China and US clash over FED's actions

[unhappycamper]

http://voiceofrussia.com/2014_02_23/China-and-US-clash-over-FEDs-actions-7573/



Chinese officials have become the leaders of emerging countries' movement against the actions of the US Federal Reserve. After Group of 20 finance ministers and central bank governors began their two-day meeting in Sydney yesterday, the conflict between the US and developing countries became public.

China and US clash over FED's actions
23 February 2014, 16:26

The US officials and their European peers believe that the current situation is normal and that they have no obligation to adjust their policies in order to please their counterparts from emerging markets. In their view, the monetary authorities and the governments of emerging markets have the obligation to perform all necessary adjustments by themselves even if those adjustments involve some painful and unpopular measures. Central bankers and government officials from emerging markets, especially China, argue that the quantitative easing program of the Federal Reserve and the subsequent “tapering” of the Fed's bond-buying program have created an unprecedented volatility spike, hurting the emerging countries' markets and their economies. They believe that developed countries should refrain from uncoordinated actions but American and European officials are deaf to their pleas.

Treasury Secretary Jacob J. Lew argued that China and other emerging economies should concentrate on reforms and “opening up the economy”, as if more neoliberal economic policies will somehow help mitigate the effects of the “hot money” inflows and outflows from emerging economies. Chinese Finance Minister Lou Jiwei rebuked the criticisms and pointed out that the U.S. recovery had been buoyed by monetary policy rather than structural changes, inferring that the US should look in the mirror before demanding structural painful reforms from other countries. “They have always been saying that China should boost its consumption ratio and the U.S. should boost its investment ratio, but that structural change is not happening in the United States”, he told Bloomberg. Indian central bank Governor Raghuram Rajan echoed the concerns expressed by his Chinese colleagues saying that developed countries should ensure that monetary tightening doesn’t upset the global economy and that any modifications of monetary policy should be done in a measured way.

The meeting in Sydney is unlikely to result in a coordinated global monetary policy. The US officials seem to be sure that their selfish policy should not be changed for the sake of global economical stability. Emerging countries will have to find a way to force the US to take their interests into account and they have plenty of instruments for achieving this. For instance, the US government should not forget that emerging countries hold huge portfolios of US treasury bills, giving them the option of crashing the US bond market.