A Tiff with Big Brother

Washington has troubles with its entourage. After days of wrangling between President Obama and Germany’s Chancellor Angela Merkel, they managed to call a sort of verbal cease-fire on Thursday. Obama had invited Merkel to meet with him just prior to the opening of the G20 Summit in Seoul. The reason for the discussion: the economic dissent between Big Brother and his faithful ally was threatening to develop into a major confrontation in the South Korean capital.

That wasn’t the way things were supposed to go. The G20 nations were supposed to give the U.S. plan their approval and the recovery was to have begun from New York to San Francisco. In the run up to the meeting, Obama and Treasury Secretary Timothy Geithner authoritatively and pretentiously tried to blame America’s slow-paced recovery on China, Germany and Japan because of their export surpluses which they claimed caused imbalances in world trade. In addition, they claimed, China was manipulating its currency to keep it artificially cheap. That, they claimed, made it easy for China to flood the U.S. market with low-priced goods. U.S. manufacturers, they claimed, were being to forced to close up shop and lay off their workforce. That had to end, they said, and export surpluses had to be limited to 4 percent.

Germany’s Angela Merkel was rightly peeved not only because of Obama’s arrogance, but because he also told her that he had written a letter in which he wanted to allay Berlin’s fears about the summit but that the letter hadn’t reached her in time. All other G20 participants had received it but Merkel was expected to change her view in the interests of the situation. Merkel, not unreasonably, noted that Germany was adhering to one of the most important basic principles of capitalism, namely, competition. Those nations that were industrially competitive didn’t deserve to be penalized. She also pointed out that the Federal Reserve’s expectation of paying off the U.S. debt by printing new money wasn’t really an acceptable part of market economics. The Fed’s decision to print an additional $600 billion in order to buy up U.S. Treasury bonds had no real goal and would lead only to new speculative bubbles in the market, Merkel noted. In this regard, she was in agreement with the Chinese, Japanese and Brazilian governments.

The United States faces the dilemma of wanting to be the world’s only superpower but not being able to afford the luxury. It was, after all, “corporate America” that shifted U.S. production to China in order to reap outstanding profits from cheaper labor. In America, that was compensated for by the introduction of “innovative financial products” from Wall Street. After the bubbles all burst, the United States now finds itself without an economic model that can finance its superpower expenditures while also guaranteeing its citizens a decent standard of living. That won’t be found in Seoul either.