Where will the jobs come from? Double exports in five years, says President Obama. That offers a ray of hope in a bleak landscape -- the recovery act spending is winding down, states and localities are laying off employees, banks still are not making loans, and consumers are reeling from unemployment, stagnant wages, and losses in home values and retirement plans, Moreover, the US can't go back to the old economy where trade deficits reached 6% of GDP, and we were borrowing over $2 billion a day from abroad to pay for goods made elsewhere.
But if the US is to sell more abroad and borrow less, countries with trade surpluses -- notably Germany and China -- will have to spend more, buy more, save less and export less. That is the only way to reduce the dangerous and unsustainable imbalances in the global system that the G-20, governments, representing the leading economies in the world, agreed was essential to a secure recovery.
Only China and Germany clearly haven't got the message. The Chinese continue to manipulate their currency, now starkly undervalued against the dollar. This is a centerpiece of a comprehensive mercantilist policy to grow by dominating export markets. Germany, the world's second greatest surplus country, continues to restrain demand at home, while subsidizing its high end export engines.
Both countries reject any change of course. China's Premier Wen Jiabao scorned US pressure on the Chinese to revalue its currency, summoning up the wondrous gall to accuse the US and other countries of "protectionism" for seeking to depreciate their currencies. Germany's government similarly has spurned calls led by the French to increase demand domestically to help fuel European recovery.
Martin Wolf of the Financial Times, coins the neologism Chermany to describe these trading giants and highlights the absurdity of their position. The Germans are insisting that its trading partners in Europe - dramatized by the Greeks but truly represented by the French with deficits at about 9% GDP -embrace austerity to reduce their deficits rapidly. But if Europe is to avoid a deep recession and is to play its part in a global recovery, then Germany will have to buy more from its partners. It will have to kick up domestic demand and save less. By rejecting this course, the Germans could well push Europe back into recession.
Similarly, the Chinese demand that the US bolster the dollar by rolling back deficits and raising interest rates. And they want to sustain their export markets in the US. But the only result of this impossible combination would be crippling high unemployment here, and the export of a global recession. This isn't an acceptable outcome. ...
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