G20's Dominant Theme: Hypocrisy

As another G20 meeting rolls around, this time on home soil, the time comes once again for the economically curious but politically unconnected to wonder what is really happening behind closed doors. But while admiring the pageantry, chuckling at the awkward group photos, and parsing the joint communiqués like newly found Dead Sea scrolls, the overwhelming majority of observers will miss the meeting's dominant theme: hypocrisy.

Everyone agrees that the principal agenda item in Pittsburgh will be the need to rein in the 'global imbalances' that created the late economic crisis. Everyone also agrees that these imbalances involve too much spending and borrowing by Americans and too little of both by the Chinese and other developing nations. In his remarks this week at the United Nations, President Obama used his peerless rhetorical skill to frame the issues clearly and plainly. Noting that a return to pre-crisis economics is impossible, the president assured the world that his administration will pursue policies to increase savings and decrease spending at home and challenged his Chinese counterparts to enact measures with the opposite effect in their own country.

While this is roughly what needs to happen, President Obama is actually doing everything in his power to prevent it. In point of fact, every policy move undertaken by his administration has exacerbated the very imbalances he supposedly wants to curtail. To so seamlessly profess one goal while simultaneously undermining it is an impressive piece of political theater. Unfortunately, this particular drama is likely to have an unhappy ending – and the ticket price will be staggering.

What exactly are the federal fiscal stimuli other than deliberate, but clumsy, efforts to get people, companies, and governments to spend money they don't have? Programs like tax credits for new homebuyers or 'cash for clunkers' are intended to encourage consumers to spend money that they otherwise might have saved. Grants to municipalities allow them to hire workers and spend money locally that they otherwise would have forgone.

Federal intervention in the mortgage and credit card debt markets, where they are now nearly the sole buyer, has been specifically undertaken to keep interest rates low and financial firms solvent – so that Americans can keep buying homes and using their credit cards. While the Fed will continue to hand out free money to any and all borrowers for an "extended period," the abysmally low interest on deposits that such a policy creates disincentivizes personal savings even further.

In 2009, despite the tilted playing field, the American people have heroically managed to increase their savings (although clearly not as much as they would have in a free market). But President Obama's runaway deficit spending is undermining their efforts. The simple truth is that government debt is our debt. So if a family manages, at some cost to their lifestyle, to squirrel away an extra $1,000 in saving this year, but the government adds $20,000 in new debt per household (each family's approximate share of the $1.8 trillion fiscal 2009 deficit), that family ends up owing $19,000 more than they did at the beginning of the year!

So much for our end of the bargain. How about on the other side of the Pacific? Will the Chinese restore balance by increasing their spending? How can they while they are lending us all their money? Remember, any money the Chinese spend is money they cannot loan to us. So, if China really wanted to spur domestic consumption, the best way to do so would be to stop buying our debt. Even better, they could sell Treasuries they already own and distribute the proceeds to their citizens to spend.

However, the Obama administration is heavily lobbying the Chinese to get them to step up to the plate and buy record amounts of new Treasury debt. Obama cannot have it both ways. He cannot claim he wants the Chinese to spend more, but then beg the Chinese government to take money away from Chinese consumers and loan it to the United States Treasury.

In the end, Obama will get precisely what he publicly claims to desire but privately dreads. The Chinese government will come to its senses and stop buying Treasuries. This will cause the U.S. dollar to collapse, but it will also allow Chinese citizens to fully enjoy the fruits of their labor.

Once the Chinese begin consuming more of their own products, those products will no longer be available to Americans. Once they start spending more of their incomes on themselves, those funds will no longer be available for us to borrow. Unfortunately, that is when our real economic crisis will begin. The worst part is that the longer these imbalances are allowed to continue, the larger they grow and the more painful the ultimate adjustment process becomes.

But for now, it's all pomp, circumstance and hypocrisy in Pittsburgh. Why yes, Madam Finance Minister, I'd love another of those crab cakes!

Comments

[sticktoitiv...:]

Of course it's all rhetoric. These people don't care about polices, they care about power. They don't care if the hill was just burned to a crisp and sewn with salt, as long as they are king of the hill. Surprised? Go to a tea party.

Sep 27 06:00 AM

[yellowhoard:]

Our children are screwed.

Spread the word Peter.

Speak before college students whenever you can.

All that they get from their teachers is Keynesian drivel.

Sep 27 08:50 AM

[ron_paulite:]

Yes, go to the universities and colleges and speak to the young people there. Not only will they be more receptive to what you say, they will also be more likely to vote for you for Senate!

Good luck to your Senate run!
America needs you!


On Sep 27 08:50 AM yellowhoard wrote:

> Our children are screwed.
>
> Spread the word Peter.
>
> Speak before college students whenever you can.
>
> All that they get from their teachers is Keynesian drivel.

Sep 27 12:09 PM

[John Galt:]

Obama's words & Actions ...

We need to end the Wars
- No withdrawal from Iraq, 20,000 extra troops in Afghanistan

We need more transparency
- If you don't pass my stimulus right now (without reading it), unemployment could hit 8%

Keep what works in government, end eliminate what doesn't
- He hasn't eliminated anything but grew government by 2 Trillion $

Banks are well capitalized per the stress test
- We are just forcing them to raise capital

He talks up small business
- Then bails out big business

The Crisis was caused by Wallstreet Greed
- Then he gave the "bad guys" billions of dollars

He wanted a new "honest administration
- He just wanted his favorite 6 tax cheats

George Bush didn't listen to the people enough
- Those protesters aren't real, they are all paid for by Fox News.

