The market had low expectations surrounding the G20 summit and they were realized. Of course, Treasury secretary Geithner said that he believes in a strong dollar going into the meetings. The US idea of trade imbalance guidelines was a slight surprise. It tried to change the focus away from currency wars. However, a focus on external balances and currency movements still does not address the root cause of the problem which is the savings imbalance and growth differential story between developed countries and emerging markets.
The imbalance problem, however described, will be a dollar problem. There no targets for trade imbalances which may be addressed next month. Still, there is a chance for surplus targets between the US and China. The role of the IMF is uncertain but the G20 may be moving slowly in the right direction. Of course, there is the larger issue that you cannot get agreement when you have as diverse of a group as the G20. Currency wars should continue even if the tone of the comments are dampened.
The imbalance problem, however described, will be a dollar problem. There no targets for trade imbalances which may be addressed next month. Still, there is a chance for surplus targets between the US and China. The role of the IMF is uncertain but the G20 may be moving slowly in the right direction. Of course, there is the larger issue that you cannot get agreement when you have as diverse of a group as the G20. Currency wars should continue even if the tone of the comments are dampened.
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