Fallout: The Financial Crisis

Global cooperation is way to recovery

Marketplace Staff Feb 10, 2009
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Fallout: The Financial Crisis

Global cooperation is way to recovery

Marketplace Staff Feb 10, 2009
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TEXT OF COMMENTARY

KAI RYSSDAL: Scott mentioned China’s got $2 trillion in foreign reserves. More than half of that’s in U.S. dollars — Treasury bills and the like. Combine that with the huge Chinese trade surplus with us and it’s not too hard to connect the dots between our economic recovery and theirs.

During his confirmation hearings Timothy Geithner made what a lot of people consider ill-timed remarks about Beijing and currency manipulation. He said the Chinese were “manipulating” it to get an economic advantage.

Commentator Helen Popper hopes Geithner can think about the bigger picture.


HELEN POPPER: Now that Timothy Geithner is our Treasury secretary, it’s time for him to set aside his provocative talk about China’s currency practices.

Sure, China’s currency is weak. But dogging the Chinese about currency manipulation won’t get us anywhere right now.

Right now, we need an international effort to stimulate the world’s economy. Stimulating just the U.S. economy isn’t enough.

Our stimulus will “leak” a little. That is, when the government pays Joe the Paver, Joe might spend a little part of his money on a hockey stick from Canada. Imports like that help other economies, but weaken the stimulus’ benefit to our own.

We need other countries to undertake their own big stimulus packages, ones that will “leak” a little the other way, and help us too.

China has proposed a nice, big package. It’s nearly twice the size of ours relative to its economy.

And the rest of the world’s economic powerhouses have packages in the works. But, follow-through is vital.

If the packages are delayed, watered-down or — worse — fail to get enacted at all, then prospects for a global recovery will fade.

The Obama administration should support China’s new stimulus package, encourage other countries toward similar efforts and move aggressively to coordinate these mutually reinforcing policies.

The alternative is grim. Geithner’s accusation of currency manipulation, justified or not, smacks of the mistakes of the Great Depression.

Then, each country relied on currency devaluations to spur its own economy, at the expense of others. The devaluations went hand-in-hand with protectionism, and global trade and economic activity plummeted.

U.S. trade fell from $10 billion in 1929 to only $3 billion in 1933. And, U.S. livelihoods fell right along with it.

In the current crisis, world trade already has moved down sharply. But trade is not a zero-sum game. We can all grow — or shrink — together.

The Great Depression was a global crisis. So is the current situation. The lesson from those dark times is that a return to growth requires a strategy of global cooperation, not mutual antagonism.

Let’s hope Geithner’s currency talk was an unfortunate rhetorical holdover, and not an omen of the new administration’s policy.

RYSSDAL: Helen Popper teaches economics at Santa Clara University.

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