G-20 to Paper over Global Imbalances, Analysts Agree
Source: MarketWatch, Greg Robb (11/10/10)
"Fed move seems to have 'hijacked' the meeting, analysts said."
C. Fred Bergsten, director of the Washington-based Peterson Institute for International Economics, said he expected the G-20 to declare victory on new bank capital standards, known as Basel III, and reform of the International Monetary Fund, but leave the thorny issues of global imbalances and dueling currency policies unresolved.
A U.S. proposal to address the currency woes by having G-20 countries commit to keeping their current-account imbalances below 4% of gross domestic product over the next few years appears unlikely to be endorsed by the leaders, analysts said.
Instead, the G-20 will likely "creep off" with a statement papering over the differences that all countries need to follow appropriate policies to tackle imbalances, said Steve Dunaway, adjunct senior fellow in international economics at the Council on Foreign Relations in Washington.
The Fed's decision to purchase $600 billion in bonds over the next eight months has been a lightening-rod in recent days, with strong criticism from officials of Germany, Brazil and China.The Fed's move has driven down interest rates on Treasuries and caused money to flood into emerging markets seeking higher yields.
In essence, the Fed's policy is "more a matter of 'forcibly enrich thy neighbor' rather than a 'beggar thy neighbor' competitive devaluation," Neal Soss, head of U.S. economist at Credit Suisse, said in a recent report.
At bottom, it is still China's exchange-rate policy that is leading to difficulties and should be in the spotlight at the G-20 summit, he said.