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U.S. Leadership in the Midst of Global Economic Turmoil is Essential

Washington, Sep 17 -

The turbulent global economy presents the United States with an opportunity to reorient international economic priorities toward free markets, free trade and fiscal responsibility, members of the Financial Services Monetary Policy and Trade Subcommittee said today at a hearing.

“The combination of debt and misguided policy decisions being implemented by countries across the globe provides the U.S. with an opportunity to reorient international priorities,” said Monetary Policy and Trade Subcommittee Chairman Bill Huizenga (R-MI). “Today’s hearing urged the Obama Administration to advance a ‘back to basics’ approach to economic policy that prioritizes fiscal responsibility and free markets.”

Key Takeaways:

• China’s economic turmoil underlines the dangers of heavy-handed government. The Administration should not endorse the renminbi as an International Monetary Fund (IMF) currency until the Chinese demonstrate greater commitment to reforms, including a market-driven exchange rate, reduced capital controls and greater transparency by its central bank.

• Based on the economic model of free trade and the rule of law, the Transpacific Partnership (TPP) is a step toward making Asia’s economy more open, accountable and stable.  Since China could join TPP at a later date, this free trade agreement provides the Chinese an incentive to continue pursuing reforms.

• Treasury and the IMF must recognize the consequences of “moral hazard”—that is, the risks to the stability of the financial system that may result from underwriting imprudent bank lending practices and irresponsible fiscal policies by European governments.

• Europe’s rescue of Greece has been a disaster.  The IMF has concluded that its participation in EU bailout efforts was misguided.  The U.S. must learn from these mistakes and keep the IMF, including U.S. resources, away from Greece.