Treasury secretary Geithner went to the G7 policy meetings in Rome and got a less than hero's welcome. You would think that all of the other finance ministers would be happy with the great US stimulus package and the fact that Treasury is working on a great new bail-out package. Unfortunately, this group has become a sceptical lot. There is actually concern that crowding out will occur.
This will be a growing problem because the world economies will be fighting for a lower level of credit expansion as the financial markets delever. Yes, there will be expansion from the central banks but there is the realization that dollars going to better America may not going to some other country. All of the G7 will be running large deficits and fighting for cash. The US problem of running deficits is not going to go away. Savings will increase on private basis only to be replaced with dissavings on a public basis.
This will be a growing problem because the world economies will be fighting for a lower level of credit expansion as the financial markets delever. Yes, there will be expansion from the central banks but there is the realization that dollars going to better America may not going to some other country. All of the G7 will be running large deficits and fighting for cash. The US problem of running deficits is not going to go away. Savings will increase on private basis only to be replaced with dissavings on a public basis.
There can be fighting for world trade through protectionist measures but we may also see a fight for world credit. Just like capital flows have become a bigger driver in markets, protectionist policies for capital may become the new form of protectionism.
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