US Financial Crisis/Bailout, China's Role

China Business
Nov 14, 2008

China's New Deal

By Peter Navarro

Years from now, China's embrace of a massive fiscal stimulus, announced this week, will be seen as a far more important marker of the country's emergence as an economic superpower than even the successful hosting of the 2008 Summer Olympic Games.

This two-year, US$600 billion fiscal stimulus - equal to a stunning one-sixth of China's entire gross domestic product - focuses primarily on the construction of economically critical infrastructure, such as rail and energy networks and politically critical infrastructure, like low-income housing and healthcare. The historic importance of China's "New Deal" is evident in at least five factors.

First, China's swift action aptly illustrates how this putatively communist country can flexibly embrace the kind of mainstream Keynesian economics that has kept the capitalist world (mostly) in prosperity since the end of the Great Depression. It's pitch-perfect fiscal policy.

Second, in a supreme irony, China has acted far more quickly and decisively than the United States, with the students now teaching their former mentors. Indeed, Chinese officials, many of them schooled in US universities, seemed to have grasped far more quickly than US officials like Federal Reserve chairman Ben Bernanke the futility of relying solely on interest rate cuts for rapid recovery.

In particular, businesses won't invest, no matter how low interest rates go, if the recession remains. Nor will lower interest rates entice consumers to buy big-ticket items such as cars and houses if they are worried about their jobs and shrinking stock portfolios. Chinese officials have grasped this point, even as European officials have thus far rejected fiscal stimulus and US officials continue to quibble over the size and timing of any package.

Third, China's fiscal stimulus package puts a powerful exclamation point on the tightly woven interconnectedness of the world's major economies. While China continues to run large trade surpluses with the US and Europe, it is equally true that exports to China by American, European and even Asian countries constitute an ever-increasing component of economic growth.

In this global trade, countries like Germany, Japan and the US provide sophisticated capital equipment for China's "factory floor". As China expands its infrastructure, companies like Hitachi and Caterpillar likewise benefit from increased sales to China.

Fourth, the focus of China's fiscal stimulus particularly on infrastructure illustrates a sophisticated understanding - seemingly lacking in the United States - of what is necessary to build a strong economy. In its next stage of development, China's rail system must far better serve the inland areas of China where large pockets of rural poverty and high unemployment persist, despite three decades of robust growth. In fact, while the coastal areas from the Pearl River Delta up to Dalian have prospered, much of inland China remains impoverished. Swiftly developing better roads and rail and a more reliable and extensive electricity grid and water system is just what the country needs.

Fifth, China's New Deal will act as a powerful stimulus for domestic demand. Today, the Chinese economy is far too heavily dependent on export-driven growth. By stimulating domestic demand, China will not only better insulate itself from the vagaries of global trade. Rising domestic demand should also help reduce trade frictions that have arisen because of the large trade surpluses China runs with Europe and the US.

Finally, China's fiscal stimulus may also prove to be the beginning of the end of China's willingness to finance the budget and trade deficits of the United States.

For almost a decade, China has recycled many of the dollars it has earned through its export trade back into the US bond market. This has kept interest rates low in America and allowed the American consumer to spend far beyond his or her means. Now, however, China is going to need its foreign reserves and export earnings for domestic purposes. That should certainly mean fewer dollars available for recycling back to the US.

In this way, China's fiscal stimulus may act as a significant constraint on America's own ability to successfully implement its own fiscal stimulus - even as China uses Keynesian policies to eclipse the US as the world's reigning economic superpower.

Peter Navarro is a professor at The Paul Merage School of Business at the University of California-Irvine, a CNBC contributor and author of The Coming China Wars.

Europe could cede to emerging nations at IMF
By Stephen Castle
Published: November 13, 2008

NICE: European nations are prepared to lower their representation in international financial institutions to give China and other emerging economies a bigger role, the president of the European Commission, José Manuel Barroso, said ahead of the G20 meeting this weekend in Washington.

