China and Russia Rebuke America at World Economic Forum
By Lee Jay Walker
Tokyo Correspondent – THE SEOUL TIMES
World and business leaders are once more gathering at the World Economic Forum in Davos. Given the current economic climate a show of unity might have been expected. However, many statements are being made against the United States and clearly the new administration of President Obama is not helping. This applies to Tim Geithner, the newly elected Treasury Secretary of America, who took a major swipe at China last week by blaming Beijing for manipulating the currency. The administration of Bush did not want to upset the applecart with China given the importance of this nation to America. However, major political leaders have an axe to grind and Davos just might be the start?
In the recent past America rebuked nations for being too insular and not responding to the new global dynamics of de-regulation, globalization, market forces, and so forth. Other nations were deemed to be inefficient or out of touch with the “new world.” Past American leaders like Bill Clinton ridiculed Japan for being over-protectionist and bailing out the banking sector. In 1993, for example, Mickey Kantor, the U.S. trade representative under Bill Clinton, stated that the Uruguay Round of trade talks could collapse “if Japan continues to behave as if it has little stake in the outcome.” Therefore, in the early 1990s Japan was blamed for America’s huge trade deficit but now China is emerging to be the new menace.
Yet the American model of open borders, new ways of manipulating the money markets, easy access to international stocks or currencies, modern technology, and a host of other new ways appear to be leading the system in the other direction. Because dynamism did not emerge across the board but greater risks did. This applies to bad lending, hedge funds, short-term gains, over supply of money into developing nations during good times but a major pull out of capital when profits were over-played, and other negative measures. Therefore, many major financial companies, be they banks, investment houses, insurance companies, or other institutions, often diluted their respective safety mechanisms in order to keep up with their rivals.
Also, major economists, like the former Federal Reserve Chairman of the United States, Alan Greenspan, deregulated the market too much because his policies gave the green light for more risky investments. Given this, new ways of “creative accountancy” became the norm and companies could manipulate their balance sheets within the deregulated sector and via manipulating accountancy laws. At the same time the much vaunted elite universities ushered in a new generation but it appeared not to help and parts of the financial system became one “big gamble.” Therefore, many major banks and financial institutions now became “a dice away” from bad credit and for some companies like Northern Rock in the United Kingdom and American companies like Bear Sterns, Fannie Mae, and Freddie Mac, it became bail out time. While other financial institutions like Citibank, Merrill Lynch, UBS from Switzerland, and a host of others, lost out big time on the credit markets.
Therefore, the American model is badly tarnished because it led to the current economic crisis and the nation of free trade and market forces is in free fall. Therefore, state intervention is the new reality of modern America with regards to the banking sector and other important sectors. Yet “the American financial house that was built on cards” is also causing major earthquakes in other nations, irrespective if major global players like China, Germany, Japan, France, or the United Kingdom; or if applied to smaller sized economies like Iceland or Hungary. In truth, while the finger can be firmly pointed at America, it is still abundantly clear that other nations can not escape their respective folly.
However, Tim Geithner, the newly elected Treasury Secretary of America, opened up a can of worms by rebuking China last week. This came after President Obama made negative comments about communism. Clearly, many people will support these comments however the timing is not only lousy, but it bodes ill with regards to global unity during such difficult times. Alternatively, many people will have sympathy with China and more important, for people who sit on the fence, then it is clear that America is not in a position to take the “high moral ground.” This not only applies to America’s banking sector which helped to intensify the global economic crisis, but also in other areas, notably distant wars and environmental issues.
Therefore, after recent negative comments made by the Obama administration towards China, the Chinese Premier, Wen Jiabao, hit back during his first appearance at Davos. Wen Jiabao made it clear that the current global economic crisis began in America because of many negative factors. He cited the “inappropriate macro-economic policies of some economies and their unsustainable model of development” and this was a clear reference towards America because of the astonishingly low savings of this nation and the very high consumption rate of the American economy.
Wen Jiabao also pointed the finger at America by stating “the failure of financial supervision and regulation,” and this applies to policies which were introduced under Alan Greenspan. The Premier of China also spoke about how China was implementing policies in order to stabilize the financial sector. He also made it abundantly clear that greed was an important factor with regards to the current economic debacle. Wen Jiabao further added that the “blind pursuit of profit” in the banking sector was central to the current crisis alongside a “lack of self-discipline.”
The Russian Federation also stated similar factors with regards to the current global economic meltdown. Vladimir Putin, Prime Minister of the Russian Federation, also blamed “poor quality regulation” which led to “the collapses of the existing financial system.” He also rebuked the world’s dependence on the American dollar because this “Excessive dependence on what is basically the only reserve currency is dangerous for the world economy.” So it is apparent that Putin wants a more robust competing system rather than over reliance on one single currency.
According to Putin this is “a serious malfunction in the very system of global economic growth” and that “whole regions of the world, including Europe, found themselves at the periphery of global economic processes” and “were outside the framework of the key economic and financial decisions.” Therefore, Putin would like to see a more inclusive economic system rather that the current disjointed system which is not only unfair, but is very dangerous because once the main player is in crisis, then you are faced with a global meltdown. Putin also stated that the period of boom did not distribute economic wealth but instead it merely concentrated power within dominant circles.