Global Crisis Blog

Hot Potato:  Which Country Will Be Burned?

By Shlomo Maital 

    

 (Bill Whalen, Politi-Cal)

 

 

In Korea, at the G20 meetings,  President Obama said to Asian leaders: Don’t count on America to continue to create jobs for you.  Here is what he meant.

  Children play a game called “hot potato”, a party game in which players sit in a circle and pass a potato to one another while music plays. The player who holds the ‘hot potato’ when the music stops is out. The game ends when there is only one player left.

  Nations of the world are currently playing ‘hot potato’ with unemployment. Here is how it works.  America imports $620 b. more than it exports.  If this number were zero, that is if America produced itself the import surplus it currently gets from abroad, 5 million jobs would be created, and America’s unemployment rate would fall from nearly 10 per cent to about 6 per cent.  This will get Obama re-elected in 2012.  

   At the same time, if America’s trade balances, Asia will lose about 40 million jobs — half of them in China. (Asia loses far more jobs than America gains, because American productivity is about 8 times higher).  Even China cannot absorb such a huge loss of jobs without severe social unrest. 

   WTO rules forbid imposing tariffs. Budget deficits are already excessive. So the “hot potato” game becomes one of currency devaluation. By printing up to $1.5 trillion in new money, America purposely seeks to devalue the dollar.  This, despite the mealy-mouthed declaration of Treasury Secretary Timothy Geitner that this is not America’s intention.  China, Japan, Korea and Taiwan can prevent this dollar devaluation by simply buying up huge amounts of dollars, as they have in the past.  A sub-game called “Chicken” will result — how many dollars will America print, how many will Asia buy, before one country is “chicken” and gives up?  Who in the end will be stuck with the unemployment “hot potato”? 

   This game is totally unnecessary.  If leading nations got together and built a consensus policy for rebalancing the world economy and for stimulating trade and growth worldwide, over the coming decade, all would benefit.  Win-win. But so far, there is not one sign this will happen.  When one or more nations are burned by the hot potato, ultimately,  all are.

    

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