Government

Obama To China: Buy Our Stuff

President Obama has a few key economic messages for the world: China needs to buy more stuff from other countries; Europe (and the U.S.) shouldn't be too hasty in the push for austerity; and banks need to hold bigger rainy-day funds.

Those are the messages (some implicit, some explicit) in this letter to world leaders, written ahead of the upcoming G-20 summit and obtained by the Washington Post.

Here are a few of the key passages:

The letter doesn't mention China by name. But it includes a passage that clearly applies to China.

For years, the U.S. has imported more than it's exported, while China has done the reverse. Obama writes:

A strong and sustainable global recovery needs to be built on balanced global demand. ... I am concerned by weak private sector demand and continued heavy reliance on exports by some countries with already large external surpluses.

This is followed by a bit that's aimed at China's policy of tying its currency to the dollar. U.S. officials have called for China to allow the value of its currency to fluctuate. That would make U.S. goods cheaper for Chinese consumers. (It would also make Chinese goods more expensive for U.S. consumers.)

... I also want to underscore that market-determined exchange rates are essential to global economic vitality. The signals that flexible exchange rates send are necessary to support a strong and balanced global economy.

Elsewhere in the letter, Obama addresses Europe and the U.S., when he argues that governments shouldn't cut spending too quickly:

We need to commit to fiscal adjustments that stabilize debt-to-GDP ratios at appropriate levels over the medium term. ... But ... we must be flexible in adjusting the pace of consolidation and learn from the consequential mistakes of the past when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession.

Finally, he argues for a few reforms of the global financial system. This section of the letter is pretty general.

On one key subject — how much money banks should hold in reserve, and what form that money should take — Obama basically says banks should hold bigger cushions, but doesn't get into specifics:

We want our negotiators to reach agreement on a new capital framework ... that will include higher common equity requirements, tighter definitions of capital, a simple mandatory leverage ratio, and appropriate liquidity requirements.

Update: Thanks to the commenters who pointed out the typos in the post. They've been fixed.

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