Over the Weekend: Treasury Secretary Lew's Beijing Visit and Finns Reject Austerity

Two items reported over the weekend worth noting:

U.S. Treasure Secretary to Visit Beijing

Over the weekend, we learned that Jacob Lew, U.S. Treasury Secretary, will visit Beijing. One topic of his planned discussions will be the Chinese recent devaluation of the Yuan.

"Obviously, China's exchange-rate policy is important to us," one of the officials said in a conference call with reporters ahead of the trip.

The Yuan appreciated for over a decade. Even as their currency strengthened, China was able to export goods to the U.S. and the rest of the world. But recently the Chinese economy has slowed down. A strong Chinese currency makes their goods expensive; a weaker currency makes them cheaper for the rest of the world. If you were in charge in China, and your economy was weak, and you wanted to boost exports to goose the economy, what would you do - strengthen or weaken your currency?

Some economists say the recent depreciation is only a short-term ploy to ward off traders putting too much pressure on the exchange rate. Others say Beijing's steady, near decadelong appreciation of the yuan may be near its end, especially with a slowdown threatening the country's economy. Keeping a lid on the value of the exchange rate can ensure exports remain attractively priced for consumers around the world.

I'd say ensuring "exports remain attractively priced" means that China will continue to weaken the Yuan. Lew will tell them the U.S. prefers things otherwise. Ah, to be a fly on the wall when he tells them that. Then again, the Chinese, from what I read, typically won't react too strongly or vocally - unless Lew goes public and forces them to "save face."

Saving face is important in Chinese and other Asian societies. It means you want to avoid being humiliated or disgraced. One hopes the U.S. government officials are well-schooled in this and won't do anything that puts their Chinese counterparts in the position of having to "save face." I've been professionally involved in a family dispute where part of the family was from China and felt they needed to save face. Things got ugly quickly. And it was a small family (in the greater scheme of things) no one ever heard of, nor will anyone likely ever hear of them. I can just imagine what might happen when governments need to save face.

So, really, we'll probably hear little of substance when all is said and done. The Chinese will continue to do what the Chinese want to do, most likely with little fanfare.

The days of the U.S. government calling the shots in this world of ours appear long gone. Having built up massive debts, much of which the Chinese government holds, most likely the government will put on a show, come back home, and make up some story about how productive the meetings were.

Finnish Finance Minister Ousted

This item deserves some attention, since it may be part of a populist trend. People are fed up with government mismanagement of economic and political affairs, and demanding more say in what goes on.

Finnish Finance Minister Jutta Urpilainen was ousted as Social Democratic leader yesterday as her party turned to a trade union leader advocating more stimulus to promote growth in the northernmost euro member.

For years, governments promoted all sorts of welfare and entitlement schemes. They built up national debt by borrowing money from their own people and in international markets to finance these schemes since they really couldn't afford them. People enjoyed the perkes and voted for the politicians promoting them. When the economic and financial crisis hit in 2007-2008, a lot of these schemes were laid bare as governments' ability to borrow any more money ended. So governments were forced to impose austerity measures on their people after getting them used to free stuff for so long. You can fault people for thinking there's a free lunch, but you can more so blame governments for selling such snake oil to their people just so politicians can stay in office and enjoy the good life - and what government officials that you know don't enjoy a lifestyle ranging from good to a lot better than yours? - on the backs of their people.

In any case, it seems this sleeping giant of populism - actually hardly sleeping anymore - has been stirring more in some parts of the world than others. It could be the Finnish trade unions caught the populism bug and duly infected have come out of the closet, so to speak. 

“The trade-union side of the party feels that their voice hasn’t been heard,” Ville Pitkaenen, researcher at the University of Turku, said by phone this week.

Perhaps that's what we're seeing in Finland, not known for its street demonstrations and political instability. (Really, do you ever hear about Finnish protests?)

It look as though the populism that's exploded in some countries while it percolates below the surface in others may be building strength, ready to shake up more than the Finnish government.