The below graph is the current account balance as a percentage of GDP:
Current Account Balance measures foreign trade. The United States is running a current account deficit of about 3.5% GDP projected for 2010. Before the great recession, the current account balance deficit ratio was above 5% of U.S. GDP. The Current account deficit for Q2 2010 was $123.3 billion. Only a global recession with it's corresponding trade implosion could reduce the trade deficit. Now that Asia has recovered economically, the great trade imbalance is comin' back with a roar. Q2 2010 current account deficit was 3.4% of GDP, the highest since 2008, and rising.
Of course the G-20 gave a big raspberry to Geithner. Germany claims this is planned economic thinking. Only Canada and France thought it wasn't a bad idea. Australia likes it. So, once again you have those fueling their economies with unfair trade practices hating Geithner's proposal and the one's being decimated by unfair trade, thinking it's not half bad. What a surprise. Where's Nash when you need him?
Geithner also called countries to stop manipulating their currencies:
US treasury secretary Timothy Geithner has told the G20 nations to stop manipulating their currencies to prevent "excessive volatility" and a global currency war.
We've picked on Timmy many times for being Wall Street's personal water boy. But now, it seems he's starting to move on trade and currency manipulation and increasingly not willing to carry water for China.
Good for him!
Someone read the latest U.S. GDP report, which shows the trade deficit ate our economy.
The International Business Times printed the letter Geithner wrote to the G-20.
The breakdown of the policy proposal is as follows:
- Account balance per country doesn't rise above a certain domestic percentage
- G-20 should outlaw currency manipulation
- IMF would be new global currency and balance of trade Cop
Did you know the United States was dead last in current account balances in 2007? See who was dead first? Yuppers, China.
Very interesting that Geithner wants an expanded role for the IMF. Lord knows they love their austerity, but come on, would the WTO or World Bank do any better? From past records, the USTR going up against the WTO, often results in a loss for the U.S. Looking elsewhere for an international fair trade cop, even the oh so NeoCon IMF, isn't a bad idea.
Where is this stuff coming from anywho? Some of it is coming from The Horizon Project, (some think tanks actually think and this is one!) and has been introduced as legislation by Senator Byron Dorgan in 2005. Now why a hard cap, a trade deficit as a ratio to GDP?
It's an alarm bell, a trigger for further actions. Setting a hard threshold would enable a series of additional actions to correct an imbalance of trade. When the trade balance goes that out of whack, odds are someone out there is practicing unfair trade. Additionally it means reduced overall economic growth for the deficit country and it means throwing millions of people out of work.
Geithner is proposing to set the bar and notice how he's moving authority away from the WTO.
Just like a fire detector a hard cap of 4% GDP throws alarm bells to find out the source of the problem, the trade imbalance and correct for it.
Don't let these other nations throw you with planned economy. There is no greater planned economy than China. Their plan? To become the globe's #1 economy of course.
Way to Go Geithner! Play to win!