President Barack Obama says he is determined to go after the “reckless risk-taking” that plunged the global economy into the worst financial crisis since the 1930s, and he is also pushing for countries to promote more balanced growth going forward.
He is getting support for his efforts from other leaders, although significant differences remain as Mr. Obama prepares to serve as host for a Group of 20 meeting of the world's leading economies on Thursday and Friday in Pittsburgh.
In addition to pushing the U.S. agenda, Mr. Obama is certain to face tough questions from other G-20 countries over whether his administration can develop a credible plan to curb a soaring U.S. budget deficit that the White House projects will hit an eye-popping $1.548 trillion this year and total $9 trillion over the next decade.
As part of an effort to convince the world that he is serious about getting the deficit under control, Mr. Obama is pushing a plan that would require the United States and other countries to make sweeping changes in how they manage their deficits.
The goal is to prevent the destabilising imbalances represented by America's high budget and trade deficits, and huge trade surpluses in countries such as China.
Mr. Obama's initiative would require chronic trade-deficit nations like the United States to boost their savings rates to consume fewer imports, and for trade-surplus countries like China to get their consumers to spend more and rely less on export-led growth.
“We can't go back to an era where the Chinese or the Germans or other countries just are selling everything to us, we're taking out a bunch of credit card debt or home equity loans, but we're not selling them anything,” Mr. Obama said during a CNN interview broadcast Sunday.
Americans' personal savings rate has been rising during the current hard times as households cut back on spending and try to repair their cracked nest eggs. But the problem is that the U.S. budget deficit, a barometer of overall national savings, has been soaring, raising alarm bells in countries such as China, the largest foreign holder of U.S. government debt.
The U.S. deficit has been driven to stratospheric heights by the billions of dollars being spent to stabilise the U.S. banking system and stimulate the economy. The administration says the economic outlook would be far bleaker if that money had not been spent.
China has not been shy about voicing worries that the U.S. deficits will undermine the value of its $800 billion in Treasury bonds.
The Chinese worry that the dollar, which has been sliding to its weakest levels in a year, will weaken further, making their holdings worth less. They also worry that all the U.S. debt could trigger inflation in the United States that would further undermine their investments.
While a U.S. commitment to get budget deficits under control would address Chinese concerns, Chinese officials are worried that the rebalancing pledge could be used as a club by other countries to attack their trade surplus policies. The United States has sought a Chinese commitment to the plan by pushing to obtain a greater role for China and other emerging economies in global financial institutions like the International Monetary Fund.
But Mr. Obama's push for the G-20 countries to commit to a “framework for sustainable and balanced growth” is getting support from many leaders, including British Prime Minister Gordon Brown.
“It's a compact for growth and jobs. It's a global compact and it's the first one that you would ever have and I believe there is substantial support for moving in this direction,” Mr. Brown told reporters at a briefing Monday.
One area that needs to be resolved is how a country's commitments would be enforced.
In his weekly radio address, Mr. Obama also said the Pittsburgh meeting would put forward serious reforms to make sure that the types of activities that contributed to the financial crisis were not repeated.
“We cannot allow the thirst for reckless schemes that produce quick profits and fat executive bonuses to override the security of our entire financial system and leave taxpayers on the hook for cleaning up the mess,” Mr. Obama said.
But it's not at all clear how bold the G-20 will be, given the disagreements among the major nations over such issues as executive bonuses and how much of a capital cushion banks should carry to guard against losses.
French President Nicolas Sarkozy and German Chancellor Angela Merkel have both put forward tougher rules on bonuses than the U.S. favors, while Treasury Secretary Timothy Geithner is pushing for more sweeping regulations in the area of banks' capital reserves.