President Obama's Comments Pre G-20 Summit

From 2008 when the practice began in response to the financial crisis, I have been deeply concerned about the Chinese policy of pegging the Yuan. The Chinese government had fixed currency value for a long time and was just starting to liberalize before the crisis. Then the government reversed course.

I think it is reasonable for the US to request that China allow its currency to appreciate against the Dollar. It is good for the Chinese people in that purchasing power increases with a stronger currency. A free float Yuan is the expectation for a country engaged in international trade.

In addition, I think it is reasonable for the US to request a balance of trade with all countries including leading exporters such as China, Germany, and Japan.

On a non partisan basis, I support President Obama's position as outlined in the WSJ today:

"Ahead of a summit of the Group of 20 industrial nations, which begins Thursday evening in Seoul, Mr. Obama also took a swipe at China as he escalated assertions that the Asian giant is artificially deflating the value of its currency to boost exports. He again made it clear his emphasis at the G-20 would be curbing the massive trade surpluses of a handful of countries, such as China and Germany, so countries still struggling with high unemployment can boost their exports and job markets."

Weisman, Jonathan, 2010. Obama, in indonesia, criticizes israeli settlements. The Wall Sreet Journal, Nov. 9.

If there is no change in policy, America, in essence, is subsidising the economies of China, Germany, Japan, Middle Eastern and other countries via large trade imbalances. The American people are reasonable regarding international issues, however, the balance has swung toward an unacceptable situation through many years of neglect and lack of interest.

As I have stated before on this blog, in 2007 I sat in public lectures at MIT that offered support for perpetual US trade deficits, something that I found unbelievable at the time.

For America and the world to move forward toward a path of economic growth, there must be a free float currency system and a balance of trade between the major economies. Otherwise will cause a massive mis allocation of resources and structural inefficiencies that could cripple global growth for decades into the future.