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The Fed's move to buy up US Treasury bonds sets China and US up for a duel at G20

China and other leading nations say they view the Fed’s move to buy up $600 billion in US Treasury bonds, on top of earlier purchases, as timed to put them on the defensive at the G20 summit in Seoul.

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The G20 held its first summit in Washington in 2008 at the outset of the global financial crisis and since then has eclipsed in importance the G7, which includes the US, Canada, Britain, France, Germany, Italy, and France. Russia was added to the G7, turning it into the G8 in deference to its role at the heartland of the former Soviet Union, but is also widely viewed as an emerging market.

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More than just China upset?

A wide range of countries, not just emerging markets, appear upset by the Fed’s attempt to shore up the US economy by printing more bank notes. Germany’s finance minister, Wolfgang Schauble, called the move “clueless,” and South Africa’s finance minister, Pravin Gordhan, said it would “undermine the spirit of multilateral cooperation that G20 leaders have fought so hard to maintain during the current crisis."

In the wake of this response, the “sherpas,” or senior finance officials representing each country, reportedly were frantically attempting to reach a consensus on wording of a final "actions statement" in time for the arrival of the chiefs of state on Wednesday on the eve of the G20 summit.

South Korean officials feared, however, that that goal would be considerably more difficult to achieve than the vaguely worded consensus arrived at by finance ministers and central bank governors last month. Ministers at that conference rejected a plea by US Treasury Secretary Timothy Geithner to agree to hold surpluses and deficits within a band of 4 percent of current accounts surpluses.

Mr. Geithner, in the furor over the Fed’s move, backed down on the idea of a specific goal. After last weekend's meeting of finance ministers of the Asia-Pacific Economic Cooperation group in Kyoto, Japan, he remarked that targets were “not something you can reduce easily to a single number.”

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