No plan has yet been drawn up, Barroso said. But following last week's European Union summit, Barroso said his clear impression was that European leaders accepted that they were over-represented in organizations like the International Monetary Fund.

"From the contacts I had," said Barroso, "and the general spirit of the discussion from leaders and heads of state, there is an openness to accommodate an increased role of the emerging economies."

The meeting on Saturday aims to start the reform of global financial institutions. It has been likened to the Bretton Woods conference that created the post-World War II international economic structures. One week ago the 27 EU leaders agreed to press for tighter regulation of financial institutions and an overhaul of the global system, and to seek a concrete proposals within 100 days.

Barroso and the President Nicolas Sarkozy of France, will meet President Dmitri Medvedev of Russia, in Nice on Friday before all three leave for the meeting.

Speaking during an interview with the International Herald Tribune, Barroso said that no decisions had been made about the IMF or World Bank, but that it had to be examined "sooner rather than later."

China ought to have a greater say to reflect its economic power, Barroso argued.

He added that Europeans, despite their high representation, suffered from the fact that they spoke as national governments rather than as a group. "We are punching under our weight because we have a fragmented representation," Barroso said.

Added together, the Europeans have higher voting rights at the IMF than the United States, Barroso said. "I don't think you can say we have more influence," he added.

At present the United States has 16.77 percent of the total voting weight at the IMF. Germany has 5.88 percent and Britain and France both have 4.86 percent. China has 3.66 percent.

As president of the European Commission, Barroso has an interest in promoting a pan-European representation at bodies like the IMF. Negotiating such an outcome among national governments that guard sovereignty jealously will be difficult, however.

Nevertheless experts argue that, if the big emerging economies are to be given a bigger say, Europeans will have to scale back their voting power.

"Clearly, the most over-represented part of the world right now is Europe," said Nicolas Veron, research fellow for Bruegel, an economic research institute in Brussels.

Vernon added that there was a trade-off for Europeans who would have to weigh the costs of surrendering voting power against the potential benefits of being part of a more relevant institution.

However he added that the current crisis has so far not so far projected emerging economies to center stage."The world that we are going to live in will be a world where China, India and Brazil have more importance than the Netherlands, Belgium and Denmark," Veron said, "but right now the emerging economies have not been at the center of things either in terms of problems or solutions."

crobato said:

But that's exactly the problem. The guys in the investment firm you just bought in thinks you just gave them a blank check. Consider you're paying for the opulent lifestyle of the executives. When you buy a firm, you don't necessarily buy the top management, you have to provide all sorts of opulent compensation packages to keep them on board. That's going to run into a major culture clash with the Chinese owners. When that firm you bought also becomes the target of numerous lawsuits down the road, which I expect to happen to many firms, guess who's going to pay for the costs and damages.

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Exactly. That's especially true given the new rule allowing writeoffs resulting from acquisition to be deducted from pretax earns. So the real cost is the writeoff.

About the IMF, not sure what role it really serves. The best thing that they could do now, and which they have done to some degree, is establish currency swap facilities between the US central bank and emerging market central banks to preserve the integrity of the exchange rate, which helps to reduce the pace of short term capital flows/unwinding. The whole concept of trade relies largely on stable exchange rates, maybe that's sounding like Bretton Woods but it's true. And short term capital flows can be extremely damaging without proper capital controls.

There is some proposing an AMF or Asian Monetary Fund, that comprises the richer Asian and Pacific countries, doing their bit for poorer Asian or Pacific countries.

I feel that there has to be some global monetary currency somehow. The effects on the US dollar can't be divorced from US budget and trade deficit, or short term reactions to such such as inflation and unstable exchange rates. Whatever you do within the United States should not monetarily disaffect and defranchise other people in the world, especially when they have no vote or say to US monetary policy.

