Regardless of all of the happy talk, I have continued to insist that firstly, this is the second great depression. It is definitely global and extended. Secondly, we haven’t seen the bottom yet and I believe we will be dealing with this economic crisis for at least another 5-10 years. I have contended that the real numbers and facts that count have NOT improved and to say the recovery has begun and more outrageous to say that it started in June of last year is mind-boggling.
There is no more vulnerable area to precipitating the “second leg” down than a global currency war. The impacts of such wars are never anything good for struggling economies. It seems that is exactly what is beginning to happen. Consider this from Peter Simpson in Beijing for VOAnews.com
China Thursday expressed its anger at legislation in the United States aimed at punishing Beijing for not letting its currency rise in value and failing to address trade imbalances. Foreign Ministry spokeswoman Jiang Yu says the United States should avoid steps that could damage relations. She says her government opposes what she says is Congress using the currency issue to launch protectionist measures against China.
On Wednesday, the U.S. House of Representatives passed legislation that would allow Washington to treat what the bill describes as fundamentally undervalued currencies as an illegal export subsidy. Jiang says the bill would harm commercial relations between China and the U.S., and says it could affect the economies of both countries, and the world.
The bill is primarily aimed at China. The U.S. and other countries say it keeps its currency, the yuan, artificially low to give its exports an unfair advantage. Many U.S. politicians, businesses and labor groups say this has contributed to the United States’ massive trade deficit with China. Congress says the deficit causes jobs losses in the U.S. The bill would allow the U.S. to set tariffs to offset China’s price advantages.
It must be passed by the Senate and signed by President Barack Obama to become law, and neither is certain. But the latest move has rattled China. State media quoted the Commerce Ministry as saying the bill contravenes World Trade Organization rules. Jiang, the Foreign Ministry spokeswoman, would not say if Beijing will seek to retaliate. But Beijing is not alone in its opposition to the bill.
The American Chamber of Commerce in China on Thursday said the bill would not achieve its objectives and would not create significant U.S. job growth. Chairman John Watkins Jr. says the group opposes the bill because it will make the trade deficit worse, and will likely shift some China production to other low-cost countries.
“We believe that it will actually reduce exports and thereby good jobs,” Watkins says. “I think it will add further tension to the U.S.-China relationship. We think that Congress would be better focused and better advised coming up with a response to deal with China’s web of indigenous innovation policies, weak intellectual property protection, and tightening market access for foreign firms here.” Any vote on the bill in the U.S. Senate will not come until after congressional elections on November 2.
If this was the only issue, it may be manageable, but the focus is just not on the US and China, although these countries are 1 and 2 respectfully economically. There is a great concern on how the EU is going to manage its joint austerity programs.
Russian President Dmitri Medvedev has urged the European Union to stabilize its common currency, saying a stable euro is important for EU trade partners, including Russia. Mr. Medvedev told reporters in Germany Saturday that Russia is not indifferent to the fate of the European single currency, because it keeps part of its foreign currency reserves in euros.
The Russian president arrived in Germany Friday to discuss global and bilateral issues with German Chancellor Angela Merkel. After speaking with the German leader, Mr. Medvedev expressed confidence that a package of EU measures put in place to help stabilize the euro will work. Later this month, leaders from top 20 economies will meet in Canada to discuss ways of stabilizing the world economy and financial system.
This comes at the same time as we are seeing the working classes of the EU countries most affected take to the streets en masse. Workers across Europe took part in coordinated actions to protest government austerity measures, shutting down much transport in Spain and filling the streets of Brussels with tens of thousands of marchers.
Spain’s first general strike in eight years left few buses running in Madrid and about half of underground trains out of service, Reuters said. The government said an agreement with unions guaranteed minimum service. Sky News reported that Iberia, Spain’s largest airline, expected only a third of its scheduled flights to take place. Unions claimed that more than half of the Spanish work force, or about 10 million people, were on strike, Reuters reported, though the government downplayed any problems. “So far the strike is taking place with normality and without incidents,” said Celestino Corbacho, the Spanish labor minister, The New York Times reported. “Citizens are fulfilling both their right to strike and work.”
The day of labor action across Europe was led by the European Trade Union Confederation. The group represents trade unions from 36 European countries and claims 60 million members, CNN reported. “Cutting in a recession is crazy, and we must fight it,” John Monks, European Trade Union Confederation’s general secretary, told CNN. In Brussels, union organizers said they had achieved their goal of drawing 100,000 people to march on European Union buildings, The Associated Press reported. Union workers are rallying against higher taxes, a delayed retirement age and longer work day, the Times said.
In Greece, which has been trying to fight off bankruptcy, some transportation workers had walked off the job, national rail workers were stopping work later, and hospital doctors were on strike for 24 hours, AP reported.
Irish police arrested a 41-year-old man after he drove a cement-mixer emblazoned with the words “toxic bank” to the gates of the Irish parliament in Dublin, which is due to authorize billions of dollars of further funding to bolster Anglo Irish Bank, which was nationalized last year. Authorities took more than two hours to remove the truck, according to the Irish Times, because the protester had taken measures to immobilize it. CNN said protests are also planned in Portugal, Italy, Latvia, Lithuania, the Czech Republic, Cyprus, Serbia, Romania, Poland, Ireland and France.
Although the UK seems aloof from the EU, it cannot escape the reality of mandatory “austerity” measures, but like the US the new government seems reluctant to tell the public the truth of the nature and depth of the austerity programs. The point of all of this is that we are not immune from these wars and in fact we are already engaged fully in the “prosecution” of this war. I, for one, am very concerned that these tensions will build and the resultant tariff wars that will be imposed because of a lack of response from country X or Y to valuation demands will set off hyperinflation and more unemployment globally. This may well be the biggest story of the year and few media outlets are putting in front of us. Hmmmmmmmmm.