Saturday, November 13, 2010

America left to face economy troubles alone

SEOUL, South Korea - The Group of 20 summit ended Friday with a declaration of broad principles but no commitment to immediate action, signaling that the United States will have to go it alone in dealing with its fragile economy and nearly double-digit unemployment.

In their final declaration, leaders of the world's most powerful economies pledged to work together and refrain from protectionism and competitive devaluation of currencies. They also agreed to take steps to promote growth in low-income countries.

But when it came to specifics, a U.S. proposal to set numerical limits on trade surpluses and deficits was rejected. Leaders of the world's 20 biggest economies pledged only to develop "indicative guidelines" to assess imbalances in the first half of next year.

"Any sense of global solidarity looks to have been yesterday's story," said Tim Condon, chief economist at ING Financial Markets in Singapore.

World economic leaders also refused to endorse a U.S. effort to force China to raise the value of its currency.

President Barack Obama responded by lashing out at China over what much of the world thinks is currency manipulation to give it an advantage.

"The issue of the (yuan) is one that is an irritant not just to the United States, but is an irritant to a lot of China's trading partners and those who are competing with China to sell goods around the world," Obama told reporters at the end of a conference. "It is undervalued. And China spends enormous amounts of money intervening in the market to keep it undervalued."

It was the harshest tone Obama has taken toward the world's second-biggest economy behind America's, and came against a backdrop of Democrats on Capitol Hill pushing legislation that would label China a currency manipulator so that the U.S. can bring trade complaints.

Inaction at the summit left the administration - along with American workers, families and businesses - to shoulder the challenge and the likely pain of trying to solve the nation's economic problems on its own.

"Obama is now in a position where he must be prepared to act unilaterally to reduce the trade deficit and to shore up U.S. industrial and technological competitiveness or risk losing not only the presidency in two years but also the American dream," said Clyde Prestowitz, president of the Economic Strategy Institute in Washington.

There are several possible scenarios going forward.

One is that the exporting giants could change their positions: If U.S. economic growth remains low, unemployment high and incomes stagnant, consumers could cut back on their purchases of imported goods.

If demand for their products drops, the leaders who humbled Obama in Seoul might decide it was in their interest to do more to bolster the U.S. economy.

Another possibility is that American consumers will return to their free-spending ways - as a recent surge in imports suggest they might. That will mean more credit-card and other debt as well as a potential for another financial crisis, unless consumers' spending power also accelerated.

A third possible scenario, and perhaps the most likely, is that the U.S. economy will continue to struggle, growing slowly in an atmosphere of high joblessness and belt-tightening for government and ordinary Americans alike.

Tribune Washington Bureau Nov. 13, 2010 12:00 AM

America left to face economy troubles alone

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