But those who benefit from this defranchisement will fight tooth and nail to keep it.

crobato said:

There is some proposing an AMF or Asian Monetary Fund, that comprises the richer Asian and Pacific countries, doing their bit for poorer Asian or Pacific countries.

I feel that there has to be some global monetary currency somehow. The effects on the US dollar can't be divorced from US budget and trade deficit, or short term reactions to such such as inflation and unstable exchange rates. Whatever you do within the United States should not monetarily disaffect and defranchise other people in the world, especially when they have no vote or say to US monetary policy.

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A global monetary standard is interesting, and we had versions of that in the gold standard. A global currency, especially one not based on any commodities such as gold, presents a distinct challenge, because unlike gold, it's very easy to print a lot of new paper notes. Who's going to have the say over both the origin and the size of monetary expansions? Politics aside, that's a challenging academic question.

I tend to favor to the current system of monetary independence, because for the most part, it has awarded those who are prudent, like China or the US. As far as the inflation tax that foreigners suffer as a result of having the dollar in the forex reserve, it's yes and no. Yes in the sense that the inflation tax does represent a detrimental impact on the purchasing or conversion power of the dollar holding into real goods, but no in the sense that running a current account surplus/capital account deficit is the only way to get hundreds of millions out of poverty and into the cities. The social and economic impact of that is too much to measure even for the huge forex reserve. Take for example, London devoted huge long term capital investments in the US around the turn of the century, which has helped to make the US the manufacturing power that it used to be. The same thing is happening with China. So I guess my point is, it's not so much that anyone is forcing China to balance the payment with the US and preserve the exchange rate, China is doing this by her own choice.

As far as countries especially during the Asian financial crisis getting hurt by the speculative flow in short term capital, that's where they need to learn a thing or two from China. Access to the capital market ought to be limited, and long term capital investments into the Chinese industry in the form of WOEs and jvs ought to be encouraged. The reason is very simple: you can unwind a trade in a portfolio investment overseas with a click of a button, but you can't liquidate your factories or plants overnight. Fixed investments ought to be promoted over portfolio investments, and that's something that developing nations have to learn.

US's road to recovery runs through Beijing

By Francesco Sisci and David P Goldman

[David P Goldman was global head of fixed-income research for Banc of America Securities and global head of credit strategy at Credit Suisse. Francesco Sisci: Asia Editor of La Stampa]

English author G K Chesterton rhymed about "the night we went to Bannockburn by way of Brighton Pier", and it may seem no less whimsical to argue that the United States' road to recovery, as well as Barack Obama's path to presidential greatness, run through China.

In the rush to prop up America's financial institutions, foreign economic policy seems remote from Washington's agenda. America wants to revive the mortgage market and consumer spending. The effort is doomed to failure. For a quarter of a century the American consumer has been the locomotive of the world economy, and now the locomotive has derailed and taken the rest of the world economy with it.

Recovery requires a great change in direction of capital flows. For the past decade, poor people in the developing world have financed the consumption of rich people in America. America has borrowed nearly $1 trillion a year, mostly from the developing world, and used these funds to import consumer goods and buy homes at low interest rates. The result is a solvency crisis of the American household, which shows up as a solvency crisis for financial institutions. If we reckon the retirement needs of households as a liability, the household sector is as good as bankrupt.

No recovery is possible unless American households can save, and they cannot save in an economic contraction when incomes spiral downwards. To save, Americans must sell goods and services to someone else, and a glance at the globe makes clear who that must be: nearly half the world's population, and most of the world's capacity for economic growth, is concentrated in China and the Pacific Littoral.

China's economic problem is the inverse of America's: China has achieved fast rates of growth at the expense of huge disparities between the prosperous coast and the backward interior, as well as excessive dependence on foreign markets. China's policy response to the economic crisis is far more radical than Washington's. Rather than attempting to patch up the situation and restore the status quo ante, China plans to spend nearly a fifth of its gross domestic product on an internal stimulus focused on infrastructure in its interior. Severe execution risk attends the Chinese proposal, and markets remain to be convinced.

