Global Economic Bullet Train – The Shanghai Expressionless by Danielle DiMartino Booth
Released at the height of the Great Depression, The Shanghai Express was a welcome departure from the economic ravages that had so scarred America. The 1932 runaway hit eclipsed even Grand Hotel at the box office and proved to be the pinnacle of Marlene Dietrich’s and director Josef von Sternberg’s collaborative efforts. The fourth of seven movies this pair produced is a decadently delectable affair chronicling a group of passengers journeying from Beijing to Shanghai during a Chinese civil war.
As the New York Times said at the time, Dietrich portrayed courtesan Shanghai Lily in flawless form: “She glides through her scenes with heavy eyelids and puffing on her cigarettes.” The film would go in to be awarded the Oscar for Best Cinematography.
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If only this weekend’s G-20 meeting in Shanghai held the prospect of such glamour, intrigue and theatre. “Marginalized” better describes the position commanded by the Group of 20 against the current global economic backdrop.
In alphabetical order, the international policy forum consists of 19 individual countries including Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom and the United States as well as the European Union.
Given the high stakes dramas playing out in uniquely distinct and yet interconnected fashion in every single participant’s respective economy, one could be forgiven for concluding that much would be afoot over the next several days at the Shanghai summit.
Alas, as a Financial Times editorial opined, “In the seven years since it was elevated to the level of supposed guardian of global stability, the G-20 grouping of large economies has struggled to make a noticeable impact.”
This weekend is not expected to elevate the group’s depressed status despite the fanfare that should have accompanied China’s rotating into the position of the G-20’s presidency this year. Such is the reality of the repudiated yet raging currency war that can never amount to anything but a zero sum game.
In a different world, the gathering could have opened a dialogue to conceive a 21st Century answer to yesteryear’s Bretton Woods and Plaza Accord. The monetary authority powers that be could have deigned to implement a coordinated adjustment to exchange rates for the greater good of a world economy flashing increasing recessionary signals.
But we’re not there yet. Deny, deny, deny rules the day. The U.S. Treasury Secretary did just that in a Bloomberg interview earlier this week: “This is not a moment of crisis. This is a moment where you’ve got real economies doing better than markets think.”
And so we’re told to turn a blind eye to aggregate global debt being appreciably higher than it was when the global economy careened into the financial crisis. And we acquiesce to those massaging the data to keep the propaganda machine up and running.
The latest case in point: global trade. Count the volume of trade; discount its value. Then you can resolutely reject the news that 2015 marked a 13.8-percent decline in the dollar value of goods traded globally, the first contraction since 2009.
Even the G-20 participants are asked to leave their common sense at the door. The gathered group of finance ministers and central-bank governors will quiescently defer to the other Group, the Group of 30, whose current driving philosophy dictates that more is more, at least if you’re referring to negative interest rates dropping further into the abyss and engulfing more and more countries as they spread across the globe like a monetary plague.
The hope is that the convening countries can convince the nervous onlookers that they can manage to at least retain the veneer of economic diplomacy. U.S. officials emphasized that they expect all of their compatriots to reiterate their commitment to play fair and, “honor their commitments to avoid persistent exchange-rate misalignments and not target exchange rates for competitive purposes.” Isn’t that nice?
The absurdity of the white-hot fear gripping the world is that the Chinese have no intention to deeply devalue the yuan, regardless of the dividends such a move would pay to its faltering industrial sector. That’s saying something considering the hundreds of thousands of workers who will be made redundant as Chinese manufacturing is right-sized.
“China’s economy is obviously a mess,” said Leland Miller, president of China Beige Book International, a comprehensive quarterly report that provides a unique prism into the true state of the Chinese economy. “But the reality is they’re very unlikely to push through a big devaluation.”
As for the foreign reserves outflow scare, Miller’s take is that most fly by night authorities on the subject haven’t the foggiest idea what they’re talking about. Markets have swung wildly based mostly on conjecture fed by high profile hedge fund managers ‘talking their book.’ The truth is, very little can be gleaned given so little data are released in January and February due to distortions introduced by the Chinese New Year.
And so investors fret in existential agony. Are the Chinese inept or idiotic with respect to their financial and banking systems? Do they want to open their capital markets or keep them slammed shut? Will they want to join a basket or maintain rigid control over their currency? This century or the last?
While desperate times call for desperate measures, desperation itself can be damaging. So countries continue to fire their weapons hoping the silencer is screwed tightly onto the barrel, all the better to not engage their neighbor next door whose currency has just strengthened. The problem is it doesn’t take long for the neighbor to look down and see their opening wound. And so the injured neighbor retaliates as quietly as it can. And so on.
This weekend in Shanghai, the elephant in the room will be those who are conspicuous in their diplomatic absence. That is, the world’s fiscal authorities who need to finally take the baton from central bankers who have clearly exhausted their options.
In the end, as the global economic bullet train threatens to run off the rails into the warring factions, politicians will only have themselves to blame as they continue to disregard their constituencies’ growing angst in the naïve hope a monetary miracle can save us all.
The Shanghai Expressionless