The Global Blame Game

William Pesek Jr.:

“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.''

Act Now

Given the stakes, it would be nice to see policy makers taking steps to keep their imbalances from growing and undermining the global financial system. Instead, they are engaged in a dangerous game of musical chairs. The trouble is that there won't be enough chairs to go around and the music may stop at any moment.”

It’s worth bearing in mind that a disastrous unwinding of the ‘dangerous game’ is so widely anticipated that one can reasonably assume that the ‘big players’ have devised some sort of coping mechanism to contain the expected damage/financial turbulence - and probably also make huge profits along the way.

But Stephen Roach has a different view:

“It is in the world’s best interest to manage the endgame of the risk reduction trade very carefully. But there are no guarantees the authorities can pull it off without a hitch. The steady build-up of global imbalances and multiple asset bubbles is very much part of the same problem — a US-centric world that is riding one of the most powerful liquidity waves in history.”