The stage has been set for a surge in the price of oil to more than $100 a barrel. The culprit is not the Organization of Petroleum Exporting Countries, nor China and the developing world’s growing demand for energy–though they will surely be blamed.

Get full story here.

Oil prices have hovered around $78 a barrel most of the year, providing little excitement as other commodities, including copper, gold, and cotton, have enjoyed record runups. Global economic growth has not been brisk enough to drive up oil demand substantially, U.S. inventories have been ample, and the Saudis have been pumping enough to guarantee a plentiful supply.

Get full story here.

The former Alaskan Governor showed sound political and economic instincts by inveighing forcefully against the Federal Reserve’s latest round of quantitative easing. According to the prepared text of remarks that she released to National Review online, Mrs. Palin also exhibited a more sophisticated knowledge of monetary policy than any major Republican this side of Wisconsin Representative Paul Ryan.

Stressing the risks of Fed “pump priming,” Mrs. Palin zeroed in on the connection between a “weak dollar—a direct result of the Fed’s decision to dump more dollars onto the market”—and rising oil and food prices. She also noted the rising world alarm about the Fed’s actions, which by now includes blunt comments by Germany, Brazil, China and most of Asia, among many others.

“We don’t want temporary, artificial economic growth brought at the expense of permanently higher inflation which will erode the value of our incomes and our savings,” the former GOP Vice Presidential nominee said. “We want a stable dollar combined with real economic reform. It’s the only way we can get our economy back on the right track.”

Get full story here.

That contradiction wasn’t lost on German Economy Minister Rainer Bruederle, who got to the heart of the matter by questioning the U.S. Federal Reserve policy of further monetary easing. “It’s the wrong way to prevent or solve problems by adding more liquidity,” Mr. Bruederle said, coming the closest of all the assembled worthies to mentioning the dollar devaluation that is at the heart of the world’s currency turmoil. But the German was singing solo.

Get full story here.

In the 24 hours following the Fed announcement, gold rocketed up toward $1,300, a new record high. And the dollar plunged. It’s a big vote against the central bank and its constant tinkering and fine-tuning.

The Fed actually has opened the door even wider for more money-creating, balance-sheet expanding, Treasury-bond-buying actions at its next scheduled meeting, which will come the day after the midterm elections on November 3. That’s when QE2 may sail. “Quantitative easing” is what they call it. I call it dollar whack-a-mole.

Here’s a currency-trader quote from the Wall Street Journal: “Quantitative easing is broadly viewed to be corrosive to a currency’s value.” Right on, brother. Even though Bernanke doesn’t get it, the weaker dollar will rev up inflation mighty fast.

Get full story here.

Hu defended China’s policy of pegging the yuan to the dollar at a Monday meeting with Obama in Washington and said changes to the exchange rate would not come from U.S. pressure.

“Detailed measures for reform should be considered in the context of the world’s economic situation, its development and changes as well as China’s economic conditions. It won’t be advanced by any foreign pressure,” Hu said in remarks released by China’s Foreign Ministry on Tuesday. He said reform would come based on China’s “own economic and social development needs.”

Get full story here.

“The risk of a collision course on China’s currency peg and a wider trade rift between the world’s largest debtor and creditor nations has risen significantly in recent months,” Roubini, a professor at New York University, wrote in a note to clients. “Markets do not seem to be pricing in the potential consequences of the U.S. labeling China a currency manipulator, which could be significant even if both sides avoid taking immediate bilateral actions.”

There is a 50 percent chance that the U.S. government will label China a currency manipulator, said Roubini, who issued his comments after attending a private meeting for Western delegates with Premier Wen Jiabao at the annual China Development Forum.

Labeling China a currency manipulator would make it easier for companies to seek import duties, U.S. Senator Charles Schumer said this week. China will balk at allowing the yuan to appreciate if that happens, Donald Straszheim, director of China research at International Strategy & Investment Group, said yesterday.

Get full story here.

WASHINGTON — Despite mounting pressure in Congress for the Obama administration to declare China a currency manipulator, the Chinese government is giving no indication that it will change its exchange rate policy.

