Obama: Economy won't recover if US borrows money

In Seoul, the Group of 20 struggles to find common ground on disputes over currency, trade gaps, protectionism and regulation.

November 11, 2010 10:43
2 minute read.
Obama with South Korea's President Lee Myung-bak

obama korea 311. (photo credit: Associated Press)

Major nations struggled Thursday to break a deadlock on how to fix problems cramping the world economy as President Barack Obama insisted that a strong US is crucial for a wider international recovery.

In a letter to the Group of 20 rich and major developing nations, Obama warned the US cannot remain a profligate consumer using borrowed money, and needs other countries to pull their weight to fix the world economy.

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He is in Seoul, the South Korean capital, to attend a two-day summit of the G-20 which encompasses developed nations such as Germany and the US along with emerging giants like China, Brazil and India. The summit officially opens later Thursday, hoping to tackle deeply sensitive issues that include state manipulation of currencies, trade gaps, protectionism and strengthening regulation of banks.

"The most important thing that the United State can do for the world economy is to grow, because we continue to be the world's largest market and a huge engine for all other countries to grow," Obama said at a news conference.

The G-20, which was established in 1999 and raised to a summit level two years ago, has become the centerpiece of top-level efforts to revive a struggling global economy and to prevent a financial meltdown of the kind seen two years ago.

Yet compromise among G-20 countries has looked difficult in recent weeks. It is divided between those like the United States that see the top priority as getting China to let its currency rise and those irate over U.S. Federal Reserve plans to pump $600 billion of new money into the sluggish American economy, effectively devaluing the dollar.

"Reducing imbalances between developed countries and developing countries is an urgent matter we have to resolve for a balanced global economy," South Korean President and host Lee Myung-bak told a business leaders' conference ahead of the summit.

In a letter to fellow leaders at the G-20, Obama made it clear that the US cannot remain the world's consumer, propping up others by borrowing and spending. He is pitching for a balanced recovery across the globe — tougher to achieve when national interests collide.

"The foundation for a strong and durable recovery will not materialize if American households stop saving and go back to spending based on borrowing," Obama wrote. He pushed for exchange rates based on the market and no more "undervaluing currencies for competitive purposes."

The message was primarily aimed at China, whose trade surplus with the US is bigger than with any other trading partner, including the European Union. The US contends that China deliberately undervalues its currency, the yuan, which gives it is exports an unfair competitive edge.

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