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Brian Jacobsen

G-20 communication: Staying the course

AdvantageVoice® Blog—2-18-13
Brian Jacobsen, Ph.D., CFA, CFP®, Chief Portfolio Strategist

At a meeting in Moscow over the weekend, the G-20—a group of finance ministers from 20 developed and developing countries—released a statement affirming that it will refrain from targeting foreign exchange rates as a matter of monetary policy. This does not mean that exchange rates won’t fluctuate, or that monetary policy won’t have an effect on exchange rates. Instead, it’s a pledge not to devalue a currency as a deliberate goal of monetary policy.

A pledge not to repeat past mistakes
The Depression of the 1930s was exacerbated by the combination of bad monetary policy and bad trade policy. Countries not only abruptly changed monetary policy but also imposed trade barriers to protect domestic producers, despite the hurt it caused consumers and the overall economies. The G-20’s statement affirming that the member countries “will resist all forms of protectionism” signals that these policymakers apparently learned from history and pledge not to repeat the mistakes of the past.

Agreement about what’s wrong, but no clear remedies
The G-20’s statement also highlighted that policymakers are not ignorant of what’s likely causing slow growth and a weak recovery: policy uncertainty, private sector deleveraging, fiscal drag from public sector finances, poorly functioning credit markets and institutions, and less than optimal trade policy. So they have the diagnosis, but it’s not clear that there’s agreement on the cure.

Progress toward accelerating economic growth
Policymakers will likely stay the course, which means more meetings and more talks. That doesn’t mean the G-20’s statement is merely a bunch of words on paper (or on the web). The pledge to stay the course was an active decision not to turn to isolationism or antagonism. I think that as long as trade barriers aren’t erected and more capital controls aren’t imposed, we can expect to see continued progress toward accelerating economic growth. The imposition of trade barriers and capital controls will likely be leading indicators of a reversal of progress.

The views expressed are as of 2-18-13 and are those of Chief Portfolio Strategist Brian Jacobsen, Ph.D., CFA, CFP®, and Wells Fargo Funds Management, LLC. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.

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