Moving to shore up the “fragile and uneven” recovery, officials from the world’s 20 biggest economies promised Saturday to refrain from weakening their currencies, agreeing to let the markets exert more influence in setting foreign exchange rates.
The officials also decided to give fast-growing countries a greater say at the International Monetary Fund, which monitors nations’ fiscal and monetary policies, an acknowledgment that the fund’s credibility required more representation from these nations. They also strengthened the I.M.F.’s role in assessing whether G-20 members were meeting their commitments.
The finance ministers and central bankers were at a two-day meeting in Gyeongju, South Korea, and their actions represented another step in the effort to bridge the diverging priorities of the leading economies and ease the strain of simmering disputes.
Peace in our time!
Competitive devaluation is a standard phase in the cycle of deflation. We are there, regardless of what anyone in the Brie and Chablis set says to the contrary. Wishful thinking.
America is in a terrible spot, thanks to our politicians in the last 20 years (but particularly the last two years). If we devalue, our exports are cheaper. However, energy — which constitutes half our imports, more or less — becomes proportionally more expensive.
Gasoline prices will soar, and it will crash the economy once again. If a family are spending $200 per month on gasoline — which is common here in eastern Kansas — and it moves to $400 per month, the additional $200 has to come from somewhere. If there is discretionary spending to be cut, it will be cut, thereby damaging many small businesses, which often specialize in discretionary items.
We certainly noticed that effect on the ornamental nursery plants we grow and sell here in the spring. It wasn’t the gasoline cost of driving out here that put a hard crimp on our revenue, it was the aggregate effect of expensive gasoline on funds available for [i]ANY[/i] discretionary spending. Clothing stores, restaurants, and similar business all felt the impact.
It’s all a horrible dilemma, and one that has been building for decades. There no longer are any easy solutions, or even neutral solutions. We are left with bad, very bad, and horrendous because for 20 years we cannibalised future income for then-current expenses.
When we need it most … it is generally not there.