

15 comments:

Blue Eyes said...

Wasn't one of the arguments for the Euro that it wouldn't allow the traditionally flimsy countries to inflate their way out of a mess?

These countries obviously forgot whilst building up those huge deficits that the option wouldn't be available to them later on.

I have some sympathy for the Germans, they know that their currency could implode at any minute through no fault of their own.

As for the UK deficit, if we had been more sensible when the outlook appeared more benign than it really was then we might not have bought so much cheap Chinese stuff!

semper said...

Well CU,
I enjoy a bit of Deutschland-focussed paranoia as much as the next man but I fail to see the slightest backing for your assertions in the above or in the links you provide.
Please protect your sources if National Security is involved. If not, could you provide enough evidence to get the "worry glands" juicing well, please?
In what way is Germany "backing China"? Is a new Axis evolving? Is it too late to buy shares in Krupps?

Peter S. said...

'Die Deutschen spielen schmutzig' - alright then, what does that mean?

Peter S. said...

Ah, I've got it: 'The Jerries always talk shite'. Right?

Anonymous said...

"In times of stress you learn who your friends really are"

Rubbish!

It's every nation for their own advantage, a race to the bottom, and screw the rest.

Merkel says haircut for the creditors of Ireland and others, Barrusso says ECB stands ready to buy their bonds, - ie, QE2.
Some Unity!
If Merky gets her way, who the f*ck will lend to fringe EU nations ongoing...and roll-overs are coming.
Yet EU QE2 will weaken the Euro to German benefit, so where's your analysis on that, CU?

take all US military expenditure together, in various disguises, add in their C.1000 military bases around the world, and the currency loss created by their forces spending locally, and you wonder why it has taken so long for the world to realize their funding of the US deficit is paying for their own military encirclement, and financing the US war mongering on their own borders.

It's called gross abuse of the advantages accruing to a reserve currency - - hence the vastly increasing bi-lateral trade deals avoiding the intermediation of the US $. (which will obviously curtail the "currency swaps" loved by the Fed, as global liquidity in the future will not depend so strongly on the $) Given the increase in these deals there will be a variety of methods deployed shortly to stop hot money $ landing in emerging markets, creating asset inflation.

I note the long bond sales on Wednsday in the US. POMO starts today!

The 40 years of war and financial agression against any nation threatening to sell oil in other currencies than dollars, or any nation not tied into the international debt creating banking cartel, (remember "axis of evil"?) has been recognised for what it is, - -by nations finally strong enough to plan strategies in recognition of those 40+ years.

Western nations still have a few tools left in their financial tool boxes. Western nations, and the US in particular, are the major global manipulators of damn near every "market" on this planet, to their own benefit. Japan got screwed when the Western nations devalued, with the BIS connivance, under the plaza accords. (a factor no-one seems to recognise in ongoing verbiage about current financial analysis). China knows this, hence the dollar peg!

But they cry tears when others operate in a like manner for their own benefit
The mantra, "deficits don't matter" has ceased to work.

Tell me, the Feds $600B QE2, (which is realy $900B if you count recycled funds from repayments made to it....and it's open ended!) to buy US Gov't debt, which will weaken the $, Is that not currency manipulation?

And were not US Admin arguing for years about the advantages of exporting production to the Far East...thus benefiting from cheap products?

So a currency peg was fine while it was fine!

They were the instigators of Chinese admittance to the WTO, with favoured nation status, even allowing Chinese spies to run rampant around NASA and other sensitive areas under Clinton! But then again, Chinese were heavy contributors to Clinton election campaign...mustn't forget that, must we!

The US shit on their own pillow, and now they complain!

And Cameroon? He's a fuckwit for not hedging his international position more strongly, and a fuckwit for buggering up the small window of time for more meaningful reforms.

Budgie said...

CU is right. China has a third world currency (deliberately) and a first world export industry. The USA is entitled to defend itself against such mercantilist aggression.

CityUnslicker said...

BE - Quite re the UK, my subtle point that is lost is that the Euro is the Dmark and thank heavens we are not in it.

Semper in the middle of the BBC articel it quite clearly sttes that Germany and China were against the US proprosal to limit trade account balances to +/- 4%.
Germany wants to be able to run.
its trade surplues and it uninterested in much else.

Anon - My comment re you know who your friends are was supposed to be ironic. re Euro QE2 let's see if it happens. And yes it will benefit the Germans - that is the theme of this post.

As for Cameron, he could hardly have done more than he has in the last 6 months. None of this mess is his fault is it?

Anonymous said...

CU.

Yes, none of this mess is his.

No, he could have done FAR more in the 6 months.

European QE2 ;-Ireland is spiralling down, they can't afford interest rates set by markets, neither can Portugal. Greece has been bailed, only time befor capitulation. Austerity and tax increases absent devaluation and tax reductions kills GDP, but not existing debt. Debt to GDP gets bigger...Crash!

You really think a 6% shift in voting rights at the IMF, and basket contents, in maybe 2 years if they hurry, will satisfy emerging economies. If that can't be agreed, why hope for G20 agreement.

Budgie.

Mercantilist aggression is Chinese answer to US military aggression. Take away the $ hegemony and the US is exposed to economic reality, ie, it can't fund the military. No one buys US debt, except the Fed. Therefore QE. A circle.

Anonymous said...

http://1.bp.blogspot.com/_H2DePAZe2gA/TLZHsuEKK6I/AAAAAAAAO3Q/o1v4sjrM8Ns/s1600/silver.png

Electro-Kevin said...

Anon - and the US should use its military aggression ... whilst she still has it.

Theft is 9/10ths of the law ... er, I think !

hovis said...

Anon:

Euro QE2 = crash but then without it crash. As implied Euro = shadow DM - all in Germany's interest - the bailouts themselve too in Germany's interest - their banks will go under without it, but obviously thats not how it looks at home for german tax payers.

Chinese mercantilism is aggressive but wether it saves them I dount it big problems at home which go unreported here - they are keeping a lid on it, but I'd bet they'll not have the demand to be self sustaining.

Anonymous said...

The problem isn't the countries that are looking after themselves, the problem is the West, particularly countries such as Britain who allow ourselves to be gamed.

You can't say Germans are the victims here, the franco-German motor controls the EU (along with their satellites Belgium etc), they set the rules to advantage themselves and screw over the smaller countries.
I remember the debates when the Euro was first introduced, this is exactly what many of the 'doomsayers' predicted would happen.

Sebastian Weetabix said...

@Peter S: the Germans always play dirty.

Lorne said...

If more attention had been paid before to the state of economy in Greece there would be no need to criticize the country for their poor deficit positions today.

Budgie said...

Anon - Do I detect a certain anti USA stance here? Have you proof of a direct connection between Chinese mercantilist aggression and your claim of "US military aggression"?

The USA's military power has been remarkably restrained taken in an historical context (cf Britain, France, Germany etc etc). Neither has China been affected by it. Quite the reverse, as the invasion and occupation of Tibet shows, and the sabre rattling over Taiwan and North Korea.

Furthermore, Chinese mercantilist aggression may be excusable for a country emerging from the ravages of socialism, but is not acceptable for a new super power as China is today.