After three years of economic turmoil, why do I believe we are just now entering the second phase of a protracted economic drag here in the United States? While many economists and analysts would like to parse each and every bit of data that comes across the tape—that is what they do for a living—I believe we are better served to focus on the larger waves and currents at play across our global economic landscape. What do I see? A New World Order.
Do not think for a second that this reality does not have real long term implications for our economy and our people. I am not saying that there will not be enormous economic opportunities for individuals and businesses alike, but the skeletons in our American closet can only be hidden so long. Let’s navigate.
I am writing this commentary as I watch the recap of the most recent G-20 summit in Seoul, South Korea. What transpired? Just as President Obama was dealt a serving of repudiation at the mid-term elections on November 2nd, he similarly leaves the summit today rebuffed and with little accomplished. Leaders from the east, west, and south are looking askance at him and his policies, including those of his sidekick Ben Bernanke. (With that said, let’s forget the idea that the Federal Reserve is an independent entity. Our central bank is now nothing more than another politicized entity in an overly political town.)
The New World Order is one in which the United States has lost credibility on the political and economic stage. Really? Oh, yes.
In fact, that credibility went out the global economic window when Bernanke’s Fed decided to further experiment with our currency as a means of supporting our domestic economy. While we here at home may not feel the immediate impact of that experiment, emerging markets are feeling it quickly in a rapid rise in prices in a variety of products. China yesterday reported an increase in its consumer price index of 4.4%. Chinese markets fell over 5% overnight on fears that its central bank would raise rates in order to head off further inflationary pressures.
While nations in the eastern hemisphere are looking askance at Washington, our European friends to the west are not exactly embracing us. Nor are the economic leaders in South America. The Wall Street Journal captures all these sentiments this morning in writing, U.S. Wields Less Clout at Summit:
President Barack Obama headed toward the close of the Group of 20 summit, weakened by an anemic economic recovery and an election drubbing that have left world leaders questioning U.S. authority.
In private meetings with Mr. Obama on Thursday, Chinese President Hu Jintao resisted his pressure on currency revaluation. Mr. Obama also failed to secure a free-trade agreement with South Korea by a deadline he set for Thursday, a blow to a president who has pledged to double U.S. exports over the next five years.
The summit of the Group of 20 industrial and developing nations is expected to conclude with a communiqué that papers over differences on fiscal and monetary policy that had been exposed in the run-up to the gathering.
That will leave it to the G-20′s finance ministers to come up with some kind of mechanism to measure progress toward more balanced trade and flexible currency exchanges. Although the communiqué won’t include numerical targets, a senior U.S. administration official acknowledged the world will have to come up with some in the future. “You have to have numbers. This is economics,” he said. “And everybody recognizes that.”
Undersecretary of the Treasury Lael Brainerd said currency policy dominated a meeting between Messrs. Obama and Hu after the U.S. president raised it. Mr. Hu told his U.S. counterpart that China will push forward on revamping the yuan exchange-rate mechanism—a longtime goal of U.S. policy—but that such a move requires “a sound external environment” and can proceed only gradually, according to state television and a government spokesman.
Sound external environment? That statement right there is the proverbial middle finger salute to our President. Hu is telling Obama not to tell the Chinese what to do when the U.S. does not have its own economic house in order.
Mr. Obama found himself in the odd position of having to defend the U.S.’s independent central bank. He was also unable to quell concerns that the U.S. government is deliberately trying to weaken the dollar to boost exports.
Brazi’s President Luiz Inácio Lula da Silva said Thursday he would press Mr. Obama to explain the Fed’s move. President Lee demurred when asked about it. “I think that kind of question should be asked to me when President Obama is not standing right next to me,” Mr. Lee answered.
German Chancellor Angela Merkel and President Lee “stressed their common concern” over the U.S. Fed’s move in their bilateral meeting, a German official said.
One of the few leaders to come to Obama’s defense is Canadian Prime Minister Stephen Harper. In my opinion, Harper’s defense is nothing more than his realization that the Canadian economy is so closely aligned with the American economy. When capital flees the United States, that flight also negatively impacts Canada.
While the markets may continue to fluctuate and our economy will muddle along, regrettably I believe the United States will slowly but surely lose standing in the New World Order. Why? We have swept so many enormous structural issues under our rug for far too long. What issues? Education, especially urban education. Family structure or the lack thereof. Bloated municipal payrolls and accompanying future obligations and liabilities. What has festered as a result? Crony capitalism with no true statesmen. Shall I go on? I think not.
These issues are deeply embedded, and until they are acknowledged, addressed, and rectified, our nation will suffer and the New World Order will move forward.