China can reduce the execution risk of its great economic shift towards home consumption, and America can solve its savings problem, through a grand partnership. This partnership need not be exclusive to America and China, but it must be founded on America and China, two of the world's largest economies. India and the other Asian economies should be encouraged to join this partnership. A great deal has been written about prospective conflict between China and the United States, but very little explanation is offered as to what issues might arise between China and the United States. China and America have far more to gain from cooperation than from conflict.

America's objection to Chinese foreign policy center on China's pursuit of commercial interest with countries (Iran, Sudan) whose behavior America considers unacceptable. America stands to gain an ally in questions of rogue-state behavior, terrorism, nuclear proliferation and other matters of national interest, in return for helping China achieve its legitimate goals.

The goals of the partnership should be to:
Support China's internal development by re-orienting export flows towards China and other emerging economies from the United States and other industrial countries.
Transfer technologies and other expertise to the emerging economies.
Make the emerging economies partners in the recovery of American asset prices.

Fear and risk-aversion rather than trust and optimism conditioned the two-way capital flow between emerging markets and the United States during the past 10 years. After the 1997 Asia financial crisis, and the 1998 Russian bankruptcy, investors in emerging markets lent their savings to the American government or its quasi-governmental agencies to diversify their portfolios into safe assets, while Westerners invested in local emerging market currencies for higher returns.

As one of the authors reported recently at this site (See Who will finance America’s deficit? David P Goldman, Asia Times Online, November 13, 2008), global financing of the US government deficit drew on leverage in emerging markets. De-leveraging of the world financial system sharply curtails the availability of overseas financing for the Treasury deficit.

America's economy model is broken. The tape cannot be run in reverse: America can't rescue an economy based on rising consumer debt and zero savings. America must become a technology exporter. Throwing more money into consumer stimulus, bailouts for the automobile sector, and so forth will fail miserably. America should recognize that the deformation of its economy is the inverse of the deformation of the Chinese economy (as well as other emerging economies), and that their common problem has a common cure.

The trouble in the world economy has been that a rich Chinese won't lend money to a poor Chinese, unless the poor Chinese first moves to America. China bought American mortgages, including poor-quality assets dressed up as high-quality assets, because China does not have the financial, legal and administrative capacity as well as the trust to write sufficient mortgage business at home. China's efforts to spend a fifth of its GDP on infrastructure face enormous problems of governance. In the United States, voters most approve most public spending at the local level, and the federal system provides checks and balances against abuse of public funds. Emerging economies must rely on the probity of a small number of officials with enormous power, a far less effective check against corruption.

China can use America's help in shifting its economy towards the internal market. Ironically, American officials have been trying to persuade China to import the American financial model for years, and the collapse of the American model has made the prospect less attractive. But it is a very good moment for China to bring in American banks, and start up a consumer lending market. The failures of the American consumer market do not wipe out a century of banking experience in evaluating and securitizing consumer loans. To help import the American model, China should be given the opportunity to purchase major American institutions in return. Citicorp, for example, could be bought today for about $50 billion or Capital One for $13 billion.

America remains the most technologically advanced economy in the world. China needs American high technology. In many instances, America restricts the sale of technology to China due to security concerns.

The United States should offer China a general reduction in restrictions on imports of American technology and acquisition of American companies, in return for a treaty linking Chinese and American security interests. The treaty would include:
A system of royalties for technology transfers and guarantees against pirating.
Freedom for Chinese companies to acquire American companies, including financial institutions.
Agreement on a common stance towards rogue states, nuclear arms proliferation, terrorism and other issues of mutual concern, covering such issues as Pakistan, Sudan, Iran and other areas of past diplomatic conflict.
An agreement on strategic arms deployment in Asia.
A roadmap for China's democratization.
Environmental and energy-efficiency goals.
Stabilization of China’s yuan against the dollar to support free capital flows between the US and China.

