Thursday, October 28, 2010

Tim Geithner's Plan to Save the World

A recent headline for a Financial Times story reads: "Geithner Plans to Save the World Economy"*

Uh, I hadn't even read the story and I was already Beelzebub-level scared. Unfortunately, things don't get much better when you read it.

Geithner is credited with pushing the idea to:
broaden the focus from exchange rates. G20 countries, he says, should commit to keep their current accounts – whether deficits or surpluses – within a percentage limit of national output.

Reorienting the discussion towards current accounts makes good sense. They are at the heart of the global imbalances; exchange rates are merely instruments – and far from the only ones – for influencing them. Current account targets would leave open how excessive balances are to be shrunk – through nominal or real exchange rate adjustments or through other policies that affect public or private sector surpluses and deficits.
That's it! Why didn't I think of that? The worlds' economies are going down the tubes because of bad current account targets. We need more central banker intervention! No wonder they call him The Boy Wonder.

*Full disclosure: This was RCP's headline for the story, not the FT's. The former clearly knows a thing or two about generating clicks. The FT has it as: "A walk in the old Bretton Woods"

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