An update on the global blame game

Bloomberg columnist William Pesek Jr offers readers "an update on the global blame game" in his latest column, Global Game of Musical Chairs May End Badly. He argues that the risks that East-West tensions over global imbalances "will become a huge problem are growing".

As is often the case, the latest East-West flashpoint is currencies.  ...the U.S. Treasury Department was unhappy with efforts by Japanese officials to slow the yen's gains since a meeting of the Group of Seven last month. Japan was miffed the U.S. seems to be encouraging a weaker dollar and downplaying its record current-account and budget deficits. China also voiced concern about the depreciation of the U.S. dollar.         

All this is code for "the world's economic imbalances aren't my fault, but yours.'' If events in Hyderabad crystallized anything, it's that the blame game that's become a common feature of the global economy is entering a new and more dangerous phase. What's even more worrisome is that there's no adult in the room in which this game is playing out.

The G-7 can't act as referee because its members are part of the problem. The International Monetary Fund is too busy trying to remain relevant in a world devoid of crises to offer much direction. Of course, if today's imbalances get out of hand, the IMF's bailout abilities won't be up to the challenge. The world economy isn't too big to fail, but too big to save.

Here's an update on the global blame game:

For a record $805 billion current-account deficit that's clearly unsustainable, the U.S. blames China and Japan. If only officials in Beijing and Tokyo would let currencies rise, the U.S. argues, all would be well. The U.S. almost seems to think it's over-consuming out of a sense of global altruism.

Asians blame the West, especially the U.S., for Asia's policy of parking more than $1 trillion of savings in U.S. debt. Officials in this region claim the U.S. has created a global system to help fund its way of life, and that Asians have little choice but to play along.         

Europe blames Asia's mercantilist ways for its declining competitiveness. It seems Europe's weak demand, high unemployment and worsening fiscal position are caused by Asians pushing the euro higher with their dollar purchases.

In all cases, the reality lies somewhere in between. The thread of truth that runs through each accusation was nicely articulated in Hyderabad by Li Yong, China's vice finance minister: ``We are all on the same boat. No one will escape if this boat sinks.''

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