As a group of 20 officials want proof that they achieved little in Seoul, it is the price of gold. Gold mocked hopes for a solution to global imbalances in recent months, heading for new heights. With the $ 1,400 per ounce mark under his belt, gold was shooting for the next milestone: $ 1.500. Now commodities, which fell the most in 18 months on Friday, dissing the G-20 in a different way.
Gold slipped to $ 1,365.50, just days after hitting a record $ 1,424.30 on November 9. Why? Fears of overheating in China. Hot money is already wreaking havoc with Asian prices of assets. The Federal Reserve on the way to a further 600 billion U.S. dollars in the markets pumps means that China may raise a specter that haunted investors.
Unfortunately, the G-20, our newly dubbed the guardian of the global economic order, the weather has proved unequal to the task. The solution for what ails the world seems to be Japanese for comfort: all central-bank liquidity, no economic reform and cooperation.
The disparate grouping immediate problem is denial. In Seoul, the talk was about a more balanced global growth. It was less about how Ireland is on. Policymakers fiddling and pointing fingers just mean Europe’s debt crisis will worsen.
His dilemma is larger the fascinating gorge of the group has discussed with developed countries on the one hand and development on the other. Fixing that will be harder than today’s leaders to realize.
The US-China standoff example of the point. The U.S. wants China to allow the yuan to Washington to encourage the perception of global imbalances. China wants the U.S. to stop saturating the world with the debt and the devaluation of the dollar.
Cooperation is needed
The problem is that both countries have a point. As China moves quickly to the yuan, the wobbly economy in a hurry. The U.S. central bank, meanwhile, do not get the necessary traction and pumping fresh money in the credit markets. Cooperation is needed and that will lead to the members of the G-20 digest some economic setbacks.
Good luck with that. Events in Seoul – and in Yokohama, where the Asia-Pacific Economic Cooperation group met at the weekend – reinforces the extent to which leaders play to their domestic galleries. Everyone knows the U.S. is borrowing too much, China manipulates its currency and fiscal problems of Europe are growing. There is no political will to cooperate across borders to any of these imbalances.
South Korean President Lee Myung Bak is a welcome exception. He said that any adverse events in the global currency markets, the latest moves by the Fed, such as hot-money inflows into the Asian economies were offset by the need for faster growth in the U.S.. It is true that nothing could be more to do now to help the world than a strong U.S. rebound.
National considerations
However, most are domestic considerations trumping long-term thinking. Far from the hands, leaders are desperate for legitimacy and social stability, pointing fingers at each other. Nobody seems willing to educate their population bad news or bitter medicine to prepare. It seems inevitable that we are heading in a cross wind of protectionism and greater volatility.
The so-called currency wars are a proxy for this dynamic. Expect a steady increase in the number of capital controls in Asia, more money zooms toward the region. Also expect the U.S. to control the ways to move more of the liquidity the Fed to keep from leaking overseas Mull.
That, in a nutshell, is why so antsy investors. The feeling that another shoe to drop on – Europe’s debt crisis, China’s stock plunging, any sign of U.S. deflation – in a global economy that has very off-kilter. Amid this uncertainty, it was jaw-dropping in Seoul on the G-20 steps to see if the Irish problems are manageable.
Ireland Woes
From that we can draw two conclusions. One, the global credit crisis never really went away – just underground for a while. Two, there is too much focus on commercial disputes and exchange rates and not enough on getting the growth to a sustainable level. What good is the odd trade agreement if we are not finished cleaning up the mess of the last crisis?
The irony about gold is that it is a financial indicator with two faces. Its powerful rally this year shows that investors go long anything tangible. Stocks? Bonds? Property? Are you crazy? It looks a bit too much like Grab-a-gun-and-run-for-the-hills time for comfort. Sudden dip last week pointed to a different kind of danger that global elites are in over their heads.
This leadership is creating pressure on deeper political divisions. The G-20 is a wonderful concept in theory, but it is not a forum for true collaboration was born. Events in Seoul showed developing countries are sensing that the whole thing is rigged against them.
There’s plenty of blame to go around for this, and the U.S., Europe and Japan have their own share in the prior expected grand gestures of poorer countries. Countries like China are wondering why they are called for more reforms than counterparts like the U.S., and rightly so.
As the gap widens and self-interest rules, investor confidence is likely to darken accordingly. To see that, look no further than gold.
source:reuters
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