Busch: Crisis Time in Currency Land

In an interview with Der Spiegel, German Finance Minister Wolfgang Schäuble directly addresses the US economic problem.

“The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America's problems, but they don't include German export surpluses.”

Nice start to the upcoming G20 meetings.

In this vein, a Chinese newspaper has joined the criticism of US economic policies by warning of a new currency crisis.


Reuters reports that the overseas edition of Communist Party mouthpiece the People's Daily said in a front page commentary that this quantitative easing was bad for China and bad for the world.

Jianxun of Shanghai's Tongji University wrote that, "In essence this is an uncontrolled increase in money supply, equal to indirect exchange rate manipulation…The Federal Reserve's actions will "touch off a global competition to devalue currencies ... (leading to) a 'currency war' and trade protectionism, threatening the global economic recovery…Exchange rate wars are in fact trade wars, and if they set off a trade war it won't only threaten the global economy, it will perhaps cause a collapse ... and everyone's interests will be harmed.”

This has not gone unnoticed by the United States.

Today at his press conference from India, President Obama defended not only his polices to restore growth in the U.S., but also the Federal Reserves QE2 program. "I will say the Fed's mandate, my mandate, is to grow our economy, and that's not just good for the U.S. That's good for the world as a whole…..We can't continue situations where some countries maintain massive [trade] surpluses, other countries have massive deficits and, never is there an adjustment with respect to currency that would lead to a more balanced growth pattern."

The good news is that we won’t have to wait long for the start of the potential currency war.

Yonhap News is reporting that the Group of 20 will discuss the global currency dispute during their first dinner in Seoul on Thursday. With US Treasury Secretary Geithner backing down from his +/- 4% current account proposal due to criticism, the G20 appears to be united only in their opposition to whatever comes out of the United States. For now, a compromise on current accounts and currencies is seemingly unattainable.

Similar the US fiscal deficit, there appears to be only one thing that will focus energy for an agreement: a global crisis.

Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.