Currency deal could be near between China and United States

Word comes from New York that negotiators for China and the United States are closing in on an agreement to raise the value of China's currency, a point of contention between the two world economic giants. China's president, Hu Jintao, is scheduled to visit Washington this week, days after a surprise visit to China by U.S. Treasury Secretary Timothy Geithner, according to the Cable News Network (CNN). The United States has been pressing China to allow its currency to float against other world currencies, at least temporarily, to help rebalance the value of trade between the two countries. Analysts say an increase in the value of China's currency, the yuan, will help cut a huge surplus in its balance of trade. "It basically seems like it's a done deal," Ashraf Laidi, chief market strategist for CMC Markets, told CNN. In addition to diplomatic friction, the undervalued yuan is hampering economic recovery in the United States, said Peter Morici, a professor at the University of Maryland. "Unemployment would be falling rapidly and the U.S. economy recovering more rapidly but for the trade deficit with China and Beijing's currency policies." China has been keeping its currency undervalued by buying billions of dollars in U.S. currency and notes, CNN said. Most economists now think the yuan is undervalued by up to 40 percent, but raising its value precipitously could cause more problems than it would solve by overheating China's economy. In that scenario, a gradual increase would be more desirable, CNN said. "The movement from managed currency to freely floating currency is not easy to pull off," Mark Vitner, a senior economy with Wells Fargo Securities, told CNN. "If we have a boom and then a bust in China, that could lead to another global recession." In the short run, raising the value of China's currency will raise the price of Chinese goods sold in the United States while cutting the price of China's imports of natural resources like oil. Hu is expected in Washington next week for U.S. President Barack Obama's worldwide nuclear security summit.

World's richest nations plan economic recovery

Maybe the worldwide recession actually is over. The world's eight richest nations ended two days of talks Saturday in Italy to plan for the expected worldwide economic recovery, according to the Reuters international news service. Or maybe the recession is about to be over for them. Meeting in Lecce, finance ministers of the world's eight richest nations began getting ready for the end of stimulus programs propping up their economies. "The force of the economic storm is receding," U.S. Treasury Secretary Timothy Geithner said as the Group of Eight meeting concluded. "There are encouraging signs of stabilization across many economies." Ministers agreed that the stimulus programs would not be ending anytime soon, however, and also agreed to ask the International Monetary Fund to help them figure out the best way to bring the programs to a conclusion. But there appeared to be sharp disagreement on how to roll back stimulus spending plans and how to stress-test each country's banks, Reuters said. In fact, Russian finance minister Alexei Kudrin called the meeting "stormy" since there were major arguments about what stage the crisis had reached. Conservative nations like Germany and Canada are pressuring other G8 nations to end stimulus programs to keep interest rates from rising too rapidly once the recovery takes hold. But Geithner said the United States would probably not be tightening monetary policy anytime soon. "It is too early to shift toward policy restraint," he told the ministers. Reuters said a G8 source who did not want to be named said the IMF report would likely be presented in October at the fund's annual meeting in Istanbul. Private sector economists do not expect tightening of fiscal and monetary policy before next year, Reuters said. The other G8 nations are Japan, Britain, France and Italy.

AIG bonuses demonstrate what's wrong with Wall Street

Even with Saturday's agreement to rework its system for paying bonuses to employees, American International Group still stands as a trillion-dollar example of corporate greed gone wrong. The giant insurer caused widespread outrage this week when its plans were revealed to pay hundreds of millions of dollars in bonuses despite getting $180 billion in bailouts from taxpayers. Since appointing a new chairman late last year, when news of its faltering financial situation was revealed, AIG has cut executive salaries and plans more cuts in its AIG Financial Products divisions, where the massive investments in default swaps and below-prime mortgages that nearly sank the company originated, according to the Cable News Network (CNN). But AIG still committed to pay hundreds of millions of dollars in bonuses to its executives, including $165 million due Sunday. The new company chairman, Edward Liddy, told Treasury Secretary Timothy Geithner in a letter that 2008 bonuses would be recalculated and that 2009 bonuses would be reduced by 30 percent. The Obama administration as sharply criticized AIG for agreeing to pay bonuses after taking bailout funds from the federal government. But imagine how much the executives would have gotten had their company actually been making a profit!