Obama’s defense of Fed action a tough sell to G-20

President Obama defended efforts to revive faster growth in the U.S. economy as the Group of 20 summit of world leaders got off to a testy start in South Korea Wednesday with little prospect for resolving simmering trade and currency disputes.

In a letter to other world leaders, Mr. Obama proclaimed that “a strong recovery that creates jobs, income and spending is the most important contribution the United States can make to the global recovery”- his latest rebuttal to widespread global criticism of the Federal Reserve’s campaign to buy up U.S. Treasury debt to nurture faster growth.

Far from undermining the strength of the U.S. dollar, as critics in China and Germany maintain, the Fed’s move — if successful — will strengthen the U.S. currency as investors flock once again to U.S. markets to seize on growth opportunities, the president said.

“The dollar’s strength ultimately rests on the fundamental strength of the U.S. economy,” Mr. Obama said. He once again urged other nations — particularly China — to let the markets determine the value of their currencies rather than rigidly fix them to the dollar to gain an advantage in trade.

Many currency analysts agree with Mr. Obama that the U.S. dollar stands to gain in coming months against the euro and Japanese yen, in particular, if the Fed is successful and the U.S. recovery picks up speed.

Nick Bennenbroek, analyst with Wells Fargo Securities, said the dollar actually has strengthened since the Fed’s announcement last week because, in an “ironic twist,” the economy has been showing unexpected strength. A report on Friday showed the best private job growth since April.

“Moreover, with the initial Fed announcement now out of the way, markets have refocused their attention on the ongoing European debt-market difficulties and, in particular, concerns over the state of the Irish government’s finances,” Mr. Bennenbroek said. The result is the euro may be due for a decline against the dollar.

But the Fed’s move only seemed to provide an excuse to many nations to dig in and further resist Mr. Obama’s call to curb global trade imbalances, starting with the massive Chinese trade deficit with the United States.

A Commerce Department report on Wednesday showed that the U.S. deficit with China fell $2.2 billion to $27.8 billion in September but remained near record highs. The U.S. blames the deficit in part on China’s currency policy, which makes Chinese imports cheaper in the United States.

But Chinese President Hu Jintao, ahead of a scheduled meeting with Mr. Obama on Thursday, called on other countries to “face their own problems” rather than cast blame for their giant trade imbalances on China. Mr. Hu also defended China’s currency controls as a boon to the world economy.

Mr. Obama is scheduled to meet with another vocal U.S. critic Thursday — German Chancellor Angela Merkel.

While China, Germany and Brazil appeared united in their resistance to U.S. demands, the U.S. garnered support for its agenda from an array of other countries, including India, Singapore, Australia and Britain.

A meeting of deputy finance ministers in Seoul to thrash out the communique to be issued by national leaders at the end of the summit came to no conclusion after 14 hours of tense negotiations.

“Each country was sticking to its original position,” Kim Yoon-Kyung, spokesman for South Korea’s G-20 presidential committee, told reporters in Seoul. “Voices were raised. They wouldn’t compromise. They actually had to keep the door open because the debate was so heated and we were lacking oxygen.”