From the March 19, 2010 Washington Examiner
March 19, 2010
by Irwin Stelzer
Small groups, gathered in meeting rooms scattered around the world and focused on a single issue, can affect the way we live, at least now and perhaps for a long time. And not necessarily for the better. Consider only this week's conclaves.
In Washington, the Federal Reserve Board's monetary policy gurus met, and decided to keep interest rates low even though they agreed that the economy is improving.
Meanwhile, meeting in committee rooms and in the corridors of power, Congress gave the White House what its economists and the president, meeting in the Oval Office, demanded: More stimulus spending.
It is true that there is considerable excess capacity in the economy, as the deflation worriers continually point out. But anyone who believes that the meetings at the Fed, in Congress and in the White House are not going to result in future inflation carries a heavy burden of proof.
Meanwhile, in Vienna, the members of OPEC, the oil cartel, met and decided that $80 is just about the right price for their crude oil. That means that the cartel is not prepared to support the fragile worldwide recovery by lowering oil prices. Instead, the Organization of Petroleum Exporting Countries continues to tax consumers and in effect run a counterstimulus, anti-growth policy, to the consternation of the groups meeting in Washington.
On to meetings in China. At the regime's annual gathering its leaders made it clear that the peg of the yuan to the dollar is here to stay for a good long while. The OPEC meeting reduced the hopes of the Washington meeting that the economy would resume growth, and the Beijing meeting put a damper on hopes that the United States could engineer an export-led reduction in unemployment.
Not to be outdone by meetings in Washington, Vienna, Austria, and Beijing, Europe held its own round. In Brussels, Belgium, key euroland and European Union officials met and agreed that Greece would not be allowed to go under, and, more important, in effect agreed to extend monetary union to fiscal affairs.
With no nation too small to fail, richer nations have taken the balance sheets of Greece, Spain, Ireland, Portugal and Italy onto their own books, and guaranteed investors that they would not be wiped out. Not good news for proponents of reduced deficits in profligate countries.
The real question is whether these meetings really matter, whether they are full of sound and bottles of mineral water, but signify nothing. It is arguable that in the end you can't fight markets. If Iraq returns to full production and natural gas realizes its potential, all of OPEC's resolutions will not keep oil at $80.
If the rating agencies decide that continued deficits in America are taking sovereign and related debt to levels that will place a claim on too large a portion of national income, nothing the Fed will be able to do at any meetings it might convene will prevent interest rates from rising, and growth slowing. If inflation explodes in China, the dollar peg will soon be history if the regime is unable to use its muscle to bottle up inflation.
But that is for the long run. At least for now we must live with results of these many meetings. Fiscal policies that increase national debt. Continued loose monetary policy that threatens a return of inflation. An undervalued yen, putting pressure on President Obama to resort to protectionism to create "good, high-paying American jobs." High oil prices. Not very happy results of all these meetings.
And soon Obama will fly off to still more meetings. Perhaps the world's luck will turn, and positive results will be had. But only perhaps.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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