There are close to 2 billion people in China and the countries in its immediate periphery, and a further 1.1 billion people in India. Half the world's population lives in emerging Asia, and its productivity could triple in a generation. Out of the present crisis, the world might enjoy one of the longest and fastest economic booms in history - or it might remain in an economic mire for a decade. The incoming American administration might be remembered as one of the worst, or one of the best, in American history.

At the Washington summit meeting, China holds the cards

By Mark Landler and Stephen Castle
Published: November 14, 2008

WASHINGTON: It is not clear how much the leaders of developed and developing countries from around the world, gathered to discuss a fast-moving financial crisis with a soon-to-depart president of the United States, can hope to accomplish.

But the summit meeting in Washington this weekend may clarify one thing: how fundamentally the crisis is reshaping the economic map, rendering obsolete the old club of Western powers that fashioned the financial pillars of the post-World War II era at a conference in Bretton Woods, New Hampshire, in 1944.

While President Nicolas Sarkozy of France proposed the meeting and President George W. Bush agreed to be host of an expanded conference of G-20 nations, the most sought-after country at the gathering some are calling Bretton Woods II is likely to be China.

With nearly $2 trillion in foreign exchange reserves and an economy that is still growing - even if more slowly than it was before the crisis erupted - China is one of the few participants with the financial power to aid countries in distress, either directly or by contributing to the coffers of the International Monetary Fund.

"We will actively participate in rescue activities for this international financial crisis," Yi Gang, deputy governor of the Chinese central bank, told a news conference Friday in Beijing, according to Reuters. It was one of the clearest indications yet that China stood ready to help the IMF aid countries hit by the global credit crisis.

The same is true of Saudi Arabia, the sole Gulf oil producer that was to attend the meeting. Prime Minister Gordon Brown of Britain has already asked the Saudis for money to bolster the IMF.

"The G-7 was basically the leading 20th-century industrial countries," said Zbigniew Brzezinski, who was a national security adviser to President Jimmy Carter. "But we need something more than a few key players at these meetings. You have to engage other participants."

That view is becoming increasingly popular, even among those who stand to lose some clout within the IMF and other global institutions. In Nice, at a summit meeting Friday between Russia and the European Union, José Manuel Barroso, the president of the European Commission, said that both sides agreed that the "involvement of Russia in finding global solutions to global problems" was essential.

Dmitri Medvedev, Russia's president, said that he supported Sarkozy's proposal for a quick follow-up meeting after the Washington summit to maintain momentum behind an agenda for financial change. "Not just lists of declarations, not just photos," Medvedev said. "We need a plan of action."

But Russia, like most of the other less-powerful participants, ranging from Argentina to Australia, has been hit hard by the crisis, which began in the United States and spread to Europe and the rest of the world. Many emerging nations have suffered a cash squeeze as Western investors have pulled capital out to cover losses at home.

Adding to the sense of urgency was the latest economic data from Europe, which showed that the euro-zone economy, which comprises 15 countries, contracted 0.2 percent in the third quarter. That second consecutive quarter of contraction placed the bloc in a recession for the first time since the birth of the euro in 1999. The Hong Kong economy also shrank for a second consecutive quarter, figures showed Friday.

The Federal Reserve chairman, Ben Bernanke, also welcomed the involvement of China, India and South Africa in the talks. He told a European Central Bank conference in Frankfurt on Friday that he would "look for leaders to establish some general principles" and "set a timetable for all of us" to follow up at subsequent meetings.

For some countries, like South Korea, the situation is a nasty replay of the Asian financial crisis of a decade ago, except that this time their governments have pursued generally responsible economic policies and open financial markets. What demands these countries make in Washington remain one of the big questions of the summit meeting.

The decision to broaden the invitation list was made by Bush - in recognition, his advisers said, that the financial crisis had become a global affliction that demanded global responses.

Still, with the United States the epicenter and, to many of the attendees, the cause of the crisis, the shift in the power balance has been accentuated.

