Tomorrow, the G-20 Summit begins in Seoul, South Korea, with the leaders of the world's most important economies gathering to discuss what they're going to do about various problems facing the global economy; specifically, they'll be discussing the fact that emerging markets may be growing too fast while advanced economies are barely growing at all. Treasury Secretary Tim Geithner, joined by the finance ministers of Singapore and Australia -- it's a very Pacific show -- lays out an agenda for the meeting, which shouldn't surprise.
Basically, America wants more rebalancing: Even if emerging economies need to tighten their monetary policy, advanced economies don't. China spends more, U.S. saves more. China should really let its currency appreciate against the dollar. And no protectionism, please?
However, international anger about the Fed's recent decision to pursue further monetary policy stimulus -- a second round of quantitative easing known as "QE2" -- may make it hard to reach international agreement. I'm rather sanguine about this; one, because the prospect of reaching some kind of binding compact at this summit was unlikely in the first place, and, as Matt Yglesias says, the principally aggrieved other countries have plenty of options in how to respond that the U.S. is totally fine with.
There's no reason for the United States to pursue policies inimical to its interests because other countries have chosen to link themselves to our currency. And if taking care of our business at home is a motivating factor for people to take G-20 meetings seriously, all the better. Perhaps most important to understand is that if foreign countries are concerned about the effects of QE2, that means they think it will work to improve America's economy -- which is good news!
Ultimately, the week's meetings are likely to produce the G-20 equivalent of a "continuing resolution," but we may have a better idea of what they will do to protect their export-oriented economies. Here's Karl Smith with more detail on the China-QE2 relationship.
-- Tim Fernholz
