Currency Wars_ The Making of the Next Global Crisis - James Rickards [70]
The international financial cognoscenti did not have to wait for the January 2010 State of the Union to see where the United States was going with its rebalancing plan. The idea for increased U.S. exports and the associated revaluation of the yuan had already been vetted in September 2009 at the Pittsburgh G20 summit. The first two G20 summits, in Washington and London, had been devoted to an immediate response to the Panic of 2008 and the need to create new liquidity sources through the IMF. These early G20 summits had also been preoccupied with plans to rein in the banks and their greed-based compensation structures, which provided grotesque rewards for short-term gains but caused the long-term destruction of trillions of dollars of global wealth. By the Pittsburgh summit in late 2009, the leaders felt that while vulnerabilities remained, enough stability had returned that they could look past the immediate crisis and begin to think about ways to get the global economy moving again. Pittsburgh would be the last G20 summit before the 2010 State of the Union. If the United States was going to get buy-in for its export-driven rebalancing plan, this was the time.
The Pittsburgh G20 leaders’ summit produced a breakthrough plan for the kind of rebalancing of growth that Geithner wanted. The plan was contained in the official leaders’ statement as “A Framework for Strong, Sustainable, and Balanced Growth.” It was not immediately clear how this rebalancing was to be achieved. Like all such technical statements from large multilateral bodies, it is written in a kind of global elite-speak in which plain language is the first casualty. Buried in Section 20 of the framework, however, is this passage:
Our collective response to the crisis has highlighted . . . the need for a more legitimate and effective IMF. The Fund must play a critical role in promoting global financial stability and rebalancing growth.
There was no doubt on the part of the participants that rebalancing meant increased consumption by China and increased exports by the United States. Now the IMF was being deputized by the G20 to act as a kind of cop on the beat to see to it that G20 members lived up to any obligations they might undertake in that regard. So the international foundation was laid in Pittsburgh for President Obama’s National Export Initiative announced two months later.
The G20’s use of the IMF as an outsourced secretariat, research department, statistical agency and policy referee suited both organizations extremely well. It gave the G20 access to enormous expertise without its having to create and build an expert staff on its own. For the IMF, it was more like a reprieve. As late as 2006 many international monetary experts seriously questioned the purpose and continued existence of the IMF. In the 1950s and 1960s, it had provided bridge loans to countries suffering temporary balance of payments difficulties to allow them to maintain their currency peg to the dollar. In the 1980s and 1990s it had assisted developing economies suffering foreign exchange crises by providing finance conditioned upon austerity measures designed to protect foreign bankers and bondholders. Yet with the elimination of gold, the rise of floating exchange rates and the piling up of huge surpluses by developing countries, the IMF entered the twenty-first century with no discernable mission. Suddenly the G20 breathed new life into the IMF by positioning it as a kind of Bank of the G20 or proto–world central bank. Its ambitious leader at the time, Dominique Strauss-Kahn, could not have been more pleased, and he eagerly set about as the global