President-elect Barack Obama will be a conspicuous absentee, sending representatives to meet with foreign leaders but taking no position on proposed new regulations for the international financial markets.

The Bush administration is playing down the prospects of major results, partly because it opposes efforts by some Europeans to create a latticework of new regulations and partly because it does not want to commit Obama to measures that he may not support. Bush, some observers predicted, could end up a bystander at his own gathering.

Given the divergent agendas of the other participants - and the ambitions of some of its leaders, notably Sarkozy, for striding across the global stage - Bush's position has raised some intriguing prospects.

"Are the Europeans or the Chinese going to take advantage of this interregnum in the U.S. to set the tone for the future of financial regulation?" asked Simon Johnson, an economist at the Massachusetts Institute of Technology and a former chief economist of the IMF.

The Europeans have a long list of measures they favor to prevent a recurrence of the crisis, including executive pay limits and robust oversight of banks, hedge funds and credit rating agencies. They have also said they want to coordinate financial regulation among countries, perhaps through colleges of supervisors or a global regulatory council, which could be housed at the IMF.

"We know it's an awkward time for the United States, but we feel these issues are too important to wait," the British ambassador to the United States, Nigel Sheinwald, said Wednesday at a briefing.

The Bush administration said it would resist any attempts to create regulatory agencies with cross-border authority, something the French have discussed. It opposes regulating hedge funds, something the Germans are eager to pursue. And it is not enthusiastic about bolstering the resources of the IMF, as the British have advocated.

For all their calls to action, the Europeans are not united. The French favor tighter global coordination of regulation than do the British. The Germans are wary of financial arrangements that could require them to bail out their neighbors.

"I'm a little skeptical that they'll do more than float some trial balloons on this," said Charles Dallara, managing director of the Institute of International Finance, which represents more than 300 global banks.

During briefings, British, French and German diplomats said they hoped to extract real results, which could be turned into an "action plan" and could set the agenda for a follow-up meeting in 100 days or so. But the Chinese position on regulations is a mystery, even to those who follow it closely. As a result, the communiqué issued at the end of the summit meeting is unlikely to include more than general commitments to sound regulation and closer coordination between countries, officials said.

As the ambitions for the meeting have narrowed, the talk of a latter-day Bretton Woods has come to seem fanciful. The participants agree that the World Bank and the IMF - products of the original 1944 conference - should continue to serve as central institutions.

Europeans want the IMF to have larger resources for emergency aid. But that would almost certainly mean giving cash-rich countries like China and the oil exporters a bigger voice in its governance. At a minimum, analysts expect a statement favoring efforts to stimulate the flagging global economy.

Here again, China has taken the lead, with President Hu Jintao announcing a stimulus package of 4 trillion yuan, or $586 billion, a week ago. "It certainly puts Hu Jintao into an extremely strong position, coming into the meeting," said Nicholas Lardy, an expert on the Chinese economy at the Peterson Institute for International Economics.

Germany just announced a modest stimulus plan, and Britain plans one soon, leaving Bush, who opposes further economic stimulus, as the odd man out. Then again, Obama favors such a package, and the Congress, controlled by Democrats, has promised to take it up in a special session this coming week, or in January after Obama takes office.

"It feels like we're waiting for the new king to arrive," said Johnson of MIT.

The Washington Post

Team 'Chimerica'

By Niall Ferguson

Monday, November 17, 2008; Page A19

Future historians, I suspect, will look back on Saturday's anticlimactic G-20 gathering in Washington less as Bretton Woods 2.0 and more as a rerun of the London Economic Conference of 1933. Back then, representatives of 66 nations completely failed to agree on a concerted international response to the Great Depression. The fault lay mainly with the newly elected U.S. president, Franklin D. Roosevelt, who vetoed European proposals for currency stabilization.