After meeting with officials at the Treasury and Commerce Departments on Wednesday, China’s deputy commerce minister, Zhong Shan, told reporters, “The Chinese government will not succumb to foreign pressures to adjust our exchange rate.”

Mr. Zhong reiterated a statement this month by the Chinese premier, Wen Jiabao, who said he did not believe the currency, the renminbi, was undervalued.

“It is wrong for the United States to jump to the conclusion that China is manipulating currency from the sheer fact that China is enjoying a trade surplus,” Mr. Zhong told reporters in a meeting at the Chinese Embassy. “Besides, it’s wrong for the United States to press for the appreciation of the renminbi and threaten to impose punitive tariffs on Chinese experts. This is unacceptable to China.”

Get full story here.

(Remarks as Prepared)

In the 1970s, China injected itself with economic reform.  Now, in 2010, China appears afflicted by a menacing strain of that reform that is either constraining a global economic recovery or, worse, capable of creating a new economic pandemic.  While China’s emergence as an economic powerhouse has rightly grabbed our attention, however, the trends are not new, and there are some predictable similarities between China’s economy now and Japan’s in the 1980s.  It is critical that China address the serious flaws in its economic structure, but we should remember we’ve seen this before, although perhaps not on this scale.

This hearing is about China’s currency policy and global imbalances.  Like the IMF has, I can stipulate that China’s currency is undervalued, plain and simple.  I can also agree with G20 leaders that the world has steep imbalances that must be corrected.  But let’s not lose sight of the fact that there are fundamental problems with China’s economy, and let’s not pretend that China’s intervention in the currency markets, by itself, is the root cause of our ten percent unemployment or of China’s ten percent annual GDP growth.

We’ll hear today from some pretty bright economists on the problems with China’s economy.  I’m looking forward to hearing what they have to say.  My going-in view is that China’s deliberate and dangerous wealth transfer from everyday households to inefficient export-platform factories is standing in the way of the domestic consumption that the Chinese (and the rest of the world) believe the Chinese (and the rest of the world) so desperately need.  China must introduce global best practices into its banking sector, mature its financial markets, better protect intellectual property rights, and open more comprehensively to foreign direct investment.  China also should open its markets much more fully to all goods and services, particularly those coming from the United States. 

An increase in the value of the RMB will facilitate some of these measures.  For others, the much-sought currency appreciation will be a happy—though perhaps unintended—offshoot of the broader reform.  All of these measures will help China move toward liberalizing its capital account, which should be the ultimate goal for all of us, because none of us can know the true extent of RMB undervaluation until the currency floats.

In my view, however, when it comes to China, focusing on the currency valuation issue to the exclusion of the others is more likely to lead to collective frustration than to any improvement in the health of the critical U.S.-Chinese economic relationship.  But, that said, while we shouldn’t obsess over the value of the RMB, it would be an enormous mistake to give up on addressing it.

To that end, I believe the Obama Administration should continue to address China’s currency policy in high-level bilateral summits, like the Strategic and Economic Dialogue.  I think the Administration should restart languishing Bilateral Investment Treaty negotiations with China and prompt it to make progress on the currency and broader issues as part of the BIT process.  I also believe the Administration should devote time and resources toward attempting to establish a robust, multilateral process—either in the G20, IMF, or elsewhere—so that other countries, particularly some of China’s neighbors in Asia, can bring new points of pressure to bear.  I would hope that China would commit to this multilateral process and participate in good faith.  If China wants to be treated as a major international player, it has to own up to the responsibilities of that status.

By a similar token, if the United States wants to maintain its status as the international leader, then we better make sure that whatever we do to address China’s currency regime, we do it without losing sight of our international commitments and the overarching value of the multilateral trading system.  I am wary of panicked approaches whose supporters concede are inconsistent with our obligations, but then try to justify those inconsistencies by casually asserting that the normally applicable rules just shouldn’t apply.

So far, I’ve focused on China.  Let me close by saying I fully admit the United States needs to get its fiscal house in order.  China wouldn’t be accumulating hordes of currency reserves and U.S. Treasuries if the United States stopped racking up debt at the current unsustainable pace.

Thank you, Mr. Chairman, I yield back.

###