We need bipartisanship in Washington
- It's my way or the high way and you don't compromise

We need health insurance reform
- While trying to reform Health Care and not having the balls to say it.

I'll close down Gitmo immediately
- It's still open

Are you really shocked that Obama the politician says" what people want to hear", but then does else wise? I mean, our populace is so busy watching the NFL, American Idol, dancing with the stars...

Sep 27 12:28 PM

[ron_paulite:]

Hi Peter

If you want to win the Senate race, you need a very good strategy because your poll numbers are very low now.

Take a leaf from the Master Campaigner Obama (who is always in campaign mode). Target the young, the undecided and independents and get them to register as Republicans and vote for you next year. You have to start doing this NOW! No time to waste.

Also learn from Karl Rove about mobilizing your base - hire him if possible.

Talk directly to the people of Connecticut and not just to the people of America. Already, some have criticized your for announcing your candidacy on national TV instead on state media -- and they may be right.

Good luck!

Sep 27 01:51 PM

[Fighting Yoda:]

Peter is totally and absolutely correct - it is just hypocrisy. I think it is actually more than that stupidity.

Yes - America needs to decrease consumption and increase savings but all programs are designed to do totally the opposite - zero APR is a major disincentive for savings, and it also acts as incentive for consumption. All overt consumption promoting programs exist on top of it - clunkers, home buyer credit etc, and many many more in the pipeline.

And of course Chinese cannot consume if they lend all their money to us -they have to lend even more now - as our needs have quadrupled.

So G-20 is just photo-op - hypocrisy and stupidity through and through - but that is what America represents now.

Sep 28 07:39 PM

[Sakayama:]

Peter: there is not double talk from Obama. It is the same as Reagan saying that he wanted to keep peaceful relationships with the USSR while he built nuclear weapons to attack Russia. What he said was true. What he did was honest. The weapons where to force a Win-Win or Loose-Loose situation. Nobody could win and have the other party loose.
Same here. The chinese nuclear option is to dump the US debt to buy assets around the world while keeping the yuan undervalued and his people with low purchasing power. This way is challenging the US supremacy. The US nuclear option is to start printing, rendering that debt worthless, leaving chinese people at low wages, and without being able to sell anything. Both are loosers in that scenario. The best both can do is to do as Obama is proposing.
There is no chance for American people to keep the party going. Will have to endure a more austere life in the near and no so near future. Either because the borrowing from the chinese will be cut and interest rates will be rised or because inflation will dilute their salaries and purchasing power.
As I can see, this is a war againt China and both are just showing their weaponry.

Sep 29 12:09 AM

[aussiereader4:]

Peter,

while you continue to attack the flawed policies of the US leadership, you will get no votes.

You need to offer a positive alternative. It is easy to attack, it is difficult to create.

What is your alternative?

Sep 29 07:36 AM

[wavelength:]

Dear (fellow) aussiereader
Peter's alternative is a return to the free market. Also, by entering politics, it would mean that when the state does intervene, there would be at least one representative who is financially and economically literate. He is not positing the usual expensive "programs" or "solutions" because he understands govt IS the problem! You should amend your post to read "it is easy to tax and spend, it is difficult to create under a punitive, confiscatory regime that is hostile to business". Peter doesn't have to DO anything, except continue to educate folks in financial reality vs Keynesian propaganda and fantasy. Americans, with their freedom restored, will create as they have always done.

Sep 29 09:49 AM

[Timothy Don...:]

I definitely support Peter's ideas regarding a free market; however, a smotth transition is quite difficult to imagine.

Oct 01 09:29 AM

[a4ism:]

aussiereader,

Peter Schiff has been consistent in his proposals throughout the years, as have been Ron Paul and others. If you are unclear on his position and his proposals, you can read any of his books (Crash Proof 2.0, written in 2006 with a 2009 update), and you can see many of his statements on YouTube by typing "peter schiff mortgage brokers" or "peter schiff was right".

Ron Paul was recently (September 29, 2009) interviewed on Jon Stewart's Daily Show and you can see it on Hulu.com as well. His current book is End the Fed and deals with some of the principles that won Friedrich von Hayek a Nobel Prize in 1974.

Why Americans prefer to watch propaganda-style TV news coverage is beyond me. This was a sore point in another book I am reading, Thomas Sowell's The Housing Boom and Bust, where the media consistently report stilted and inaccurate misinterpretations of demographic studies, presumably in order to get minority groups fired up -- but who knows why they really do it? The cases he reports are not just distortion, but pretty nearly fabrication.


On Sep 29 07:36 AM aussiereader4 wrote:

> Peter,
>
> while you continue to attack the flawed policies of the US leadership,
> you will get no votes.
>
> You need to offer a positive alternative. It is easy to attack, it
> is difficult to create.
>
> What is your alternative?

Oct 01 01:46 PM

[Northstar10000:]

Here is your positive alternative. Get rid of the spending take your medicine and clean up the resulting mess. Obomer is a fake, he has done nothing except adopt Bush Policy with a slight twist, it's now, spending on steroids. Still bailouts, still at war, still spending what we don't have, still borrowing, still have an Iran problem, still have a North Korean problem, still have an unemployment problem, I can go on but why bother. I know college kids who graduated in May and are working at MIn wage jobs. Funny thing they voted for the Obomer and still believe in him. Fools a plenty..

Oct 04 11:15 AM

[cyndikus:]

ok

Oct 17 11:47 PM