This time around, it wasn't the newly elected Democrat but the outgoing Republican who wielded the veto. Even before his counterparts reached Washington, President Bush made it clear that recent events had done nothing to diminish his faith in free markets and minimalist regulation. Over the weekend, it was the United States that resisted European calls for a new international regulatory body, opposed significant redefinition of the International Monetary Fund's role and showed no interest in the idea of a global stimulus package.

A real opportunity has been missed. Just as happened in the 1930s, what began as an American banking panic has now escalated into a global economic crisis. And just as happened in the 1930s, a lack of international coordination has the potential to turn a recession into a deep and protracted depression.

The problem that seems scarcely to have been discussed over the weekend is that each national government is currently responding to the crisis with its own monetary and fiscal measures. Some central banks have already slashed official rates to close to zero. Some treasuries have already launched multibillion-dollar bailouts and stimulus packages. The devil lies in the different timing and magnitudes of these measures. The absence of coordination makes it almost inevitable that we will see rising volatility in global foreign exchange and bond markets, as investors react to each fresh national initiative. The results could be nearly as disruptive as the protectionist measures adopted by national governments during the Depression. Now, as then, a policy of "every man for himself" would be lethal.

At the heart of this crisis is the huge imbalance between the United States, with its current account deficit in excess of 1 percent of world gross domestic product, and the surplus countries that finance it: the oil exporters, Japan and emerging Asia.

Of these, the relationship between China and America has become the crucial one. More than anything else, it has been China's strategy of dollar reserve accumulation that has financed America's debt habit. Chinese savings were a key reason U.S. long-term interest rates stayed low and the borrowing binge kept going. Now that the age of leverage is over, "Chimerica" -- the partnership between the big saver and the big spender -- is key.

In essence, we need the Chinese to be supportive of U.S. monetary easing and fiscal stimulus by doing more of the same themselves. There needs to be agreement on a gradual reduction of the Chimerican imbalance via increased U.S. exports and increased Chinese imports. The alternative -- a sudden reduction of the imbalance via lower U.S. imports and lower Chinese exports -- would be horrible.

There also needs to be an agreement to avoid a rout in the dollar market and the bond market, which is what will happen if the Chinese stop buying U.S. government bonds, the amount of which is now set to increase massively.

The alternative to such a Chimerican deal is for the Chinese to turn inward, devoting their energies to "market socialism in one country," increasing the domestic consumption of Chinese products and turning away from trade as the engine of growth.

Memo to President-elect Barack Obama: Don't wait until April for the next G-20 summit. Call a meeting of the Chimerican G-2 for the day after your inaugural. Don't wait for China to call its own meeting of a new "G-1" in Beijing.

Niall Ferguson, a professor of history at Harvard University, is the author most recently of "The Ascent of Money: A Financial History of the World."

This article does not make sense in a number of areas.

First, the author makes it sound like coordinated action would solve everything. It won't. And the idea that actions ought to be uniform and coordinate relies on the premise that a certain set of prescribed actions would work for everybody. It doesn't.

Then he goes on to challenge China to address the perpetual current account deficit with the United States and in the same breathe, encourages China to balance its payment with the US by investing in tbills. The problem with that theory is, it's not a theory, it's exactly what China has been doing for the past decade. Did he seriously just asked China to make its exchange rate more flexible yet preserve the balance of payment? Nonsensical.

Lastly, he comes off as a free market guy who wants to pressure China into adopting freer currency regimes, yet tries to encourage the unsustainable socialist policies of the US at the same time. He points out that China has to keep buying tbills to support the real cost of borrowing in the US, the riskfree rate. Yet he fails to tell you that more than half of US federal budget spending goes to social entitlement problems such as healthcare. Since when is it the obligation of Chinese savers to fund America's expensive trips to their hospitals? If anything, he should be looking in the mirror and realize that something has to be done about the 50 trillion dollars of unfunded social entitlement spending over the next 75 years. For some odd reason I don't think uncle sam is getting that money from China.

Rant over.