I also found Secretary Geithner’s “Dear G-20 Colleagues” letter to be curious work.

Secretary Geithner wrote:

“First, G‑20 countries should commit to undertake policies consistent with reducing external imbalances below a specified share of GDP over the next few years, recognizing that some exceptions may be required for countries that are structurally large exporters of raw materials. This means that G‑20 countries running persistent deficits should boost national savings by adopting credible medium‑term fiscal targets consistent with sustainable debt levels and by strengthening export performance.”

The letter doesn’t say what the “specified share of GDP” for external imbalances should be. There is no reference to any study explaining why a common “specified share” is desirable. There is no reference to the reserve role of the dollar, which places the US in a position of structural deficits. The key objective in the letter seems to have been plucked from thin air.

Next, consider the exception. If countries who are “structurally large exporters of raw materials” should be allowed to run their surpluses, then logically other countries must be allowed to net import those same materials. One exception implies the other. Nowhere does the letter acknowledge this.

The second sentence calls for a deflationary policy in “persistent deficit” countries. The most notable of these? It’s the United States. So Secretary Geithner here endorses slow-growth and high unemployment policy in America for the “medium term.” A qualification allows for stronger exports, which would require a much weaker dollar. On that point, let’s skip to the comment on exchange rates:

“G‑20 countries should commit to refrain from exchange rate policies designed to achieve competitive advantage by either weakening their currency or preventing appreciation of an undervalued currency."

So much for stronger exports.

Moving on, the letter calls on surplus countries to expand:

“Conversely, G‑20 countries with persistent surpluses should undertake structural, fiscal, and exchange rate policies to boost domestic sources of growth and support global demand.”

This arrow has two obvious targets. But for China the problem is that when demand expands, a major trade effect is on commodities (and their prices), and notably on oil. This is good for producers, not so great for fellow importers -- like the United States.

As for Germany, why should the G-20 care about current account imbalances inside the eurozone? German surpluses are offset by deficits elsewhere inside Europe, and Europe-as-a-whole has roughly balanced trade with the rest of the world. What matters for world demand is not German demand inside Europe, but European demand in the world economy. Expanding Europe’s demand -- a good thing given high European unemployment – would mean moving Europe’s trade toward net deficits, and away from balance, with the rest of the world.

Maybe a general movement toward balance, then, isn’t really what we want after all?

The rest of the letter is basically boilerplate. Geithner writes, in light code, of how the RMB should appreciate to “levels consistent with economic fundamentals” – whatever that means. The G-20 should “work to ensure against excessive volatility” in exchange rates and capital flows. Ho, hum. And the IMF should “assume a special role in monitoring progress on our commitments.” Meaningless.

Empty letters are part of the pitter-pat of international financial discussions. It may be a bit unfair to single out this particular one. On many practical instances, in recent months, Secretary Geithner has argued against austerity and for a stronger growth policy in other countries. His lack of success with reactionary Europeans isn’t his fault. However bad our Treasury Department’s economics, theirs are much, much worse.

But still, when the United States Treasury Secretary writes a letter to his “G-20 colleagues,” can’t he manage something that hangs together a little bit better than this

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This is a guest post from Carl B. Weinberg, who is chief economist of High Frequency Economics.

The G-20 finance ministers and central bankers, meeting in Gyeongju, South Korea, last weekend, could not possibly have done less to improve the fate of the world's major industrial economies. They agreed that each government will implement whatever fiscal policies it believes is in its own best interest, and that each central bank will set monetary conditions independently in line with maintaining price stability. So… new? No government or central bank should ever do anything differently, and none will change its policies after this meeting. Unlike the 1985 Plaza Accord, when five governments agreed to subjugate national policy goals to prioritize common global policy objectives, no nation's government left the meeting room in Gyeongju prepared to subjugate anything to anyone.

At a time when the economies of all the G-7 economies and Euroland jointly face a synchronized credit crunch, surely someone might have thought that all the central banks—facing deflation at once—could agree to print money jointly until price stability is assured.

However, European intransigence on the use of monetary policy for any purpose other than inflation stifling has turned that idea—already embraced by the BoJ and in play at the Fed and the BoE—into a debate on currency manipulation rather than a coordinated push against deflation. This is ugly. It is the Europeans, and to some extent, the Canadians, who stand as the odd ones out on the QE question. It is unhelpful for them to blame the global consensus that deflation risks loom large for the appreciation of the euro.

Secretary Geithner's idea of calibrating currency management against the current account imbalances of nations is intellectually sterile and practically useless. The notion that the role of the exchange rate is to balance trade in goods and services fell out of vogue almost as soon as David Hume proposed it in 1752. Most modern economists understand that the balance of payments is more than just the current account, and that capital flows are part of the balancing mix too. Bertil Ohlin floated that idea in his 1929 debate with John Maynard Keynes on Germany's balance of payments, and the idea has become the core modern thinking about financial imbalances between nations. At least the G-20 had the sense to reject that idea.

If the G-20 want to promote fiscal austerity, a good place to start would be in saving the money they all spend, collectively, on meetings like this one. How many lives could have saved in earthquake- devastated Haiti if the expense of this meeting went to rebuild infrastructure there, where an outbreak of cholera threatens thousands of lives as the G-20 ministers and bankers and their staffs feast?

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